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Tax season has a lot of mixed feelings behind it for gig workers. Some people prefer to worry about it later, some people are so worried about it that they won’t even become a gig worker or self-employed to any extent, and some prefer to leave it to the professionals.
Today we are going over a guide to get to getting you on the right track in terms of getting your taxes right as a Gig Worker.
So in this article, We are going over:
A guide to getting started with tax season as a gig worker
How to properly prepare yourself as a gig worker
Everything in between
Disclaimer: The content of this article does not contain and is never intended to be legal, business, financial, tax, or health advice of any kind, This article is for entertainment purposes only. It is advised that you conduct your own research and consult with qualified professionals before applying anything you find online.
I also want to be clear that everything we are going to go over is not only very market dependent, but also case by case, and what applies to me and my market may not apply to you.
Thank you to GigTax for Verifying this information and making this video possible!
Establishing your Tax Foundation
In my experience, there are a few things that are 100% necessary in order to properly set yourself up for success as a gig worker or really anyone who is self employed in terms of taxes.
Mileage and Expense Tracking App/software
Business Entity
An Understanding on Business Deductions
A Full Evaluation of your position
A Tax Professional
Mileage and Expense Tracking Apps and/or Software
One of the most overlooked things that gig workers should 100% invest into is some kind of Mileage and Expense Tracking app or software. Tracking your miles driven is going to be essential whether you use the standard mileage deduction or the Actual Expense method.
I know there are some people who prefer a more tactile approach with a notebook and keeping track that way. I would think the simplicity would be most effective here, especially since they can keep track of miles driven automatically and can link to your bank account to track what expenses you need to write off.
Also, you might want to make sure that your tracker can take pictures of your receipts. I like Quickbooks for this, but if you only need a mileage tracker and not an expense tracker because you have an accountant handling everything, I would look into MileIQ.
You know, until a better product or software comes out.
Business Entity
Most gig workers are operating as a sole proprietorship, and while this may be fine for those who are only treating the gig economy as a side hustle or a hobby, for those who are doing this full-time or even going to expand into higher paying opportunities, you might want to set up a business entity.
Now whatever business entity you choose should be based on whatever goals you have in mind, for some an LLC is fine because they aren’t reaching super high numbers yet and if they do end up getting to that point, they can elect to file as an S-Corp.
If you are reaching those solid high numbers already, then maybe getting started as an S-Corp is the move. A C-Corp is almost never going to be the move for gig workers, but depending on how you decide to scale and grow, you might have to in the future.
An Understanding on Business Deductions
There are a series of deductions that are not going to be seen immediately from the side of software and receipts and that should be mentioned. As we stated, your mileage is going to be important and every year has a different value.
Home Offices are often overlooked by gig workers, especially for those who are driving a lot for gig work and have no exit strategy in place, but if you establish this correctly, you can take a home office deduction.
During the first year of owning a vehicle in your business, most people will take the Standard Mileage Deduction as opposed to the Actual Expense Method because you can switch between them if need be, but if you start with Actual Expense then you are locked into it.
All of this and so much more is explained in my Financial Fridays playlist by the way, I know I dropped a bunch of terms that you most likely feel a need to google, so feel free to use the playlist as well for your knowledge as it is curated for self employed individuals.
A Full Evaluation of Your Position
Most people just assume they are a gig worker and don’t realize how many opportunities to deduct and to earn are ACTUALLY available to them. We already talked about deductions, but what about Tax Credits? They may not apply to everyone, but they may apply to you.
What about tax exemptions? What do you qualify for?
You would be surprised at how many opportunities you have available to you in terms of being able to reduce your tax liability.
Do you have kids? Are you Married? Does your state provide any exemptions for homeowners? How much equipment did you buy for your business? Do you have a business phone plan or even multiple phones?
All of this matters and can be a method to reduce your tax liability if you apply it correctly.
Consider Partnering with Professionals
Of course you should absolutely consult a qualified tax professional to make sure you are doing all this right. The last thing you want is to pay too much to the IRS or pay too little and risk an audit.
It is vital to make sure you are capitalizing on all of the best opportunities for yourself, and whether that means passing it off to a CPA or working with a Tax Preparation Service or Consultant to make sure you are staying on track.
That said, you don’t want to overspend on tax professionals out there either. What is the point of saving money on your taxes if the money you saved is spent on your CPA? Luckily this is where GigTax is here to help.
As someone who has ventured into self-employment via food delivery apps, the income is promising. That said, you are also faced with challenges in navigating taxes as a self-employed person and transforming your “gig” into a sustainable business.
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Gather Your Documents
As you may have noticed, in the beginning of the year a lot of the platforms you worked on started sending out 1099’s already and some may have already notified you that there may have been a mistake with your 1099 so they edit it and send you a new one.
This goes for gig apps, investment accounts, payment processing companies, all of the places where your money comes from. Keep in mind though, just because you didn’t receive a 1099 from a company doesn’t necessarily mean you don’t pay taxes though, so again consult a professional.
Also make sure to gather your statements, books and other materials needed to either fill out the proper documentation and apply the proper tax deductions and credits and have it ready to be filed by the deadline.
If you do partner with a consultant or account, try to send in as few emails as possible though, this was a complaint that I got from my accountant.
I sent him as many tax documents as I could and I kept sending like 3 at a time. Which is like those friends you have that send you 15 different 1 line texts which could have been just one.
It’s one thing if it is a friend, but your accountant/professional has other clients and can’t risk losing your forms in the mess that is his inbox at the beginning of the year.
Most of this will be second nature after the first couple of seasons but as you partner with the right professionals and operate the proper software, you will not only be making the most money in the least amount of time and in the safest possible way, but also keeping the most you can as well!
If you would like to add some other perspective to Gig Economy Taxes for Gig Workers, feel free to email me: drivenwyld@gmail.com and who knows? Maybe your email or perspective and be featured in a post as well!
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