Remembering the Old Job Hunt: Back in high school, job hunting meant scouring local newspapers and driving around with friends looking for "Help Wanted" signs. Technology has drastically changed this landscape, making job searches accessible right from our smartphones. The gig economy has opened up new opportunities to earn income, allowing individuals to work independently and be their own bosses.

The Changing Face of Income Earning: While the methods of earning income have evolved, the IRS's interest in your earnings hasn't changed. Understanding how to apply the tax code to these new income streams is crucial. This three-part series will help you guide clients through the complexities of gig economy taxation. Today, we focus on rideshare, delivery, and other service gigs.

What is the Gig/Share Economy? The IRS defines the gig economy as “activity where people earn income providing on-demand work, services, or goods.” Unlike traditional roles, gig workers often operate as independent contractors, delivering for multiple companies using digital platforms.

Key Differences:

1. Access and Flexibility: Modern gig workers can deliver for various companies, offering unparalleled flexibility compared to traditional single-employer delivery jobs.

2. Employment Status: Gig workers are independent contractors, not employees. They use their own resources and set their own hours, differing from traditional delivery drivers who work scheduled shifts as employees.

Common Tax Questions from Gig Workers: One frequent question from gig workers is why they owe taxes if they don’t have a formal business. The IRS views gig workers as sole proprietors, meaning they run unincorporated businesses.

Is Gig Work a Business? From a tax perspective, gig work is treated as a business. Gig workers are sole proprietors and must comply with associated tax filing requirements. They can apply for an Employer Identification Number (EIN) for tax purposes.

Reporting Gig Economy Income: Gig economy income is reported on Schedule C (Form 1040), which details profits or losses from business activities. Gig workers typically receive a 1099-NEC form for non-employee compensation. This income, minus allowable deductions, is reported on Schedule C.

Estimated Tax Payments: Gig workers must make estimated tax payments if their projected tax liability is $1,000 or more. Payments are due quarterly on the following dates:

• Quarter 1: April 15th

• Quarter 2: June 15th

• Quarter 3: September 15th

• Quarter 4: January 15th

Failure to make these payments can result in penalties. If full payments can't be made, partial payments can help avoid penalties.

Local and State Taxes: Gig workers may have additional tax obligations based on their location. For example, Louisville, KY, imposes a 2.2% occupational tax on residents earning income within the city. Be sure to discuss all potential tax obligations during tax planning sessions.

Self-Employment Tax: Gig workers must pay self-employment tax, which includes contributions to Social Security and Medicare. The self-employment tax rate is 15.3%, covering both the employer and employee portions.

Deductions for Gig Economy Income: Gig workers can deduct ordinary and necessary business expenses. Some common deductions include:

• Self-Employment Tax Deduction: Half of the self-employment tax is deductible.

• Mileage: For rideshare and delivery drivers.

• Home Office Deduction: For those working from home.

• Accounting and Legal Fees: Professional services related to gig work.

• Digital Platform Fees: Costs associated with using gig economy apps.

• Qualified Business Deduction (QBI): A potential 20% deduction on qualified business income.

• Health Insurance: Deductible for self-employed individuals.

• Supplies and Traditional IRA Contributions: Essential for business operations and retirement savings.

Summary: The gig economy offers new ways to earn income, but it comes with specific tax obligations. Understanding how to report income, make estimated tax payments, and claim deductions is vital. In part two, we'll explore tax implications for clients renting out homes and other assets. Stay tuned!