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.