NEW YORK--(BUSINESS WIRE)--Technology has increasingly facilitated individuals being able to offer services to the public through online intermediaries or via the “gig economy”. Individuals have found ways to become freelancers to supplement their incomes by using their cars, homes, or other individual services, such as household chores, delivery or technology services. The gig economy has emerged and is growing at a breakneck pace. The result is a rise of taxpayers who must now face the tax realities of operating their own entrepreneurial businesses.
Wolters Kluwer Tax & Accounting examines key tax considerations individuals participating in the gig economy should keep in mind to prepare for tax season and be compliant with IRS requirements:
- Keep close tabs on your business income. All income is generally taxable, but the use of online intermediaries to connect gig-entrepreneurs with customers means these activities will be reported by the online intermediary to the IRS. As a result, the IRS will expect gig-entrepreneurs to have corresponding reporting on their tax returns. If the amounts reported on a tax return are less than what has been reported to the IRS by the online intermediary, the IRS is likely to come asking questions.
- Track your expenses. Work-related expenses are deductible as business expenses. A gig economy entrepreneur, such as an Uber or Lyft driver, will be able to deduct related car expenses, using either actual expenses or a standard business mileage rate. A home-sharing entrepreneur, like an Airbnb operator, may be able to deduct a portion of their home expenses related to the rental activity such as depreciation, utilities and taxes.
- Know your deductions. Deductions can make a significant impact in reducing or offsetting taxes owed. For example, various entrepreneurs could file deductions for the use of their home as a home office. The deduction of property taxes as a business expense could be especially helpful given the new limits on individual taxpayers deducting property taxes. The new 20-percent deduction on qualified business income of pass-through entities under the new tax reform law may also be available in whole or in part to these new entrepreneurs.
- Pay your taxes. The gig-economy entrepreneur may for the first time be faced with having to pay quarterly estimated tax payments on that income and self-employment taxes since that income will not be subject to the traditional withholding made from employee paychecks.
- Consider using a professional tax preparer. Taxes are complicated and running a business adds to tax complexity. A tax professional can become a trusted advisor, helping not only to prepare the tax return accurately but also to help with planning throughout the year to ensure optimal tax savings. In addition, the cost to have a professional prepare a tax return is not cost prohibitive.
“The new entrepreneur, has to develop habits of keeping close tabs on business income and expenses in order to file an accurate tax return,” said Mark Luscombe, JD, LLM, CPA and Principal Federal Tax Analyst for Wolters Kluwer Tax & Accounting. “Many new entrepreneurs of the gig economy may decide for the first time that their taxes are now complicated enough that they need professional assistance to do them correctly and maximize their tax advantage.”
Here are some useful tips individuals should consider when deciding to hire a professional tax preparer:
- Look for a professional credential and determine if they already do work for similarly situated taxpayers
- Ask others in a similar gig-economy business whom they use
- If applicable, ensure that professional has multi-state jurisdictional knowledge
- Ask professionals about their billing practices to understand total cost
About Wolters Kluwer
Wolters Kluwer is a global leader in professional information, software solutions, and services for the health, tax & accounting, finance, risk & compliance, and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services.
Wolters Kluwer reported 2017 annual revenues of €4.4 billion. The group serves customers in over 180 countries, maintains operations in over 40 countries, and employs approximately 19,000 people worldwide. The company is headquartered in Alphen aan den Rijn, the Netherlands.
Wolters Kluwer Tax & Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency.