The gig economy personnel experience definite perks of employment, such as liberty and adaptability. However, while there are advantages in this field, some of them give rise to limitations: the trouble entailing Internal Revenue Service income reporting responsibilities.
Though gig employees may be considered freelancers, there is a dissimilarity that sets them apart; conventional freelancers may operate their firms, whereas gig employees work on other businesses’ customized applications or portals. Moreover, a freelancer reserves the right to set their own charge. But gig workers cannot do so. A popular example to illustrate this would be that of an Uber driver, who does not get to quote customers their own fares.
Another distinction between freelancers and gig workers is that the latter is more likely to be the recipient of income without requiring relevant W2s or 1099s. However, the Internal Revenue Service announced through the ‘Gig Economic Tax Center’ in January 2020 that they ought to disclose any earnings, including property and virtual currency.
The IRS and contractors allow all independent employees to file a report known as 1099-MISC. This is when the amount remitted yearly is greater than or equal to $600. The 1099-K is another preferable form, as it also includes remittance cards and third-party transaction portals such as PayPal.
To rephrase, it is vital for gig employees to report their income throughout the year, no matter how unusual or insignificant.
Steps to minimizing your tax bill:
Here are some steps that gig employees can undertake to reduce their expenses:
- When using your vehicle for work over half of the time, it could be worthwhile to assert a business equipment tax exemption of up to $25,000.
- You could be eligible to receive a 20% deduction for qualified business income (QBI) alongside general other company expenditure that reduces tax, for instance, flight fares.
- If you operate a home-based company, you could subtract property costs on your business. It is crucial to be aware of the IRS criteria on square footage when making calculations.
- You could add to your retirement fund by safeguarding a portion of your earnings in an eligible retirement plan or IRA. This will be a very successful way to earn a tax benefit.
It is pivotal to be mindful of the regulations that apply when filing taxes. This is desirable if you are to stay ahead and incur fewer expenses over taxes.