If you are one of the 57 million U.S. workers who reap the benefits of working in the gig economy, then this article is for you.
“Gig” or sharing economy refers to the growing trend in today’s workforce of people working as freelancers, part-time employees, or independent contractors. Examples can include ridesharing or food delivery drivers, taskers for companies like Fiverr, online tutors, freelance creative professionals and other “on demand” work.
However, gig work comes with tax responsibilities that fall on the worker rather than being handled by an employer. It is essential to understand your tax obligations to ensure you are prepared for the upcoming tax season.
Here are a few tips to keep you from an unwelcome surprise at tax time:
- Understand your classification; are you considered an employee, or an independent contractor?
- Realize that all income earned from gig work must be reported on your tax return, regardless of the form of payment, including earnings from temporary, part-time, or side work.
- Income earned as an independent contractor is considered self-employed income and the net profit is subject to self-employment taxes in addition to ordinary income tax. Net profit from self-employment is the difference between your gross earned income and your business expenses.
- Save all receipts from purchases related to your gig work so that you can deduct them as business expenses on your tax return.
- Calculate your net profit and make quarterly estimated tax payments, as necessary.
- Consider setting aside funds as you are earning your income to cover any necessary estimated payments.
- Consult with your tax professional for guidance regarding your specific situation.
The gig economy is appealing for many reasons but stay informed and take action early to ensure your gig work is fulfilling rather than a burden.