There's no doubt the COVID-19 pandemic has ushered a time of rapid change.
More than 35 percent of the eligible workforce in the U.S. is now part of the “gig economy,” and that number itself has grown 33 percent since the start of the pandemic. If you're part of this group who's eschewed permanent, full-time employment in lieu of short-term contract work, congratulations -- you’re officially part of the gig economy! This diverse and ever-evolving collection of workers provides a host of services, including:
Working in the gig economy can offer some added flexibility that can provide some balance between your personal and professional life. However, if you do take the leap to join the gig economy, it’s important to not overlook your tax responsibilities. Here are a few things to keep in mind:
Everyone's got to pay: Since you won’t have an employer withholding taxes from your paycheck, it’ll be important to work with a tax professional to map out a plan that suits you. If you earn more than $400 this year as a gig worker, you’re required to report that income, generally on Schedule C of your personal income tax return. Don’t forget that this income is subject to self-employment tax too.
Be careful with write-offs: It’s tempting to want to write off various expenses, such as cell phone bills and in-home office costs. However, the IRS often considers many of these expenditures as personal expenses, meaning they’re not deductible. Working with your tax partner can help give you clarity on what is and isn’t a business expense. Be sure to keep detailed records that document these expenses.
Pay your taxes on time: Some small businesses may opt to delay paying their taxes because they feel they can’t afford to pay when they’re due. However, missing deadlines just leads to larger tax bills through late penalties and interest. It’s better business to work with your tax professional to map out a plan that ensures you’re not missing a crucial deadline.
Take advantage of existing tools and resources: Fortunately, the IRS launched the Gig Economy Tax Center to provide resources and context to help with any concerns you’ve got around compliance. There’s also a website that gives guidance on record keeping, paying estimated taxes and how to prepare and file a tax return.
No matter what your gig is, we at Padgett are here to help guide you through the obstacles and hurdles of compliance, so you’re able to focus on your work. Our network of CPAs, enrolled agents and tax professionals will work closely with you, ensuring you don’t miss any deadlines.
Find an office today!