The gig economy is alive and well with workers enjoying flexibility, good pay, and a variety of opportunities to earn a living on their terms.
If you work hard and stay disciplined, the gig economy can be a fantastic source of income.
But it is income, and in the eyes of the IRS, every dollar earned as a gig worker is subject to taxation. While it’s tempting to spend this income as fast as it comes in, this can lead to dire consequences at tax time.
To help you avoid common pitfalls associated with gig income taxes, here are a few tried-and-true tips that will keep you confident and prepared when the time comes to square up with Uncle Sam.
| Remember: When it comes to staying on top of your taxes, a professional tax services firm like Traxion Tax can be your best ally. If you’re ready to learn how we can help you with a complicated tax issue, call us now at (303) 376-9797. |
Top Tax Tip #1: Understand Your Tax Obligations.
There’s a common saying in the tax industry: “Not all income is created equal”.
When it comes to income earned from gig work, the IRS considers it self-employment income, even though you’re technically working for someone else.
Self-employment income is subject to 100% social security and medicare taxes, which differs from other, more traditional forms of income like salaried W2 wages or investment income.
This also means that if your gig income is high enough that you’d owe at least $1,000 in taxes over the course of a year, you’ll likely need to make estimated quarterly tax payments.
Top Tax Tip #2: Become a Record-Keeping Expert.
It’s common for gig economy workers to have income from multiple sources.
To avoid bookkeeping surprises down the road, it’s crucial to keep tabs on how much money is coming in on each platform, be it Fiverr, Uber, Airbnb, Etsy, or another.
| Don’t forget: Just as you track your income from each payer, also track the corresponding expenses.
This includes mileage, office supplies, advertising costs, and any other expenses directly related to the work you’re doing. |
For some gig economy workers, it can help to keep a spreadsheet with tabs for each income source. Also, consider setting a reminder every week to sit down and make sure your numbers are current.
Top Tax Tip #3: Save for Tax Time in Advance.
When your gig work payments come in, try to build a habit of immediately setting aside 25-30% to cover your taxes when the time comes.
For most situations, this ‘taxes account’ will be more than enough to pay your income taxes so you won’t have to sacrifice other cash or assets you have.
Keep in mind that the money you set aside for taxes can itself earn money for you. Consider putting it in a high-yield savings or money market account; interest rates for these accounts can be between 2.5% and 5.5%, which can really help ease your tax burden!
Top Tax Tip #4: Maximize Your Deductions and Credits.
Gig economy workers enjoy certain deductions and credits that are often not available to others.
For example, the Qualified Business Income Deduction can reduce the amount of taxes you owe by as much as 20%.
If you make health insurance premium payments, you may be able to deduct those pa
yments as well.
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Common tax credits include:
Take advantage of these credits whenever possible, and use them to their fullest advantage. |
Top Tax Tip #5: Monitor Your Tax Profile
In our modern age of digitization, information is power. Gig economy workers can now see for themselves what information the IRS has on them so they can take action to prepare for any outcome.
A tax monitoring service is a smart way to stay one step ahead of the IRS, and it’s accessible by virtually anyone who works in the gig economy.
Traxion Tax provides affordable, ongoing tax monitoring that keeps you informed about potential tax issues before they become tax surprises. Learn more about this valuable service here.
Never Worry or Wonder about Your Taxes Again.
As liberating, enjoyable, and profitable as gig work can be, it comes with the responsibility of keeping up with your taxes.
Thankfully, Traxion Tax is a resource for gig economy workers in more ways than one. We can help with tax debt resolution, monitoring, preparation, education, and more.
Never underestimate the power of a knowledgeable, professional tax partner.
To learn more about how we can help you, call us today at (303) 376-9797.