Your Taxes Just Got Complicated
Contracting, freelancing, working independently -- call it what you’d like. If you are one of the several million people participating in the gig economy, the bottom line is that you are a business owner. And like all other business owners, you must pay taxes on the income you earn.
The gig economy is defined as employment through short-term assignments or transactions vs. a permanent, full-time job. Some of us choose to work this way for more flexibility or to make enough money to take the kids to Disney World. Others don’t have a choice – it’s become a way of life due to unemployment or underemployment. Whatever your reasons, you must shed your employee mindset and consider yourself a business owner, because the IRS does!
As a business owner, tax preparation will be more complicated (and more costly), but if you plan ahead, you will have fewer headaches. Here are two steps you can take to make tax prep easier:
- Keep accurate records throughout the year. Home office, meal, and entertainment expenses often get people in trouble because they don’t have the necessary documentation to prove that these are legitimate deductions.
- Mileage tracking is another detail that people often miss. For some reason, they want to keep gas receipts instead, but gas isn’t the best deduction, and isn’t fully deductible if the same car is used for business and personal transportation.
- Have separate bank accounts – one for business transactions and the other for personal deposits and expenses. This will make record keeping easier.
Here are other facts to keep in mind:
- Again, the money you earn is almost always taxable. Even if 1) you received payment in cash; 2) you never get a 1099; 3) this business is just your side hustle. You must make estimated tax payments.
- Not only will you owe income tax, your earnings are also subject to self-employment taxes – which includes social security and Medicare taxes.
- Financing a home or car might be more difficult as a self-employed person, especially if you are not bringing in a consistent amount of money each month, as a typical W-2 employee does.
So, if you are driving for Lyft/Uber, renting a room on Airbnb, or selling sneakers on Poshmark, your tax situation should be handled with care, but you aren’t alone in this! Call or text me today (678) 608-2775 to schedule a consultation, and get a copy of my book, Business Blueprint 2.0: A Guide to Starting & Running Your Business The Right Way.