Gig Economy and Taxes

The so-called gig economy may be the wave of the future for a substantial number of workers. There are lots of implications - especially regarding taxes.

The word "gig" has broadened from its original usage by musicians for an engagement for a performance to now include any type of job that's temporary or flexible, where you're hired as an independent contractor or freelancer instead of a full-time employee. The gig economy involves connecting with clients or customers through online platforms. While it makes work more adaptable to demands for flexibility, it erodes the traditional relationships among workers, businesses and clients. Everyone has to adapt.

People often have specific ideas of what it means to be a gig worker, but actually, gig workers fit into many lines of work. Among positions that fall into the gig category are adjunct and part-time professors who are contracted employees as opposed to tenured or tenure-track professors. Estimates show that as much as one-third of the working population is already performing in some gig capacity. In our modern digital world, it's becoming increasingly common for people to work remotely or from home.

To the IRS, the gig economy, which the agency says is also called the sharing economy or access economy, is activity where people earn income providing on-demand work, services or goods. It often uses a digital platform like an app or a website.

Of course, the IRS is interested because it wants gig workers to remember that they must report income earned from the gig economy on a tax return, even if the work is:

• Part-time, temporary or side work.
• Not reported on an information return, like a 1099-MISC, 1099-K or 1099-NEC .
• Paid in any form, including cash, property, goods or virtual currency.

If you're a gig worker, you're encouraged to find forms, keep records, deduct allowable expenses, file and pay taxes on your gig work. If you're part of a digital platform or business, you need to classify workers and report payments, as well as pay or file taxes for a digital marketplace or business.

So, what does the IRS classify as gig work? Activity you do to earn income, often through an app or digital platform, like:

• Drive a car for booked rides or deliveries.
• Rent out property or part of it.
• Run errands or complete tasks.
• Sell goods online.
• Rent equipment.
• Provide creative or professional services.
• Provide other temporary, on-demand or freelance work.

What are the examples of digital platforms?

• Ridesharing services.
• Delivery services.
• Crafts and handmade items marketplaces.
• On-demand labor and repair services.
• Property and space rentals.

The IRS gives advice to gig workers:

• Mind your expenses - Save receipts from your expenses, as some may be deductible.
• Keep track of income - Maintain records of money you receive from gig work and sales. You must report all income on your tax return, even if you don't receive Form 1099 from the businesses that pay you.
• Pay estimated taxes - these taxes are due four times a year. Work with a financial professional to come up with an appropriate estimate.

Let us know if you have any questions about the taxes and finances of your gig jobs.