Are you involved in the gig economy — or the labor market made up of freelance and other temporary work — that's gaining popularity? This type of sharing economy involves individuals and groups who connect with others through technology to make money using assets they already own (like cars and houses), often doing everyday tasks. Gigs can range anywhere from Airbnb hosting and delivering groceries to ethical hacking or designing blockchain technology for cryptocurrencies.
While participating in the gig economy can put cash in your pocket, it also triggers tax obligations and possible opportunities. Here are some helpful tax tips to keep in mind:
- Pay tax on income. Whether it's your main occupation or a sideline business like driving for Uber or Lyft, any income received is fully taxable, including tips. It doesn't matter if you're paid in cash, property, or goods or services.
- Claim offsetting deductions. Typically, you'll operate as a self-employed individual, entitling you to write off "ordinary and necessary" business expenses. For instance, if you're a driver the IRS generally allows you to deduct actual vehicle expenses like fuel, based on business use, or 58 cents per business mile (plus related tolls and parking fees) in 2019.
- Report large cash transactions. Just like other business people, you must report any cash transaction (or series of transactions) of more than $10,000 to the IRS on Form 8300 within 15 days of receipt. The usual penalty for intentionally failing to file the form is the greater of $25,000 or the amount received (up to $100,000).
- Meet estimated tax requirements. Absent withholding adjustments at another job, you must make quarterly installment payments of estimated tax during the year. Generally, you may be hit with an underpayment penalty if you don't pay at least:
- 90 percent of this year's tax liability or
- 100 percent of last year's tax liability (110 percent if your adjusted gross income exceeded $150,000).
Stay on top of payments to avoid an unpleasant tax surprise.
- Maintain detailed records. Observe all the technicalities required for reporting taxable income and offsetting deductions. For instance, keep a mileage log and any receipts related to your gigs. This way, you're protected if the IRS ever mounts a challenge.
If you have tax questions about your gig, call today.