In the U.S., there are signs that the traditional nine to five job may soon be a thing of the past. From ride-share and cleaning services to vacation rentals and delivery services, today these and a host of offerings are readily available to Americans at a reasonable cost via the so-called gig economy.
According to one recent poll, nearly 14.5 million people in the U.S. currently earn a percentage of income by working in the gig or shared economy. The growth in popularity and revenue of companies like Uber, Airbnb and Amazon Prime Now–all which depend upon contract workers–are a testament to this major change in how people in the U.S. view and want to work. However, in addition to the freedoms associated with working when you want also come additional tax obligations.
For anyone who earned more than $600 during 2015 through independent contract work, a 1099 tax form must be filed. Unlike part-time of full-time employees whose taxes are withheld and paid by an employer, independent contractors must pay their own taxes. To avoid a costly tax hit come April, independent contractors are advised to calculate and deduct taxes on a monthly or quarterly basis.
Most independent contractors who are employed via the gig economy will also need to fill out an IRS 1045 form and report income and expenses using, depending on how income is derived, a Schedule C or E form. In some cases an individual will be required to fill out and file numerous tax forms so it’s important to become familiar with specific tax requirements and the general process.
While the tax burdens of independent contract work can be onerous, there are also often numerous tax deductions that an individual can take advantage of. For example, an individual may be able to take deductions related to a home office space, office equipment, transportation, a motor vehicle and real estate expenses.
When attempting to sort our tax matters, individuals who were paid for contract work or who derived income via a property rental during 2015 may be wise to seek the advice and assistance of a tax professional. Failing to file one’s taxes correctly or at all can result in burdensome penalties including hefty fines.
Source: The New York Times, “Tax Tips for Those Who Make Money in the Gig Economy,” Tara Siegel Bernard, March 4, 2016