On-demand workers face unique challenges when tax time rolls around. Income earned from contracting work, freelance gigs and employment that does not automatically draw taxes must be reported even if you do not receive tax forms from the vendor or company. Learn how to simplify your income reporting to stay compliant with IRS regulations.
The growth of on-demand workers is not surprising given that online platforms and contract work through the likes of Uber or Lyft have become popular ways for people to supplement or maximize their income. However, the growth of these freelance careers has left some people scrambling to pay owed taxes when income is not reported accurately. According to the Kogod Tax Policy Center, a study delivered to Congress revealed that many on-demand workers do not fully understand the basics of income reporting and the tax implications of earning pay on a contractual basis.
Record keeping is especially important for freelancers and contract workers. For instance, the Kogod Tax Policy Center's report found that 60 percent of on-demand workers surveyed did not receive a 1099-MISC or 1099-K to document their income and accurately report earnings to the Internal Revenue Service. Monitor your earnings with spreadsheets, accounting software or online banking programs that let you categorize the type of earnings. Expenses also play a significant role when determining taxes owed. Keep receipts for purchases related to your contractual work to minimize the amount of income that needs to be reported at the end of the year. According to the survey, 36 percent of on-demand workers surveyed did not have any knowledge of the tax records needed to complete their annual taxes or submit to the IRS.
Contract and freelance members of the workforce may also be required to pay quarterly estimated tax payments. The Kogod study found that approximately one-third of the survey participants did not know about this requirement or whether or not they were mandated to make payments throughout the year. Inquire with an accountant or tax specialist to determine if quarterly payments are required or beneficial for your freelance position. As a last resort, set aside a portion of your earnings to soften the blow when the tax bill is due. With accurate record keeping of your income, you can take advantage of tax credits and savings that help reduce the impact of interest payments or outstanding taxes that may result in liens being placed on your property or assets.
A disconnect exists between the tax knowledge of on-demand workers and the tax rules stipulated by the IRS, according to the Kogod study. Prepare yourself for tax time by keeping detailed records, categorizing expenses and reporting untaxed income to stay compliant with state and federal regulations.
Photo Courtesy of Stuart Miles at FreeDigitalPhotos.net
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