Tax filing tips for gig workers, digital creators, and freelancers
Small business owners and those who are self-employed have a different approach to tax season than those who only have W2 income. Here are a couple of tips and answers to a couple of questions that may get you stumped.
Where to start when it comes to taxes
Starting is the hardest part. You should start by making sure you have all of your information as it relates to income and expenses. This is where a bookkeeping system will come in handy. If you don’t have a bookkeeping system, don’t worry. Assuming your business accounting method is on a cash basis, pull your bank statements from the past 12 months, gather all of your 1099 forms, and search your email for each invoice you have sent out. Make sure your income matches your invoices paid. This should be a clear indication if you have received all your funds for projects as well. Next, you should go over your expenses and make sure none of them were personal expenses. Remember, you cannot write off personal expenses on your tax return because they are not necessary or ordinary to your business.
Writing off expenses but have not formed a business
You do not need to have a formally formed business to deduct expenses. As long as you identify that the money you are spending is necessary and ordinary to the business endeavor you are pursuing, you are good to go. You cannot deduct a meal you ordered while you are streaming. However, if your channel is a food review channel and you buy food to review and stream you trying out the food, then that is deductible.
Where would I write off an expense?
This is where it is important to have a bookkeeping system with a chart of accounts set up. If you have a chart of accounts, you will place the expense in the same expense category on your Schedule C. If you do not have a chart of accounts set up, google “Schedule C.” You should pull up the IRS office Schedule C form. The Schedule C form has a list of pre-determined accounts for your expenses. You should put the sum of your expenses into one of these categories. This means you will have to add all your supplies together and then put that number into the category. This is the amount you can deduct for that category on Schedule C.
How to file taxes if I don’t have a business: Uber, DoorDash, UberEats, etc
If you don’t have a business, you will file your income as “Other Income.” Your tax software should ask you if you have other income to report (outside of a W2), and you should select “yes.” The tax software should then prompt you to enter your information.
How to report self-employed income when you have a W2
If you have self-employed income and still receive a W2, you will put your W2 information into your tax software like normal. The tax software should ask you what type of income you have, and you should select each type that you need to report. You will enter your W2 income like you have done for the previous year, and then you will enter your self-employed income. Your self-employed income will go on Schedule C.
You don’t think you made enough from your side gig to report expenses
More likely than not, you did. You can’t isolate the income of each gig to determine your tax liability. Your tax liability is determined by combining all of your income. If you have different types of income, it may be taxed differently, but all of your income, combined together, determines your tax liability.
Tax forms you should know during tax season
- Schedule C – For the majority, Schedule C is your business tax return. You will submit Schedule C with your Individual Federal Return, Form 1040.
- 1099 – NEC – For any work you earned $600 or more, you should receive Form 1099.
- 1099 – MISC – In prior years, this was the form freelancer, and contractor income was reported. Since the change in 2020, only income, such as royalties, will be displayed on this form. All services income is reported on Form 1099-NEC.
- Schedule SE – On this form, you will report and calculate your self-employment tax. If you made $400 or more, it is likely you owe self-employment taxes.
Freelancers, gig workers, and digital creators have to wear a lot of hats, and it can be easy to lose sight of important tasks when it comes to taxes. With tools like ComplYant, you never have to worry about missing a deadline, and you can access resources for anyone running their own business or side hustle. In fact, free webinars like Tax Filing Tips & Tricks for Gig Workers, Freelancers, and Digital Creators can offer great strategies to help make managing your taxes a breeze.