Jobs have taken on a new definition in the gig and sharing economy as freelancing jobs allow one to earn extra income by walking a dog or sharing a home! The operative word here is “income” and the Internal Revenue Service (IRS) expects all income to be declared and the taxes to be paid, including from freelancer or independent contractor work. As the authorities get ready to measure the size of the gig economy, which is pegged by some studies at 54 million Americans, self-employed workers must gear up to pay their dues to Uncle Sam, if they’re not already doing so! Depending on their tax bracket, this could be up to 30% of their income from the gig.
As a freelancer, you need to think of your work not as a hobby but as a company with operations, and yourself as a business owner. You need to file your income tax using the 1099-K form, whether you receive notice of it from your client or not. You may have to take the initiative to ask everyone from whom you received an income for a 1099 form by February of every year. To do this, you’ll need to track all income and expenses. It always helps to have a record of all transactions, even when your income is too low to attract taxation.
Begin with this great resource provided by the IRS to research on what is expected of you. Here are some more tips on managing this task:
If your income is high, you may consider incorporating as a formal business entity and get limited liability while saving more on taxes and that will take you right out of the need to pay taxes as a self-employed worker. In all cases, take positive action and avoid coming under the radar of the IRS and its audit!
If you’re self-employed, do you do your taxes yourself or hire a professional?
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