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Making the Most of the Gig Economy: The Best Tax Tips That Experts Want You To Know

by
Lee Reams II
on
9/24/2017
Making the Most of the Gig Economy: The Best Tax Tips That Experts Want You To Know

The "gig economy." What may have originally started as a buzz term of sorts has long since transformed into anything but. It is itself a term used to describe a labor market that consists mainly of short-term contracts or freelance situations as opposed to permanent jobs. It is also, in short, unquestionably popular in the modern era.

According to one recent study, the gig economy is now estimated to make up an incredible 34% of the workforce in the United States – a number that is expected to grow to about 43% by as soon as 2020. Driven in large part due to the recent prevalence of online platforms, there are about four million people who fall into this category right now – which will grow to 7.7 million people by the end of the decade.

The gig economy is undoubtedly one that is rife with opportunity – but that opportunity does come with something of a cost. If you want to make the most out of your position in the gig economy, you absolutely need to understand the impact that such a drastic shift will have on your financials above all else. In order to both maximize your income (and avoid the types of mistakes that can grow incredibly costly incredibly fast), there are a few key tips that financial services professionals want you to know.

Educate Yourself About What It Means to Be Self-Employed

When asked to describe the most important asset that gig economy workers have at their disposal, many experts agreed that "education" could not be more important. Yet it is also something that people lack, which can have disastrous consequences. Terrence O'Neill, EA, LLC said that "someone just entering the gig economy is typically very naive in the world of self-employment. Just as small bursts of income can add up quickly on an annual basis, so too can expenses. My primary advice is to get very, very familiar with the 1040 Schedule C so that legitimate deductions are not overlooked."

He went on to say that people should "study it and record income and expenses regularly and accordingly."

Indeed, most experts agreed that one of the most important ways to succeed in the gig economy involves tracking absolutely everything on a daily basis. "Get a good bookkeeping system and use it," said Carey Gay of Treasure Tax, LLC. "Review quarterly how much money you've earned as well as the deductions you have, and make sure to pay your estimated taxes."

Luba Milgram of StarLite Tax Solutions agreed. She said that "gig economy participants are in essence self-employed individuals and, as such, need to keep good accounting records from the very beginning."

But each "gig" in the gig economy will be a little bit different, so it is essential to come up with a system strong enough to stick to, yet malleable enough to bend to the situation you find yourself in. Uber and Lyft drivers, for example, can use mileage trackers like these to keep the most accurate records possible and maximize deductions at the same time.

But at the end of the day, perhaps the most important tip that workers can use to make the most of the gig economy can be summed up in a single word: organization. Creating a system for bookkeeping and accounting ultimately won't amount to much if you're not organized in the first place. This is something that you must be proactive about – it comes with the territory, and it is something that you will have to do absolutely every day to succeed.

"It is imperative for gig economy entrepreneurs to get organized from the beginning," said Peter W. Flournoy, CPA. "I would highly recommend using an app like QuickBooks Self Employed or Xero Accounting to track income, expenses and so much more. This will make sure you have quality, organized records that you're going to need for both you and your accountant."

To that last point, it's understandable that the gig economy will represent a significant shift for most people. Never, under any circumstances, hesitate to contact a financial professional if there is something you need or something you don't quite understand. You will absolutely be thankful that you did when you avoid tricky tax situations later.

Lee Reams II, writes for TaxBuzz, a tax news and advice website. Reach him at [email protected] or on LinkedIn.

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Lee Reams II

Lee Reams II

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I am a tax and business news junkie who has spent the last 20 years developing and executing "best in class" word-of-mouth marketing campaigns for tax and accounting professionals. With TaxBuzz and CountingWorks we have taken that same commitment to quality content directly to the consumer. Keeping you up-to-date with the latest tax law changes, business growth tips and planning strategies to help you reach your best financial outcome.

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