If your net earnings were more than $400 as a gig worker in 2018, you will need to file a tax return that reports this income. As a gig worker, you will pay your taxes a little differently than employees do. GoShare has pulled together the latest research and tax tips to help our Delivery Pros and other gig economy participants understand what an independent contractor is, the importance of business expenses, and ways to maximize tax benefits.
GoShare recommends that you consult an income tax professional or certified public accountant before filing your taxes.
Independent Contractors vs. Employees
As a gig economy worker, you are most likely an independent contractor. Independent contractors are considered self-employed. Self-employed individuals need to file differently than workers classified as employees.
For an employee, an employer will withhold federal income, Medicare and Social Security taxes from your paycheck. As a self-employed individual, these taxes are not withheld from your paycheck. You must pay taxes on the income as you earn it, or risk paying costly interest penalties.
If you expect to have a tax liability greater than $1,000 (which is a fancy way of saying, you’ll pay more than $1,000 in taxes this year), self-employment taxes should be paid quarterly. Due dates for estimated tax payments are April 18, June 15, September 15, and January 16. The IRS will impose heavy interest penalties if proper estimated tax payments are not made. Any tax penalties would be calculated on your tax return and added to the amount you owe, or subtracted from your refund.
Business Expense Deductions
As an independent contractor or self-employed individual, you may be able to deduct expenses related to operating your business on your taxes. A deductible expense is generally defined as something “ordinary and necessary” to completing your job.
Why are deductions important? They reduce your amount of taxable income. For example, let’s say Mark made $50,000. But, he had $10,000 in expenses deducted on his return. Instead of paying taxes for $50,000, he’d pay taxes on $50,000 minus his $10,000 in expenses. So, he is only paying income taxes on $40,000 worth of income. In a 22% tax bracket, this means Mark pays $8,800 (22% of $40k) instead of the higher $11,100 (22% of $50k). So, in this basic scenario, he saved $2,300 by remembering to deduct his business expenses.
Deductible business expenses can include advertising, insurance, vehicle expenses, office expenses, supplies, phones, travel and more. GoShare delivery pros may be eligible to deduct the expenses of operating their vehicles for business use. Most accountants recommend one of two ways to calculate this deduction. For either method, it’s critical you keep records of your receipts or mileage.
- Deduct actual operating expenses including gas, maintenance, insurance, and depreciation.
- Deduct a standard rate on each “business” mile you drove in the past year. For miles driven in 2018, the standard mileage deduction is 54.5 cents per mile. For miles driven in 2019 this rate will go up to 58 cents per mile (See our mileage tracking app recommendations).
Additional business expenses may be deductible, including delivery equipment. However, if these items remain useful beyond the tax year, you need to report them under the Depreciation Section 179.
For large businesses, the tax deduction for an equipment purchase generally has to be spread over the useful life of the item. But, independent contractors and small business owners with expenses less than a million dollars can take advantage of Section 179 to report the entire amount of the business expense in one year.
If this section gave you a headache, you aren’t alone. Taxes are complicated business, so reach out to a local tax professional for help to ensure you are properly accounting for all your business expenses. They’ll be able to help you catch any missing deductions, or let you know if any you wish to claim doesn’t apply.
Instead of receiving a W-2 in January, which is what a worker designated as an employee will receive, independent contractors will receive a 1099-MISC. You should receive this form from every client that paid you $600 or more over the course of the year. The 1099-MISC will show your total earnings from that client. If you earned less than $600, you won’t receive the 1099-MISC, but you must still report those earnings as taxable income.
To file your annual return, you will use Schedule C to report income or loss. If your expenses were less than $5,000, you may be able to use Schedule C-EZ instead.
You will need to use the Schedule SE and Tax Form 1040ES to calculate and remit your income, Social Security, and Medicare taxes.
Do Your Research
These were just a few quick tips for independent contractors and gig worker taxes. But, every individual is unique. You may have personal, medical, and family deductibles that further affect your tax filings. Do your own individual research and consult an income tax professional or certified public accountant before filing your taxes to ensure everything is properly reported. To get you started, here are a few websites with helpful information fro independent contractors and gig workers:
GoShare Inc. and our affiliates do not provide tax, accounting or legal advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.