Whether you’re driving for Uber or Lyft in your free time, doing some freelance work on the side or starting your own photography business, being self-employed or working a side gig can be an exciting opportunity full of independence, self-determination and new challenges.
With the rise in the number of people becoming self-employed and growth in workers in the gig economy, it’s important for those who are new to this workforce to understand what to do when it comes to filing taxes and how to take advantage of unique tax write-offs.
Here are a few tips for filing taxes as an on-demand worker or self-employed individual.
[See: 12 Best Part-Time Jobs to Pay the Bills.]
Always report your income: If you received money for work you did as an on-demand worker during the year, the on-demand businesses that paid you generally must supply you with Form 1099-MISC if you earned $600 or more. If you earned less than $600 from a company, you’re still responsible for reporting your income and paying taxes on it. If you are paid through a third-party provider such as PayPal, you may also see your income reported on a Form 1099-K. Third-party providers will issue a 1099-K form if you had 200 or more transactions and made $20,000 or more. Even if you don’t receive a Form 1099-K, make sure to report income paid through third-party providers.
Track mileage: If you drive for a ride-hailing app, remember that miles tracked by companies such as Lyft and Uber don’t include miles you drove to a busy area before logging in and miles you drove returning from drop-off points to a place to wait for another ride request, and both of these are deductible. You can claim 53.5 cents per mile for 2017, plus the cost of parking and any tolls you paid. Be sure to track your additional business mileage, so you have substantiation for mileage deductions and don’t miss out on your business mileage deduction.
The same is true if you’re self-employed and driving to a client, heading to a meeting or going to work from another location. You may be able to write it off your taxes. You’ll be able to claim the same amount of 53.5 cents per mile for 2017, plus the cost of parking and tolls.
Set aside money: The biggest difference between filing taxes as a full-time employee and filing taxes as an on-demand worker or independent contractor is that no taxes are withheld from your paychecks. To prepare for your yearly tax bill, set aside a few hours per week to track your income and expenses, so you can figure out your net income and estimate your taxes on a monthly basis. Generally, if you expect to owe $1,000 or more for the year, you have to make quarterly estimated payments.
[See: 7 Most-Missed Tax Deductions and Credits.]
Deduct home office expenses: If you regularly, and exclusively, use a home office for the purpose of your business, you can claim tax deductions on that space. Expenses that may be deducted include a portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting and repairs based on the square footage of your home used for your business. You may also be able to write-off certain office supplies such your printer, computer or furniture.
Deduct expenses for business trips: If you’re flying to another U.S. city primarily for business, you can deduct 100 percent of the flight costs. Remember that while you are traveling, you can also expense your hotel or lodging and 50 percent of your meals, though this can only be deducted for the days you’re spending on business.
[See: Answers to 7 Burning Tax Questions.]
Plan for next year’s taxes. The new tax reform law that goes into effect for 2018 taxes (the ones you file in 2019) impacts you if you’re an on-demand worker or self-employed. Here are a few helpful pieces of information to help you plan for the future impact from the bill.
— Self-employed pass-through deductions: Self-employment income or business income that passes through to an individual from a pass-through entity such as an S corporation or partnership may receive a deduction of up to 20 percent of qualified business income, allowing you to keep more earnings tax-free. For example, a single, childless Uber driver who earns $26,000 will see about $600 in tax savings in 2018 due to the 20 percent deduction from qualified business income, which further lowers his or her tax rate.
— Lower individual tax rates: Because the overall federal income tax rates were lowered for the majority of taxpayers, self-employed filers will see a further reduction in tax rates when the up to 20 percent deduction of qualified business income is considered.
— Increase in business expense deduction: If you’re self-employed, you will be able to benefit from an almost doubling of the amount you can expense — from the 2017 amount of $510,000 to $1,000,000 — for business equipment such as computers, printers and office furniture.
— Increased depreciation expense deduction for business vehicles: Self-employed tax-filers who place passenger vehicles in service for their businesses, pay attention. After Dec. 31, 2017, drivers for ride-hailing apps will see an increase in the maximum allowable depreciation expense (increased from about $13,000 in the first four years to more than $40,000 in the first four years), further reducing their taxable self-employment income.
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Tax Tips for Self-Employed and On-Demand Workers originally appeared on usnews.com
