What Are the Tax Implications for the Gig Economy?

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Terry Sheridan
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Like it or not, the United States is rapidly becoming what’s commonly called a gig economy, populated by workers of all ages who for a variety of reasons prefer to work independently on off-staff jobs of varying time lengths.

It’s not for the faint of heart, and that goes for the accounting involved with these gigs, too. In fact, the IRS warns that misclassifying someone as an independent contractor will have tax consequences, including requiring the employer to pay employment taxes for the worker.

Jody Padar, CPA and CEO of Chicago-area New Vision CPA Group, is one accounting professional who has carved out a niche tax practice that focuses on entrepreneurs. As she puts it, “To assume that you will just be the sole proprietor is making the wrong tax assumption.”

Padar, who spoke at the recent American Institute of CPAs Engage conference, offers these additional insights into the intricacies of the gig economy and what CPAs and other tax professionals need to be aware of about this growing business sector.

AW: What tax issues does a beginning freelancer misunderstand the most?

Padar: The first thing freelancers, like any small business, must understand is what type of entity they will be, and those respective tax consequences.

AW: What tax benefits are underused or need to be better utilized?

Padar: Self-employment tax comes to mind and how you would plan for it. Also, there are lots of things you can do as far as retirement planning to reduce your taxes.

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Jun 28th 2017 02:29

I have been a sole practitioner CPA and attorney for many years. Since a significant part of my work is one-time special projects, I am, effectively a freelancer.

The tax issues are relatively simple, and the key to success in the tax area is good bookkeeping on a timely basis, so year-to-date income and deductible expenses are easily determined. This is critical, since, in general, a self-employed person must deposit income and self-employment taxes quarterly.

The rules for required deposits are fairly complex, and penalties for underpayment of estimates can be significant. I think every self-employed person should consult with a tax professional to determine the safest and most practical method of calculating his/her quarterly income and the resulting taxes to be deposited.

It goes without saying that, 1099 or not, all income is taxable. The responsibility for being aware of the law is on the self-employed person.

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By bltaxes
to oinkinghog
Jul 13th 2017 15:50

Stating that tax planning can only be done in December is just encouraging the ignorers and procrastinators to once again miss an opportunity to save some real money and improve their life. Consistent and thoughtful tax planning over a long period can make a big difference.

THAT YOU FOR EFFECTIVELY SAYING THIS IN YOUR REPLY... I SHOULD HAVE REPLIED TO THE MAIN ARTICLE... WE NEED TO ENCOURAGE CLIENTS TO PLAN... JUST GETTING ONE MORE PERSON TO PLAN IS A VICTORY...

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