Keep Records of Income

Being a gig worker means you are probably working as a freelancer or independent contractor. You are responsible for reporting all income you received, even if it’s a cash payment. Accurate record-keeping is crucial because you won’t receive a W-2 from an employer that details your earnings. Instead, you may receive a 1099 form from each company you worked with if you earned more than $600 from them. However, even if you don’t receive a 1099, you still need to report that income. Keep detailed records of all payments received, including dates, amounts, and the sources of your income.

Keep Records of Expenses

Filing as an independent contractor or freelancer means your income will be considered self-employment income, subjecting you to self-employment taxes. Your taxable income may be offset by your expenses, which will reduce the taxes you owe. Keeping meticulous records of your business-related expenses is essential. These expenses can include mileage, home office supplies, software subscriptions, and other costs directly related to your work. Proper documentation of your expenses, including receipts and invoices, will be crucial when it comes time to file your taxes. Not only can these expenses lower your taxable income, but they can also help you avoid potential audits by providing a clear record of your business activities.

Update Your W-4

Is gig work your side hustle? Are you also employed? You can update your W-4 to withhold your employee taxes at a higher rate to help pay your self-employment taxes. By increasing your withholding, you can avoid a large tax bill at the end of the year. This adjustment can be particularly helpful if you find it challenging to set aside money for quarterly estimated tax payments. It’s a way to spread out your tax liability throughout the year, making it easier to manage your finances.

Make Estimated Tax Payments

If you are doing fairly well in your gig work and expect to owe more than $1,000 in taxes, you should start making quarterly estimated tax payments. Paying your estimated taxes will not only lessen your annual tax bill, but it will also prevent additional penalties, such as the underpayment penalty. The IRS expects you to pay taxes on your income as you earn it, so making these quarterly payments can help you stay on top of your tax obligations and avoid any unpleasant surprises when you file your return.

Additional Tips for Gig Workers

In addition to the four main points mentioned, there are other considerations that can help gig workers manage their tax responsibilities and optimize their financial situation:

1. Separate Your Finances: Keep your business and personal finances separate by using a dedicated bank account for your gig work. This can simplify your bookkeeping and make it easier to track your income and expenses.
2. Understand Tax Deductions: Familiarize yourself with the tax deductions available to gig workers. Common deductions include vehicle expenses, home office deductions, and health insurance premiums. Understanding these deductions can help you reduce your taxable income and save money.
3. Use Tax Software or a Professional: Consider using tax software designed for self-employed individuals or hiring a tax professional. These resources can help ensure that you are maximizing your deductions and complying with all tax regulations. They can also provide peace of mind by handling the complexities of tax filing for you.
4. Stay Informed: Tax laws and regulations can change, so it’s important to stay informed about any updates that might affect your tax situation. Subscribing to newsletters from tax professionals or following reputable financial news sources can help you stay up-to-date.
5. Plan for Retirement: As a gig worker, you don’t have access to employer-sponsored retirement plans. However, you can still plan for your future by contributing to individual retirement accounts (IRAs) or simplified employee pension (SEP) plans. These contributions can also provide tax benefits.

Handling Anxiety Around Tax Season

If you are a gig worker and tax season has you anxious, you don’t have to do this alone. At IOOGO, we work with many gig workers and will help you get every available deduction. Need someone to look over your books and help organize your expenses? We have experts for that too. Contact us today!

Tax season can be stressful, but with the right preparation and resources, you can navigate it successfully. By keeping thorough records, understanding your tax obligations, and seeking professional help when needed, you can ensure that you are fulfilling your tax responsibilities and making the most of your gig work.