Advice for Small Businesses and Gig Workers
Every year, more and more people are taking to the freelance life or similar avenues within the gig economy. While this often provides new and novel benefits compared to standard full-time employment, one of the rougher edges is felt when tax season rolls around, as the 1099 form brings with it a distinct set of responsibilities. Many newcomers to the gig economy are often not as aware of these as they should be, and this lack of awareness is known to cause problems down the line. The IRS is notorious for its customer service (or more accurately, its functional lack thereof for many inquirers), so it can be difficult for 1099 filers to get the information they need in order to have a minimally stressful tax season. Fortunately, there are plenty of helpful practices for those navigating the various aspects of this particular tax terrain.
Starting with what may seem like the obvious, organization is fundamental to a good tax season. This means keeping detailed records and keeping them in order. It is not unusual for small business owners and gig workers alike to find themselves losing out on deductions or even getting audited because they were unable to provide documentation for a given aspect of their business. Organization also means being aware of filing deadlines. Again, it sounds obvious, but the steep penalties associated with untimely filings make being repetitive and obviously more than worth it.
Self-Employment and Income Tax
1099 filers, unlike regular, full-time employees, are responsible for paying their own income and self-employment taxes. This entails different needs when budgeting in order to avoid problematic tax burdens come filing time.
Assuming that the organizational tips above are followed, those filing 1099 forms can deduct a wide variety of costs related to their earnings. Such deductions can include everything from job-related mileage to, in some cases, some home insurance and utility costs (if the home qualifies as an office).
The Affordable Care Act requires that all individuals and families have health insurance, or be fined for each uninsured adult head in the household. ACA plans are ranked by their out-of-pocket costs, and while the benefit is consistent across all of them, the higher out-of-pocket costs associated with the cheaper plans can present an issue for gig workers with inconsistent income. For such individuals, the Silver Plan is often advisable, but it is important that each individual do research or get advice regarding what kinds of income-based reductions they may qualify for, and which plan is best for their situation. Being on top of one’s healthcare is advisable particularly because the IRS will reconcile a 1099 filer’s tax return and ACA application themselves. As such, the income verification component of the ACA is less emphasized, but it is advisable to estimate your income higher on the application because overestimations will trigger a refund, whereas underestimations will require payback. A key distinction to make is that while inaccurate estimations do not have associated penalties, knowingly providing false information does, in spades.
If you are a new 1099 filer, you may stand to benefit from getting help with your new tax responsibilities. A qualified third party can ensure that you are aware and on top of everything you need to be and, depending on where you go, even help ensure that interactions with the IRS go as well as possible.