With 2020 behind us, it’s time to start thinking about taxes. While gathering documents and preparing to file, make sure you don’t overlook additional sources of income. If you are one of the many Americans who worked a side job last year, you may be part of the quickly growing category that the Internal Revenue Service (IRS) refers to as the gig economy or sharing economy.
According to the IRS, gig work consists of various types of jobs that are often booked through a digital platform. These jobs include driving a car for rides or deliveries, such as Uber or Lyft, renting out property, such as Airbnb or VRBO, renting equipment, selling goods online, running errands or tasks, creative or professional services, or other temporary, freelance, or on-demand services.
The gig economy has recently exploded in popularity, bringing with it many questions about tax implications for workers in this industry. To address these questions, the IRS created the Gig Economy Tax Center. The center explains tax implications and provides more information and instructions for taxpayers.
If you fall into this category, you probably know you will owe some taxes. However, how you pay the taxes will depend on your employment classification.
If you drive for Uber or Lyft, own an Airbnb or VRBO rental property, sell any goods online or provide freelance services, you may be self-employed and subject to additional taxes. Make sure you are taking the right action to remain compliant with tax laws.
Employees in gig economy jobs should receive a W2 and have taxes deducted from paychecks. Taxpayers who are self-employed or independent contractors will need to take a few steps to make sure they pay the appropriate amount of taxes.
According to the IRS, you will need to complete these steps:
- Keep records of income and expenses by keeping track of receipts throughout the year. Make sure to include all income even if you don’t receive Forms 1099.
- Pay estimated taxes or adjust withholding at your full-time job (if you do gig work as a part-time job in addition to another full-time position).
- Get ready to file by collecting all income forms and deducting expenses.
- File as an independent contractor (self-employed).
With so many factors to consider, you may want to seek the advice of a tax professional who can walk you through the steps needed to make the most of your unique tax situation. The tax team at Rodefer Moss is well-versed in gig economy tax requirements and can help you maximize your tax benefits while remaining compliant with current law. Contact us today to speak with a tax advisor.