An increasing number of workers are embracing the “gig economy” and working for themselves through services like Lyft, Uber, and Airbnb. Setting aside the effects the gig economy has had (and continue to have) on the larger economy, there are plenty of tax considerations for those who choose to work outside of the typical employee-employer relationship. In recognizing the need for guidance on the taxation of the growing number of self-employed individuals, the IRS has established a tax information portal for those involved in the gig economy.
Last week, the IRS announced that they had launched the Gig Economy Tax Center through IRS.gov. The purpose of the Center is to assist those who find themselves working in the gig economy navigate particular tax provisions that apply to them and to identify additional compliance that may be required.
The gig economy, which can also be described as the “sharing” or “on-demand” economy typically involves individual workers being matched with customers through a third-party service such as Lyft (for ride sharing) or Airbnb (for vacation rentals). Although some states are working to change the labor classification of the workers involved in some gig economy companies, a Lyft driver or Airbnb renter is generally not an employee of the third party company. Instead, the worker receives payment from the customer through the third party. At the end of the year, the third-party company issues a Form 1099 to the worker.
Unlike those working in a typical employee-employer relationship, gig economy workers do not have any amounts deducted from their paychecks for taxes, FICA, or Medicare. This lack of withholding can leave with gig economy workers with a big tax bill at the end of the year. The new Gig Economy Tax Center purports to provide taxpayers with helpful information about planning for their eventual tax bill and when gig economy workers may be required to pay estimated taxes on a quarterly basis.
Additionally, unlike traditional employees, gig economy workers are typically entitled to deductions for expenses related to the provision of their services. For instance, a driver for a ride sharing company is likely entitled to a deduction for the expense of operating their vehicle, including gas, insurance, and maintenance. The Gig Economy Tax Center contains information to help taxpayers understand the deductions that may be available and the requirements to claim them.
The creation of the Gig Economy Tax Center and other similar efforts by the IRS to provide helpful information to the general public is another signal that tax examinations for those engaged in the gig economy will increase. With more and more individuals turning to Uber, Lyft, and other gig economy companies as a way to make money, the IRS is ensuring that it creates the necessary framework to help those comply with the rules and a system to identify and go after those who do not.
Not all gig economy tax issues are cut and dry. Like many business scenarios, the tax analysis required may be complex. In those situations, it is imperative that an experienced tax attorney is consulted. It is much easier to fix a potential tax compliance issue before a tax return is filed. Nonetheless, if your tax return has been selected for examination by the IRS or state tax authorities, a tax defense attorney will be invaluable in helping to mitigate the potential negative consequences that a tax audit can bring.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience representing a diverse group of taxpayers. From individuals to middle market businesses and beyond, our team of zealous advocates will assist in the development of a strategy to help you reach your specific goals and objectives. Whether you are under a tax examination or are in need of tax planning advice, contact the Tax Law Offices of David W. Klasing today, online or by phone at (800) 681-1295, for a reduced-rate consultation.
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