Here is an interesting statistic that I came across recently. According to recent data from the Federal Reserve, nearly on out of every three Americans is involved in the gig economy. Wow! 1/3 of Americans. That’s a LOT!
Gig workers are independent contractors, online platform workers, contract firm workers, on-call workers and temporary workers. They usually enter into an agreement with on-demand companies to provide services to that company’s clients.
So here are some thoughts for you “gig workers” to consider when it comes to tax matters.
1-Do NOT hide any income. The IRS has quite a few tattle-tale processes in place that you will most likely pop up on their radar sooner or later. Trying to play the “I’m sorry I won’t do it again” game with the IRS is not a good idea. So keep track of all income and report it.
2-Take all possible business deductions you are entitled to. That means you need to have a bookkeeping system to track them all. If you wait until the end of the year and try to find/remember everything, I guarantee, you will short yourself. Keep actual mileage logs, details of meals, supplies, repairs, etc. Try to use a business bank account and a business credit card and stick to only using those. It will make it easier for you to come up with all related business costs.
3-Make Estimated Tax Payments. Probably the biggest heart breaker is when a new “gig worker” files their first tax return and owes A LOT of tax because they didn’t know about the second tax called “Self-Employment Tax” at a flat rate of 15.2%. My general rule is to start a “tax savings account” and set aside at least 35% or all gross income into this account. Then when you have to file your tax return, you should have approximately what you will owe set aside and can pay it. After the first year of operation, the IRS will expect you to make quarterly estimated tax payments. Just pull the money out of that “tax savings account” on a quarterly basis instead of waiting till the end of the year.
4-Report all large cash transactions. If you get paid more than $10,000 for a job in cash (all at once), you are required to file form 8300 within 15 days of receipt of that cash payment. Folks who live in the “underground” economy, need to dump large ill-gotten cash. One way is to use the “gig economy.” You do NOT want the IRS to catch them and trace some of their cash to you and find out you didn’t report it on form 8300, even if you did report the income on your tax return. If they catch you and on top of not reporting the large cash transaction on form 8300, if you also didn’t report it as taxable income, heaven help you. The IRS get’s nasty with that kind of person.
Did you hear? Prov 16:26 says, A worker’s appetite works for him; his mouth urges him on.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.