There are terms being thrown around these days: Gig Work, Gig Economy, Side Gig, etc. They all mean the same. I started my own business to make extra income, or I quit my job to start my own business and make money. Whatever you call it self-employment is what it is. Small businesses are a huge part of the economy.
You have decided to join that economy buy doing your own thing. What is your thing? Delivering for Door Dash, Grub Hub, or someone else? Building custom doll houses in the garage workshop that you sell for a premium online? Selling stuff through Amazon, E-bay, Etsy, or other online store front? Doing tax returns from your kitchen table and deal with clients through Zoom or other online meeting system? Lawn mowing, home remodeling, handyman, independent tradesman, or any other profession operated from your home, physical “store front”, or office. Some of the gigs I mentioned could be considered a hobby. For it to be considered a business and able to deduct expenses, there has to be a profit motive. You must be in it for the long haul and trying to make a profit.
Now that you have made that decision, most just start work on the “project” and are making money. What entity form does the business take? Sole-proprietorship, Limited Liability Company (LLC), Partnership, Corporation? Most side gigs are of the sole-proprietorship or LLC type. The discussion here, and my specialty, is going to be sole-proprietorship and the LLC treated as a disregarded entity (Single Member LLC). The LLC when set up and you request an Employer ID Number (EIN) is automatically a partnership, unless you tell the IRS different. You would need to tell them you are a single member LLC with no employees (at this time). Then the LLC is basically treated as a sole proprietorship. This is a basic explanation and beyond the scope of this discussion.
In scope is some of the tax issues a business (side gig) owner needs to consider. There are some resources that you need to be familiar with:
1. The IRS web site and self-employed tax center at https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center
2. IRS Manage taxes for your gig work at https://www.irs.gov/businesses/small-businesses-self-employed/manage-taxes-for-your-gig-work
3. IRS Publication 583 – Starting A Business https://www.irs.gov/pub/irs-pdf/p583.pdf
4. IRS Publication 334 – Tax Guide for Small Business (For Individuals Who Use Schedule C) https://www.irs.gov/pub/irs-pdf/p334.pdf
5. IRS Publication 535 – Business Expenses https://www.irs.gov/pub/irs-pdf/p535.pdf
At this time, we are not going to get into employees or independent contractors. The above resources mostly are about expenses a business is allowed as a deduction. Some of them can get complicated. But let’s keep it simple. Go to IRS.GOV and download Form 1040 and Schedules 1, 2, 3, C, SE, D, and E. These, depending on your business, will be needed to file tax returns. To make some of this easier for me when I first started, spreadsheets came in very handy. It really does not matter if it is Excel, Google Sheets, or one of the free office suites. They all work pretty much the same.
All income from the side gig is taxable income and except for partnerships and corporations need to be included on Schedule C with your Form 1040. If your income minus expenses from the gig is less than $400.00 there is no Self-Employment Tax. It does not matter where the income comes from or how you receive it. By the way, if your customer/client pays you and you receive it (credited) through PayPal (for example) on December 31, 2021, it goes on the taxes for 2021. We are not going to get into a cash basis or accrual basis business. Another time and place.
You cannot deduct as an expense normal and necessary living expenses that you would have if you did not have a business. There are rules to follow for things like home office, use of your personal phone (cell or landline), vehicle use, and others. Read the publications above to learn what is needed.
Today we are just going to discuss deducting vehicle expenses. There are two ways to deduct expenses for a vehicle. The first is actual expenses for gas, oil, depreciation, etc. This is not as easy as the other way. Again, read the above publications on how to do this. The other way is using the standard mileage deduction. Currently it is around $0.56 (fifty-six cents) per mile.
For the mileage deduction you have to keep a log. There are several ways but the easiest I have found is to keep a small palm sized notebook in the car. You will need to keep track of, at the very least, date, time (something I use), start mileage, end mileage, why the business trip.
Example:
Year, make, model of vehicle:
VIN:
Date purchased:
Date placed in service: (when you started using it for business)
Date | End Mileage | Start Mileage | Total Miles | Reason for trip
08/27 | 107256 | 107246 | 10 | delivery to 124 street
For a gig like Door Dash travel from your residence to pick up the first order for delivery is not deductible. Once you pick up the delivery and are taking it to the customer you can use those miles. Then you go pick up another delivery and deliver, you can use those miles. Another pick up and delivery, deductible miles. If that is your last delivery, the miles from there to home is not deductible.
That is all I have time for today. But as you can tell it is not simply adding up all your bills and taking them off the income. If you need assistance, I would be happy to help. There is a free consultation that starts with finding out, from you, the situation. Simple, quick, answers to a question should fall into this consultation time. If it gets more in depth, you will be given the appropriate advisory fees.
If you or someone you know needs assistance, get in touch. Call/Text: 712-274-3469 (Mon – Fri 9am – 7pm Central); E-mail: TaxHelp@BabitzkeEA.com
#taxes #gig #self-employed
