Unlike full-time jobs, where taxes are automatically withheld from every paycheck, it’s usually up to freelance workers to keep records and put aside money to eventually pay the IRS. And since the IRS considers on-demand workers to be self-employed, it also helps to keep track of expenses that can help reduce your tax bill.
Here are some tax tips for those working as part of the on-demand economy:
No forms does not mean you do not have to pay taxes
You may not receive a form at the end of the year listing everything you earned. That doesn’t mean you can skip paying taxes. You may owe the government on what you earned and could get in trouble if you don’t pay.
Those earning money through on-demand apps such as Uber or Lyft need to report the income on a Schedule C form, says Fred Slater, a certified public accountant and principal at MS 1040 LLC in New York. And if you used Airbnb or other home-renting sites to bring in income, use Schedule E.
Any money you made is easily traceable since transactions take place online. “You’d be nuts not to report it,” Slater says.
Pay taxes quarterly
Typically, you’ll need to pay taxes every three months throughout the year. Making those payments can prevent you from having to send one big sum to the IRS at the end of the year. Known as estimated tax payments, they’re due on April 15, June 15, Sept. 15 and Jan. 15. The IRS website has information on estimated taxes and how to figure out how much you need to pay. It’s at irs.gov/businesses/small-businesses-self-employed/estimated-taxes.
If you have a separate full-time job that already deducts taxes out of your paycheck, the IRS says you can ask your employer to increase your tax withholdings to also cover on-demand gigs. You would need to give your employer a W-4 form and indicate how much more to withhold, according to the IRS.
Keep track of expenses
Much of what you spend for on-demand work can be used to reduce your tax bill. If you’re driving your car for Uber or Lyft, for example, car washes, fuel costs and auto repairs can be deductible, says Frederick Towles, an accountant at the Towles Group Inc. in Uniondale, New York. But you’ll need to keep records of what you spend throughout the year. And also keep track of the miles you drive getting to a customer and during the ride, says Towles. Mileage tax deductions for businesses were worth 54 cents per mile driven in 2016, according to the IRS.
Renting your home
You don’t need to pay taxes if you rented out your house for less than two weeks. But you will owe them if you rented it out for 15 days or more throughout the year. You may be able to deduct some expenses to lower your tax bill, such as mortgage interest, repairs or utilities used while it was rented out, so make sure keep track of those payments.
Last year, the IRS posted a tax guide for on-demand workers with links to forms, calculators and videos. Find it at: irs.gov/businesses/small-businesses-self-employed/sharing-economy-tax-center.
Tax Day reminder
Because of the weekend and Emancipation Day holiday, Tax Day 2017 in April 18.