You, the gig economy, and your taxes

 

Mary loves to drive. She doesn’t want to get a 9-to-5 job as a taxi driver, though. She only wants to drive when she feels like it.

So, she’s signed up with such delivery services as Door Dash and Instacart. She can start as early in the day as she’d like, and gets paid by the service as soon as he finishes a single particular delivery or “gig.” She can then do another delivery, or take the rest of the day off.

Paul, on the other hand, hates to drive, but he can’t get a job in his field so he’s found work as an Uber/Lyft driver. He doesn’t want to go on any long- distance drivers – he only accepts gigs in town.

Pamela is a freelance writer. She has a presence on freelancing platforms like Upwork™ and Fiver. She receives any number of “gigs” a day – a client who hires her to write a report, or a resume, or a website page and pays the agreed upon fee to the platform. Once she finishes the work to the satisfaction of her client, the platform releases her pay to her. She can take the rest of the day off or she can seek out another job.

Carl is a fantastic artist, specializing in caricatures. He draws what he wants to draw and sells his work on Etsy, Fiverr and eBay. He also makes money by being hired as “entertainment” for parties or business functions – clients tell him specifically what to draw and he produces the work to their specifications.

Mary, Paul, Pamela and Carl are part of the burgeoning Gig Economy. They work “on demand,” meaning if they’re offered a job or gig –they’re free to accept it and turn or turn it down.
They are self-employed, and they find work through website platforms that help to ensure they get paid and that their clients get value for money.

Regardless of what they do or how they are paid (via Paypal, direct deposit or cash on the barrel head); whether they do it as a hobby, making just a few thousand a year or as a career making a nice living – they must pay taxes on their income.

Navigating Taxes When You’re Self Employed

The term Gig Economy is the new phrase for being self-employed….and paying taxes when you’re self-employed has always been complicated.

With a full-time, 9-to-5 job, your employer has you will out a W-4 and takes out local, state and federal taxes from your paycheck. If you’re self-employed, that may or may not happen, depending on how you find your work and how you are paid. Freelance platforms like UpWork™ and Fiverr charge a fee for people to use their services, but don’t withhold taxes. If you sell on Etsy or eBay, they withhold sales tax but no other types of taxes.

As a result, self-employed individuals typically have to pay estimated tax. Every four months they have to send in to the government the appropriate local, state and federal taxes for the money they think they’ll be earning during that quarter.

The IRS is Nothing if Not Helpful

To help members of the Gig Economy, the IRS has recently launched a new website which provides all the information and tools they need to properly prepare their taxes.
Here’s the link: https://www.irs.gov/businesses/gig-economy-tax-center

There’s a link there to the 1040-ES form, which is the form Gig Economy members use to figure out what their estimated tax payments should be. And don’t worry, you can revise your estimated tax payments each quarter if you find you’ve under-estimated or over-estimated them.

Record Everything

As with anyone who files taxes, the key to making it easy is to keep receipts for everything and place them in an easy to find location.
If you buy items to make your crafts, that can be tax deductible, as can the cost of gas, or you can be reimbursed by the government for miles driven.
So keep receipts for anything and everything your purchase that goes into any gig you perform, and when tax time comes around, you’ll have all the information you need to prepare your taxes and get the tax refund you deserve.

Resources

https://www.accountingweb.com/tax/irs/irs-offers-help-to-workers-in-gig-economy
https://www.irs.gov/newsroom/gig-economy-workers-know-your-tax-responsibilities
https://www.irs.gov/businesses/small-businesses-self-employed/manage-taxes-for-your-gig-work
https://www.irs.gov/businesses/gig-economy-tax-center