GIG ECONOMY TAX GEMS
February 16th, 2022
“Gig Economy” – A labor market of self-employment, freelance, short-term contracts as opposed to permanent employment. The term “gig” is borrowed from performing artist appearances.
Whether you are transitioning to the gig economy or just dabbling in a side business there is a bit of a learning curve. We’ll share two important bits of information that will help at tax time. Operating through the right business entity could give you an advantage, so reach out to us for business formation advice. Understanding your business write-offs will allow you to reduce your taxable income and save you tax dollars. The car expense write-off for gig workers can be more complex because of the choices in deduction methods.
GIG ECONOMY BUSINESS ENTITY ELECTION
You can take on gig work as an individual or sole-proprietor without forming a business entity, of course. However, if you started a business in 2021 or you are starting one this year, an LLC is taxed as S-Corp. offers many advantages, including personal liability protection, reduced self-employment taxes, and possibly even reduced audit risk. A C-Corp. with the new lower corporate tax rates can also make sense in some cases. We can help you make the business entity decision and we can set up the entity quickly and correctly. Call us now!
GIG ECONOMY TAX DEDUCTIONS: CAR EXPENSES
If you use your own car to earn income through a ride-sharing service like Uber or Lyft or a delivery service such as DoorDash or Grubhub, there are very specific rules for deducting your vehicle-related expenses. General vehicle expenses can be deducted using one of two methods for gig workers:
- The first and easiest is the standard mileage rate (calculated by multiplying $0.56 per mile in 2021); using the standard mileage rate is a simple way to deduct an estimated amount of all your vehicle expenses, such as maintenance, tires, gas, and license and registration fees.
- Alternatively, you can deduct the actual vehicle expenses if this method yields a larger deduction. To use the actual expense method, you must determine what it actually costs to operate the vehicle. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles.
Under either method, you’ll need to calculate the percentage you used your car for business purposes and the deduction will be based on that percentage and whichever method we use to deduct your vehicle expenses, you must maintain a daily mileage log as proof of your mileage. Most app-based services provide a tax summary of your mileage to help you track your business mileage.
When counting your miles to determine the business percentage of use, you can include any business-related mileage that was driven for the following:
- Mileage driven to pick up a ride request or a package for delivery;
- Any mileage you drove between dropping off a passenger (or delivery) and picking up the next one; and
- Mileage driven before a fare (or delivery request) was cancelled.
Miles between your home and your first fare/delivery and between your last fare/delivery and your home are considered “commuting miles” which are not counted.
Expenses that are deductible for drivers in addition to vehicle expenses include:
- Mobile phones (cost of the phone and billing charges) and accessories (mounts, chargers, cradles, etc.);
- Business taxes and licenses;
- City and airport fees, freeway, highway, and bridge tolls, and electronic toll transponders;
- Water, snacks, and amenities (such as tissue or hand sanitizer) provided to customers; and
- Floor mats, car tool kits, and tire inflators and pressure gauges.
All out-of-pocket expenses must be substantiated with receipts.
Contact Us For Help With Your Gig Economy Tax Filing
We are working on 2021 tax filings by phone or video conference or in person! Call or e-mail to set a tax preparation appointment!
Please contact Brenda@taxplus.com or call 310.398.3231 to request a phone or video conference with one of our Enrolled Agents. Contact Rita@taxplus.com or call 858.279.1640 for our San Diego office.
We look forward to working with you!