Hyden, Miron & Foster, PLLC Law Blog

Saturday, January 28, 2017

What are the top 5 mistakes gig-workers make when doing their taxes?

Gig workers, also known as “freelancers” make up about 34% of the nation’s workforce. This number is expected to increase to 50% in the next three years. With the amount of income these types of workers are generating, this critical mass of workers may be coming under closure scrutiny with the IRS. If you fall under the umbrella of gig-workers, ensuring your filings are correct when tax season comes can save you time and money.

Our tax attorneys have identified the top 5 most common mistakes that gig-workers make when filing their taxes so you can avoid making the same mistakes.

Failure to Report Income

You must report any income that you earn, regardless of whether you receive a Form 1099-MISC, Miscellaneous Income, Form 1099-K, Form W-2, Wage and Tax Statement, or some other income statement. Many freelancers make this mistake and fail to include all income that they’ve received, whether because they don’t think they need to or simply because they forgot about income they received a year ago. Proper bookkeeping is key to keeping track of all of your freelance income.

Claiming Incorrect Business Deductions

For each business deduction that you claim, you should ask yourself, “does this qualify as an ordinary and necessary business expense?” If you are working as a graphic designer and you want to deduct pet food purchases, the IRS might take a second look at that. However, if you are a professional dog-walker or pet sitter, then the pet food purchase may not raise an eyebrow.

Improper Independent Contractor Deductions

Often, freelancers will engage the services of other “independent contractors” to perform services such as administrative work, marketing or programming. The freelancer then claims this as a business expense. This is generally fine, except in the cases where the independent contractors are actually considered employees by the IRS. If the IRS determines that the person you are working with is actually an employee, you could be in hot water for back taxes for that individual.

Failure to Pay Estimated Taxes

If you are a freelance worker, taxes are not automatically deducted from your clients’ payments to you. Because of this, the IRS expects you to pay estimated taxes on income you earn each quarter. This means that you must make a payment by April 15th for earnings between January and March, and quarterly on June 15, September 15 and January 15 for each prior quarter.

Exaggerating Business Entertainment Expenses

The IRS has two tests for determining whether entertainment expenses are properly deducted:

  • The directly-related test, or
  • The associated test

In order to satisfy either of these tests, you need to be able to prove the business purpose (under the applicable test) and the amount of each expense, the date and place of the entertainment, and the business relationship of the individuals entertained.

Have Questions About Filing Your Taxes?

The experienced tax attorneys at Hyden, Miron & Foster can provide you with complete and accurate tax advice whether you’re an employee, freelancer or employer. Contact us today or call 888.770.1848 for a consultation.

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