As the U.S. economy shifts more and more to service based consumption and the “Gig Economy” continues to grow, income taxes may not be quite as simple as receiving and reporting a W2-form from an employer for many of us. To help address that, the IRS has launched a Gig Economy Tax Center to help taxpayers make sense of their tax obligations from their self-employment income. Because, you know, they are super nice and helpful people and all of that. Why else?
If you currently are, or have considered building side income or all of your income through a car-share services like Uber and Lyft, renting rooms via Airbnb and VRBO, turning your house into a kennel with DogVacay or Rover, deliver food via DoorDash or Grubhub, or you have any other self-employment income – it’s worth checking out and bookmarking. And hopefully the added resource encourages a few more people to make that leap as dealing with self-employment income and deductions can be a bit intimidating at first.
The new guide offers tips and resources on topics ranging from filing requirements, making quarterly estimated tax payments, eligible deductions like property depreciation and mileage, and special rules for reporting vacation home rentals.
If you do have self-employment income, there are a few key things to keep in mind, many of which I have covered in detail, as you figure out how to do your taxes:
- Estimated tax payments: need to be made as you earn self-employment income throughout the year, in addition to your annual return and payment that’s due on the standard IRS tax deadline. You can and should pay your taxes online, as it’s quicker, safer, more reliable, and can help prevent identity theft tax fraud.
- Withholding taxes: can and probably should be updated with your employer, to account for the additional income you will be receiving on the side.
- Self-employed retirement plans: if you have self-employment income, you have a number of tax-advantaged retirement plan options that are available to you outside of the traditional 401K and IRA options that everyone is aware of. They include the SEP IRA, Solo 401k, and SIMPLE IRA.
- The cheapest & best ways to E-file: are still the same and incredibly helpful in helping you navigate the IRS and state tax codes. I recommend the in-depth paid versions of Turbotax & H&R Block. The free EZ filings usually are not able to fully keep up with self-employment income and deductions.
- Opinions on how long to keep your tax records vary (to protect yourself in the event of audit), but if you have self-employment income, my recommendation of digitizing everything and keeping it in the cloud is essential.
- Appealing an IRS penalty: if you do somehow mess up, which is more likely with self-employment taxes, is something that you should learn how to do.
What sharing economy tax tips do you have? Please add in the comments.