What is the gig economy
The gig economy is the term that is being associated with individuals who participate in sporadic types of work. There are no more 9-5s, working for the “man”, and minimum wages. Instead individuals participate at their own rate, whether it be in setting the number of hours worked or negotiating the pay. This allows people to have the flexibility they want when they need it. The digital age with Airbnb, Uber, Lyft, Fiverr, Upwork, etc has given everyone access to be a part of the gig economy.
Taxes and the gig economy
The following are tax considerations that associated with being a participant of the gig economy:
- Estimated payments for income tax
If more than $1,000 will be owed in taxes, estimated tax payments need to be made every quarter on 4/15, 7/15, 10/15, and 1/15. If these are not filed, there may be underpayment penalties when income taxes are filed on April 15. Make sure to file estimated taxes!
- Self employment taxes for payroll taxes
Not only are there income taxes, there are self employment taxes for social security and medicare. The total rate of social security is 12.4% and medicare is 2.9%, grand spanking total of 15.3% that is taken out of your hard earned dollars! Normally the employer pays half of these costs – 7.65% – but being self employed has a price to pay. Make sure to deduct the self employment taxes on your tax return.
- 1099 reporting differences
1099s may not actually state what you earned! For example, depending on the company and how they issue their 1099s, the amount you receive may be the gross income that could include fees. After fees you payout, will be less. Since there is a difference here and you simply just input this form on the tax software, you will be overpaying on taxes. Solution: reconcile the 1099 and your bank statements to see what you should actually report.
To get the most out of being self employed, make sure you take all deductions possible. Deductions to think about while being a part of the gig economy:
- Vehicle expenses – standard method vs actual method
- Parking fees, tolls, and customer amenities
- 20% pass through deduction for being a self proprietor, LLC, S corp