Key tax tips: maximizing your deductions while keeping the IRS away!
As a gig worker, you not only have to prepare your taxes yourself but also keep track of the current tax law to make sure you are compliant with the latest regulations. And this can be a real challenge, given how frequently things can change in the tax world.
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The article below was published by Lisa Greene-Lewis on the US News website on March 4th 2019 and offers some really good tax tips for independent workers like yourself.
"If you took the plunge into the gig economy last year, congratulations on joining the self-employed and being your own boss. Working in the gig economy may have brought you a new stream of income, but there are also new tax implications and tax tips you should know whether you work in the gig economy full- or part-time, especially when it comes to tax reform.
Many taxpayers heard about the tax benefits and changes for corporations under tax reform, but are unaware of some of the new tax benefits for self-employed gig-economy workers. Here's what you need to know as a gig economy worker when you get ready to file your taxes.
Look out for income-reporting forms
You won't see changes to the tax forms you receive reporting your income from your side gig. You will still receive forms 1099-MISC reporting income of $600 and more or 1099-K from third-party providers if you had 200 or more transactions and earned $20,000 or more. Remember, you may not receive forms 1099-MISC or 1099-K if you made less than the threshold amounts, but you still need to report all income regardless of whether or not you received the forms.
Take note of the new 20 percent qualified business income deductionIf you worked in the gig economy in 2018, you are considered self-employed and may be able to claim the new 20 percent qualified business income deduction. For instance, according to a TurboTax estimate, a single Uber driver, without kids, earning $26,000 will see about $623 tax savings on their 2018 taxes due to the 20 percent deduction from qualified business income.
The 20 percent qualified business income deduction is in addition to your regular business expenses that you can deduct, such as travel, mileage and supplies for your business. The deduction is based on your qualified business income, which is the net income from your business, then calculated after subtracting all of your regular business expenses. In order to receive the 20 percent deduction, you will need to have a positive taxable income after deducting all of your expenses from your income, including the standard deduction. In addition, your qualified business income deduction can't be more than 20 percent of your taxable income.
In general, you are eligible for the new business tax deduction if your income is below $157,500 if filing single or $315,000 if you are married filing jointly. If your business is in the service industry such as health, law or accounting, your 20 percent QBI deduction may be limited if your income is more than $157,500 if you are single and $315,000 if married filing jointly.
There may be a possible further reduction of tax rates
When considering the new 20 percent qualified business income deduction and the reduction of five out of the seven tax rates for taxpayers, you may see bigger tax savings since your self-employed income will pass through to your personal tax return. It will be taxed at your individual tax rate, less the deduction of up to 20 percent to bring the tax rate lower.
Note the increased business equipment deduction
The new law also increased how much you can deduct for your qualified business equipment purchases. Under the new law, you can deduct up to $1 million in business equipment expenses when you purchase qualified business equipment such as computers, computer software, office furniture and equipment. That's up from the $510,000 maximum expense allowed. Of course, the amount you can deduct for business equipment expenses is limited to the amount of income you earn from your business.
One important tax deduction is still available if you purchased a vehicle for your business at least 50 percent of the time. If you purchased a six-passenger vehicle weighing less than 14,000 pounds for your business in 2018, you can still deduct up to $25,000. This deduction can really help gig-economy workers who work for a ride-share company.
There's an increased depreciation deduction for your business vehicle
Another tax benefit for using your car for your business applies if you bought a new car to use for your business. You may be able to deduct more than $40,000 in the first four years. The depreciation deduction is different from year to year but is much more generous than the depreciation deduction prior to the new tax law.
Note the changes to meals and entertainment deductionsIf you are meeting with clients to build your gig-economy business, you may be wondering if you can still claim your lunch meetings with clients or the sporting events you treated them to. Under the new tax law, you can still claim business meals at 50 percent as long as the business meal was directly related to your business. You should make sure you keep the receipts and document the date and business purpose of the meeting. Treating potential clients to an event like a football game or concert is considered entertainment and is no longer deductible at 50 percent. It has been eliminated under the new tax law.
Now that you know some key tax benefits for gig-economy workers under tax reform, you can get ready to go online and file your taxes and see what type of savings you can rack up for your newfound business."
The house of gigs team
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