Outside employment and gig work are becoming a lifestyle for many Americans. Gig Work can help you pay off debts, diversify your income, and gain valuable work experience. However, freelancers and contractors can have problems filing taxes.
Working with H&R Block, we’re going to talk about the six things gig workers, freelancers, contractors, and other self-employed people need to know when filing taxes.
H&R Block is a great tool to help gig staff run their taxes. From an easy-to-use online tool to all the support options you need, Block is a great tool for your taxes. Check out H&R Block here >>
What tax gig workers and independent contractors need to know
Filing taxes can be a little more complicated if you are self-employed. Here are six things gig workers, freelancers, and independent contractors need to know to prepare for tax season.
1. Find your 1099-NEC forms in the mail
The Form 1099-NEC is an IRS form used to report compensation to individuals who are not employees. Companies hiring freelancers or gig workers are generally expected to send 1099-NEC forms to all contractors who have been paid at least $ 600. Most companies will send these forms out by late January or early February. You will need these forms to fill out your taxes.
If you have a contract with a company and you haven’t been sent a 1099-NEC by early February, contact the company to discuss. The company may not be required to provide the form because you sold or billed for services through a third party (e.g. PayPal). Or you made less than $ 600.
If you are not receiving a 1099-NEC from a company, you still need to report the income that the company paid you.
The best option to find out the amount paid to you is to simply keep your own records using an accountant or accounting software.
Even better, H&R Block lets you import your information from different companies like Uber. If you drive for Uber this could be an easy fix for your taxes!
2. Cash receipts are still receipts
Of course, not all income comes from invoices. Whether you’re babysitting, mowing the lawn, shoveling snow, or selling snow cones at local trade shows, chances are that some of your income was generated in cash. This income still counts as income. It is important to track this income and report it to the IRS on your 1040.
Most tax software makes it easy to report cash receipts. These programs simply have a box that you can enter all of your cash earnings into. The hard part is keeping track of that income. There are many ways to keep track of your cash receipts – you can track business receipts and expenses in spreadsheets or accounting software like Wave. This can greatly simplify the tax time.
3. Keep good records
Filing taxes as a self-employed person is surprisingly easy (especially if you are using great tax software like H&R Block). However, all of your income and expenses must be documented. This includes documenting expenses such as cell phone bills or internet bills if you use them for your business.
It is imperative that you document in writing all of your income and expenses that you write off for your business. If you don’t have documentation, you could lose all of these write-offs on an audit.
The documentation contains all official paper or electronic documents and protocols (for example for mileage). Whether you use paper or spreadsheets, keep everything in one place for easy tax preparation. This article provides specific documentation tips that will help you know what and how to track.
4. Beware of “double” wage taxes
As a gig worker, you are both an “employee” and an “employer”. That means you’ll have to pay both sides of Social Security and Medicare taxes (payroll taxes) – or FICA taxes that employees pay.
Instead of FICA, gig workers and other self-employed pay taxes on self-employment. Social security tax is 6.2% of an employee’s wages for both the employer and the employee. For gig workers, that’s 12.4% of profits. Medicare tax is 1.45% of a worker’s wages or 2.9% of all profits.
In total, gig workers must pay 15.3% of profits of at least $ 400 for self-employment taxes plus federal income tax plus state and local taxes.
Since you make money all year round, make sure you set aside money for these taxes!
5. Schedule quarterly tax payments
Most gig workers and self-employed people are unaware of quarterly tax payments when they first start the gig. However, self-employed (including freelancers, contractors, gig workers, etc.) are supposed to do. If you make estimated tax payments all year round, you may not have a massive tax burden at the end of the year.
If you’ve been freelancing all year, you may have missed all four quarterly due dates in the past year. But there is no need to emphasize. Schedule all four quarterly payments this year, even if you owe taxes to the IRS. That way, you won’t dig deeper into a hole. The first quarterly payment for 2021 is due on April 15th.
If you are making quarterly payments, be sure to enter them into your tax software when you submit them. Programs like H&R Block make it easy.
6. Even if you can’t pay at all, submit on time!
Many first-time freelancers (and even seasoned freelancers) have tax liabilities. If you are paying taxes back, you still want to file your taxes in a timely manner. Failure to file can result in penalties and penalty interest.
As long as you file on time, you have the option of paying the tax back.
When you’re new to gig work, thinking about your taxes can be overwhelming. And it might come as a shock the first time you do them. This is why it is important that you use tax software that can help you when you need it.
We love H&R Block and have named it our best tax software for 2021. The reason? They have a great, easy-to-use interface and combine that with a variety of different support options – from live chat to virtual tax preparation to personal offices.
If you need help preparing your first gig worker tax return, or your freelance business started in 2020 and your taxes are just more complex than before, check out H&R Block.
Start here with H&R Block >>