Tracking Income and Expenses for “Gig” Work – Did You Know?
With working from home becoming more common in 2020, many people are taking on freelance or “gig” work to supplement their incomes. Whether you rely on gig work as your primary income source or just log a few hours a week, it is important to track all your freelance income, along with any associated expenses. Freelance income must be reported to the IRS, but deductions for expenses associated with the work like supplies, telephone, internet and mileage may reduce your tax liability.
And in many situations, it will be helpful to formalize your business activities using a separate business structure such as a Limited Liability Company (LLC). Doing so provides some observable legitimacy to the work (and the expenses) and provides a better overall strategy for reducing tax liability.
If you have multiple income sources, including an hourly or salaried job, you may need to adjust your withholding to account for your freelance work. The IRS offers a free Withholding Estimator tool to help you determine whether your current withholding is sufficient. If most or all of your work is on a freelance basis, you may need to make quarterly estimated tax payments.
A tax professional can help you develop an efficient system to record your income and expenses, keep your withholding or estimated tax payments on track, and determine the best overall structure for reporting your business income and expenses to minimize your risk and tax liability.
IRS Withholding Estimator: https://www.irs.gov/individuals/tax-withholding-estimator.
Have more questions? Call (480) 888-7111 to schedule your free tax consultation.
Disclaimer: For informational purposes only. Does not constitute legal, financial, or other advice. Consult with a professional before taking any action.