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Tax Record Essentials for Gig Workers

Gig workers have unique responsibilities for organizing their tax records and paying quarterly balances on time.

Life as a gig worker can be pretty good. After all, you’re usually your own boss, and you can set a schedule that fits in with your lifestyle.

However, there are some challenges, including filling out invoices, collecting payments from clients, and making sure you have enough money on hand to pay your estimated taxes. You don’t have an employer to deduct taxes for you either, leaving you on your own to report all income when tax season arrives.

Here’s a look at some tips gig workers should follow throughout the year to streamline tax season.

What is gig work, exactly?

Before all else, it’s a good idea to define gig work. Keep in mind that it’s a broad definition that covers many different jobs, but in short, it generally means you’re paid for your goods or services without being considered a full-time employee. 

Jobs that count as gig work include delivery driver, online salesperson, short-term rental landlord, or any contract or freelance worker. Renting out your car or equipment or providing a service like babysitting could also count as gig work. It’s estimated that over half the U.S. workforce could be involved in the gig economy by 2027.

If you aren’t on the payroll but are receiving financial compensation for your goods or services, it’s gig work that you’ll have to pay taxes on once you make at least $400. You’re also responsible for making all contributions to Medicare and Social Security, which a traditional employer splits with employees.

Records you need to keep

Streamlining the tax process involves keeping adequate records throughout the year. Organizing these documents can save you money come tax season because doing so will also include an accurate summary of expenses.

  • Expenses: You can use your business expenses to reduce the amount owed. Save all receipts so you have proof of these expenses if the government audits you after filing. You might need to fill out Publication 463, Publication 535, Publication 587, or Section 199A, depending on the type of business you’re operating. These expenses reduce taxable income and can make your overall bill far lower.
  • Income: It’s also essential to keep a detailed record of all your income, of course—and the government will eventually find out about it. Even income that doesn’t show up on your Form 1099 or W-2 must be reported because you’ll owe tax on it. It’s a good idea to collect and keep your sales receipts and note all these amounts to the IRS to avoid later complications.

The more detailed information you keep updated, the less time it’ll take you to submit accurate tax records when the time comes.

Paying your taxes

It’s a good idea to pay taxes quarterly rather than waiting until the end of the year, and the IRA requires minimum quarterly payments that are based on income or the prior year’s tax bill. Any gig worker making over $1,000 per year who does not pay quarterly estimated taxes on time is subject to a penalty fee unless they pay 90% of their total taxes within that year or “100% of the tax shown on the return for the prior year, whichever is smaller.”

You can submit these quarterly taxes using Form 1030-ES. This document allows you to estimate how much you owe based on your quarterly income and expenses. It doesn’t have to be exact, but remember you’ll have to pay the difference at the end of the year if you don’t make sufficient quarterly payments. And any total under the IRS minimum is subject to a penalty. 

Filing a return

As a self-employed gig worker, you may have to fill out Form 1040 or Form 1040-SR, depending on your age. 

When filling out your documents, make sure you don’t forget Schedule SE, which is Self-Employment Tax, and Schedule C, Profit or Loss from Business. If you fail to include some self-employment income, Form 1040-X allows you to amend a return.

Start early and engage professional tax planning services if necessary

One of the best things you can do when reducing your tax bill is to begin the planning process immediately. Many gig workers don’t start thinking about taxes until the last minute, which leads to them paying far more than they would have with a good strategy. You’re likely entitled to deductions that you don’t even know about, so seeking professional assistance is often a good idea. 

The team at Provident CPA and Business Advisors helps businesses grow profitably through better business and tax strategies. Contact us to learn more.

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