Are you thinking of gigging it up a notch? Being self-employed may sound appealing to you and the reality is you’re not alone. Those involved in the gig economy now account for 36% of the US labor force, according to the 2018 Gallup poll. The reasons for this are obvious. The gig economy gives people more financial independence from their full-time jobs, more diversity in terms of income sources, and better opportunities for self-development. But you’re right if you thought this is all too good to be true. The fact of the matter is, even side gig income gets taxed, but we’re going to show you how to deal with all the taxes like a boss.
You Can Get Tax Breaks!
This is important to learn about, especially if you are completely self-employed. Though your income as a sole proprietor is taxable, the law does give you some tax deductions and benefits that are not enjoyed by full-time, traditional 40-hour week employees. You would need to learn about these details on the IRS website.
Tax Deductions: Making Your Home Your Office
If you have your own home office as a sole proprietor, you’d be surprised how much you might get from Uncle Same in tax deductions. Section 179 of IRS rules assert that the costs of running a home office are indeed tax-deductible and can include essential office supplies required for business operations, such as laptops, cell phones (with their plans), and printers. You’ll also be happy to discover that tax deductions also apply to marketing and promotional expenses. It is best to consult a professional from the IRS or a professional accountant/financial advisor so that you can learn about everything you can save on and all the benefits.
- Keep all receipts and record all your expenditures in a file that is easy to follow and understand.
- Regularly consult an accountant, financial advisor, or tax consultant to see what tax options would work best for your individual situation.
- Do not indulge in your tax deductions for personal use. For example, don’t use tax deductions to travel for personal reasons, even though it may be considered a ‘business trip’.
For Quarterly Taxes, You’re On Your Own!
One of the perks of being in a traditional full-time job: your employer would deduct the taxes from your salary for you to pay the IRS. Now, if you’re going to be self-employed, you’ll have to do that yourself! Be sure that you are well-informed about all the requirements of filing your quarterly taxes so that all the payments are made punctually. You don’t want to be burdened with a hefty fine!
Be Sure to Get 1099 Forms Done
Pay attention because this can save you from paying a fine. Let’s say that you hired a freelance graphic designer to do the layout for a flyer and you paid him/her for the service. You are required by law to have that graphic designer complete a 1099 form or else you could be fined. The rule applies to any individual who offered you a service for your business which you had to pay for. You can get an accountant to help you out with this if that’s a more suitable arrangement.
Even though you can find and download the form online, what actually has to be done is that you have to purchase an original hardcopy 1099 form. After that, you will send a copy to any individual(s)/outside parties you worked with and another to the IRS. It can be sent electronically and this task must be complete before January 31st, every year.