The “gig economy” is here, and it does not look like things are going to change anytime soon.
Indeed, gone are the days of stable 9-to-5 jobs, job security, and company loyalty. Rather, today’s economy in the United States is characterized by freelancers putting together an income from various sources, working flexible and odd hours, and being their own bosses. Accordingly, the way taxes work in connection with a freelancer’s income is different than the old days.
In this article, we will take a look at what the gig economy is; how much of our economy is of the “gig” variety; and, most importantly, what tax implications come with being a gig worker. So, if you are a freelancer or independent contractor, then take a little time to consider these helpful tax tips. They may just keep a little more money in your pocket as tax time rolls around again.
If, after reading this article, you would like to have additional information about how to deal with taxes as a freelancer or independent contractor, we invite you to call the tax attorney of Florida, Mary E. King, P.L. The Law Office of Mary E. King, P.L. can make sure that your tax issues are resolved efficiently and at the lowest cost to you. Please fill out our online contact form, or call us at 941-906-7585 today.
What Is the “Gig Economy?”
We have heard the phrase “gig economy” time and time again for at least the last year or two. Yet, there may be many of us who get the general gist of what it means without really understanding the source of the term. Indeed, we know that ride-share drivers for Uber and Lyft are “gig workers,” but what does that really mean?
In short, a “gig” is a one-off project, in which a person is paid per job or per project, rather than working as an employee. Thus, in general, the “gig economy” is a free-market-type system in which businesses look to work with freelancers or independent contractors rather than hire full-time workers.
In a gig economy, workers more frequently work part-time, will change employers frequently, or work with several employers at the same time. The ability to work remotely has been a primary engine for the “digital nomad”-a type of work that is now being performed in the U.S.
A Few Gig Economy Stats
Over one-third of workers in the United States are now connected to the gig economy. In 2018, freelancers contributed about $1.3 trillion to the U.S. economy. If the current trend continues, more than one-half of U.S. workers will be working as gig workers by 2027. In fact, young workers are almost there already. Specifically, about 42 percent of young workers are independent contractors (ICs) or freelancers.
Those statistics tell a compelling story about how much American workers generate their income from working independently rather than as an employee.
3 Main Tax Tips for Freelancers and ICS
Knowing that we have a lot more gig workers in our economy, it is important to know what that means with regard to taxes. To minimize the amount you need to pay the IRS, here are three tips to keep in mind.
Tip #1 – Automate Your Business
The best way to avoid stress and confusion with taxes is to be organized, throughout the year. And, the best way to get organized is to take advantage of some helpful financial software. The software can help track how you move money from your business account to your personal account.
You can also track specific business expenses, such as advertising, legal services, supplies, travel, and utilities.
Tip #2 – Keep Your Personal Separate from Business
Regardless of whether you work as a sole proprietor or you have set up a type of corporation, you need to be sure to separate the business from the personal.
To accurately deduct business expenses, you need to make sure that you can show the IRS that the expense was, indeed, a business expense. And, with something like WiFi, you can estimate the amount of online time you spend on personal matters compared to business matters.
Also, you should consider opening a separate account for your freelance business. If your bank does not let you open a business account without a business registration, then simply open a second personal account that is earmarked as your business account.
With that separate account, you can make sure that all of your business income goes to that account first. You can pay business expenses out of that account, and then pay yourself a salary that would move the money to your personal account. All of that might seem tedious, but if the IRS wants to take a look, it will show that you are diligent in your business organization.
Tip #3 – Have One Place for Your Business Documentation
You need to be sure and keep all of your business documents in one place. That means, in particular, all of your receipts for business expenses.
As the great alliteration tells us, “proper preparation prevents poor performance.” In other words, if you stay organized all year, then when tax time rolls around, you will have everything in place to easily prepare your taxes. Also, if the IRS chooses to audit you, you are ready to justify all of the business activity on your return.
Let an Experienced Florida Tax Attorney Help You with Your Freelance Business
Taxes can be a challenge for freelancers because there is so much more self-reporting you need to manage. That could result in being an IRS target for an audit.
In the event of an audit, you need to talk to a tax attorney in Florida who can help. Mary E. King has spent her career concentrating on tax law and can help you with tax audits in Florida and elsewhere. Attorney King has a wealth of information about what types of options would make the most sense for you and your business.
That helps explain why she’s received an A+ rating from the Florida Better Business Bureau. If you have a tax-related issue – no matter how small or how large – setting up an initial consultation with Mary E. King, tax attorney of Florida, is the first step you should take towards relief.
The Law Office of Mary King P.L. offers complete IRS problem-solving services including all areas from tax debt settlement to planning the most efficient tax strategy for individuals and businesses. Call us today to schedule an initial consultation. With years of experience as a tax attorney in Florida for many clients, Attorney Mary E. King can make sure that your tax issues are resolved in your favor. Fill out our online contact form, or call us at 941-906-7585.