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The Gig Economy Brings New Tax and Accounting Issues for Millennials

by
Jorge Gomez
on
6/19/2016
The Gig Economy Brings New Tax and Accounting Issues for Millennials

53 million Americans worked in the gig economy as of 2015. While freelance workers earn as much as 17 percent more than their counterparts in traditional jobs, these workers face higher tax liability. Explore tax and accounting issues facing Millennials in the gig economy. 

1099 Tax Liability for Freelancers

Taxes and accounting are complicated enough. Yet gig employees juggling multiple different employers face additional headaches when entering their tax data. Instead of one W-2 form, gig workers are looking at a handful of 1099 forms. 

Traditional employees have their tax liability deducted from earnings, but independent contractors and freelancers do not. At tax time, freelancers must pay all their tax liability. If you aren't prepared for this, you risk owing hundreds or thousands of dollars. To offset this liability, you can deduct business expenses. Yet as many as 73 percent of freelancers don't know how to do this. 

Business Deductions for Freelancers 

Freelancers workers can make smart use of business deductions to lower income and tax liability. As you prepare for tax season, consider which of your expenses count as business deductions. This varies by the work that you do. 

If you are a ride share driver, for example, then your smartphone plan and certain auto expenses can be deducted since these are necessary to employment.

If you are a freelance web designer, then your computer and internet are tax deductible. Additional deductions might include e-learning expenses, travel to meet with clients, fees for stock images, and more. 

Home Office Deduction for Gig Economy Workers 

If you work from home, you may be able to deduct home office expenses. To qualify as a home office, the space must be your primary place of business or the place where you meet clients. The space must be exclusively used for business. If you work out of your bedroom, you cannot legally deduct it since you also sleep there, for example.

Acceptable deductions for the home office include business items purchased -- shredders, printers, office cleaning supplies, etc. -- and expenses for improvement or repair. If you replace the light fixture or add shelves in your home office, the money you spent can be deducted as a legitimate business expense.

When taking the home office deduction, you may also deduct a portion of your utility bills. These deductions are calculated on a percentage of the total square footage of your home.

In general, any ordinary expense that is necessary to your business can be deducted. If you are concerned whether a particular expenses qualifies, ask an accountant. 

Finally, to legally deduct these expenses, save your receipts. As a self-employed worker in the gig economy, your risk of an audit is higher than for your peers with traditional jobs.

Auto Expenses for Freelance Workers 

If you use your car in your gigs, you can deduct vehicle expenses. To maximize your auto deduction and reduce your tax liability, keep track of how many miles you drive for business purposes. For example, write down the round trip mileage driven to meet a client or to purchase needed office supplies. Parking fees can also be paid. 

Keep a log in the car to make this easier. The more detailed you are in your vehicle usage, the fewer headaches you face if audited.

Retirement Planning for Freelancers 

It's vital that you save for retirement if you work in the gig economy. After all, there is no 401K match for you to take advantage of. The IRS allows self-employed individuals to deduct money saved in retirement accounts. To limit your tax liability, make annual contributions to a retirement account.

Here is more information: Retirement Plans for Self-Employed People

If you work in the gig economy, review how these tax and accounting issues affect you before the next tax season. This way, you can plan ahead to pay any taxes owed while minimizing the disruption on your life.

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Jorge Gomez

Jorge Gomez

Marketbox Business Analyst was born out of a strong desire to fulfill the needs of the small business market segment with unparalleled tax preparation, accounting and software services. While most consulting firms target large companies, we offer affordable solutions in a customizable system that manages business operations, finances and investments. Based on software and policies & procedures that provide critical information for decision making, problem-solving and day-to-day operations, we are giving small businesses access to trusted, high-quality solutions. Whether you are looking for integrated services or a single tool, we have the knowledge and expertise to strengthen your business.

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