Ahhh…the “side hustle,” a term popularized in the rise of the “gig economy.” This is where individuals work independently using freelance or short-term contracts. The “side hustle” (or multiple) can be done full-time or by supplementing traditional full-time employment. This phenomenon has grown over the past decade, now reaching 36 percent of all Americans, according to one survey.
Its popularity has surged due to technology that facilitates online/off-site work, the American spirit of innovation and independence, and the Coronavirus pandemic which motivated people to seek new avenues of personal income. The trend isn’t likely to go away post-pandemic. But, workers beware of the gig economy tax requirements.
What is Gig Work?
Gig work might be envisioned as only work done by Uber drivers or DoorDash delivery people. But it is much more than those. It can also apply to highly skilled individuals who are copywriters, computer programmers, data scientists, or cybersecurity specialists. It can apply to people who rent property, sell goods online, rent equipment, provide creative or professional services. But there are gig economy tax requirements that differ from traditional full-time employment.
Gig Economy Tax Requirements
The key is to know that individuals must report gig income on their tax return for all income that is part-time, on the side, or temporary work. That includes all income paid in any form—cash, property, goods, or even virtual currency. The following guidelines will help gig workers stay out of trouble with the IRS.
Keep good records.
Don’t just toss scraps of notes in a shoebox. Record all income received from gig work along with any receipts, even if you don’t receive a Form 1099. Save receipts from all job-related expenses. A separate bank account for gig income and a separate checking account for business expenses can help at tax time. Business expenses can include a deduction for the business portion of your home, business car mileage, dues and subscriptions paid to business organizations, and necessary equipment or tools.
Pay required taxes.
Even if you earned less than $600 during the year from any one of the side jobs, it is essential that the income be reported—even if an individual or company who paid you did not provide a 1099 Form. If the gig income is substantial, or if your gig income is on top of regular full-time employment, you may be required to submit quarterly tax payments. You can get help in figuring estimated tax payments by going to Irs.gov and selecting form 1040-ES, Estimated Taxes for Individuals. Federal taxes can be paid to the IRS online, by mail, or by phone. It may be helpful to set aside a portion of one’s income to anticipate these quarterly tax payments.
File the annual return.
You will also need to file taxes, in most cases, with your state government. To meet the gig economy tax requirements, you can save some stress and avoid penalties by using a CPA.
Federal Stimulus Tax Changes
Inserted in the American Rescue Plan Act, signed into law March 11, 2021, is a provision that will provide many contractors with 1099 forms, beginning in 2022. That will help provide more accurate income reporting and help ease the stress of tax filing.
Get Expert Tax, Accounting, and Financial Assistance
Contact Doerhoff & Associates, CPA, based in Jefferson City, MO for professional accounting, financial assistance, and tax preparation that you can count on. Doerhoff & Associates has one goal in mind, to provide comprehensive business accounting services designed specifically for your success.