Welcome to the gig economy! Now calculate your taxes – Tax
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One of the most dramatic effects of COVID-19 on the US economy is the increased popularity of “gig” or self-employment. Concert workers include those who perform essential work, such as delivering groceries to socially distant consumers. Others have used their specialized skills to develop consultancy and other independent activities. According to independent talent provider MBO Partners, concert workers contributed $ 1.2 trillion to the U.S. economy in 2020.
So it should come as no surprise that concert workers are expected to pay their share of income tax. But calculating income tax as an independent entrepreneur is not always easy.
No free ride
If you are a concert worker, you are generally considered to be self-employed. Since an employer does not withhold money from your paycheck to cover your tax obligations, you are responsible for making your own federal income tax payments. Depending on where you live, you may also need to pay state income tax.
The US tax system is considered âpay as you goâ. The self-employed typically pay both federal income tax and self-employment tax four times during the year: April 15, June 15, September 15 of the current year, and January 15 of the following year.
If you do not pay enough of these four installments to cover the amount required for the year, you could be subject to penalties. For federal income tax, you can avoid penalties if your estimated tax payments are at least 90% of the tax shown on the current year return or 110% of the tax. indicated on the return for the previous year. If your income is less than $ 150,000 ($ 75,000 if you’re married and filing separately), you can avoid penalties if your estimated tax is at least 100% of last year’s tax,
You may have been referred to as a “1099 worker” or “independent contractor”. Indeed, as a self-employed person, you will not get a W-2 from an employer. However, you can receive a Form 1099-MISC from any client or client who has paid you at least $ 600 throughout the year. The client sends the same form to the IRS, so it pays to monitor the 1099 you receive and verify that the amounts match your records.
Related Reading: Independent Contractor Vs Employee: Understanding the Designation of Workers
Third-party payment systems may report gross amounts paid to you on Form 1099-K. Even if you did not earn enough from a client to receive a 1099, you still have to report the income you received from that client. Most gig workers are taxed on the income when it is received, not when you send a request for payment (unless you have chosen the accrual method of accounting).
Since gig workers are self-employed, their taxes are based on any profits left over after deducting business-related expenses from their income. Your expenses may include payment processing fees, investments in office equipment, and specific costs required to provide your service, such as advertising.
Also, if you use part of your home for work, you may be able to deduct certain expenses related to the home. Note that this is subject to significant restrictions.
Don’t go alone
To make accurate deductions, it is essential that concert workers keep excellent records of income and expenses. As an employee, you may have calculated your own income and prepared your own tax returns. When you join the odd-job economy, you should consider working with a professional to make sure you’re not paying more taxes than is required.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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