There are an estimated 3.9 million Americans working in the on-demand economy, and their numbers are projected to grow by 19 percent per year. This trending phenomenon offers a unique opportunity for tax professionals to provide value to existing clients and expand their client base.
While on-demand work provides flexibility and freedom that a traditional nine-to-five job cannot always provide, on-demand workers are considered to be self-employed in the eyes of the IRS.
These emerging entrepreneurs are usually heads down with building their operation and don’t have the time or expertise to learn about tax implications on their own. Thus, as a trusted advisor, tax professionals can guide them with some easy-to-digest tax topics and help them save vital tax dollars, improving their cash flow.
Tax Tips for the On-Demand Clients
Feel free to brush up on the following five tax tips and coach existing self-employed clients and prospects by passing the tips on via email, by posting them on your website, or distributing through social media.
1. Home-office deduction. You’re able to take the space you use in your house as a home-office tax deduction, as long as it is dedicated work space for your job at home. The IRS allows you to deduct part of your home payment (either rent or mortgage) as it relates to the amount of space you use in your home for your office. Because your client’s office is within the walls of their home, they are also able to write off part of their home insurance and utility bills. You may also use the simplified method of $5 per square foot with a maximum of $1,500.
2. Startup expenses. The government encourages people to open a new business by allowing a $5,000 write-off for startup expenses. Startup costs include amounts paid either to create a trade or business or to investigate the creation or acquisition of a trade or business. Examples include advertising the opening of a business employee training and a market survey.
3. Health insurance. The amount you pay in health insurance is tax-deductible if you no longer have access to a plan subsidized by your employer or your spouse’s employer. If you set up health insurance independently because of your small business, the premiums you pay for you, your spouse, and your dependents are deductible. You can also include your dental and long-term care premiums in this calculation.
4. Retirement plans. There are a variety of retirement plans available to small businesses. Contributions made by the owner for himself or herself and for employees can be deducted. Furthermore, the earnings on the contributions grow tax-free until the money is distributed.
In general, contributions to these retirement plans can be made up until the due date of the tax return. Consequently, the small business owner can invest money in a plan after year-end and still take a deduction on the 2016 tax return. The small business owner is also allowed a tax credit equal to 50 percent of the first $1,000 incurred in starting up a plan.
5. Automobile expenses. If you travel for business, even short distances, you may deduct the dollar value of miles traveled. You can claim the actual expense incurred or use the standard mileage rate prescribed by the IRS, which is 54 cents as of 2016. The IRS-allowable mileage rates should be checked every year because they can change. Air, bus, or train fare related to work can be written off, as well.
Mike D'Avolio is senior tax analyst with the Intuit Professional Tax Group, he has been a small business tax expert for more than 20 years and serves as the primary liaison with the IRS for tax law interpretation matters, manages all technical tax information, and...