How to Do Your Taxes in the Gig Economy
'Keep meticulous records' and other legal tips in New York
on October 1, 2018
Updated on August 16, 2022
Increasingly, we don’t have jobs; we have gigs.
The phrase “gig economy” was coined during the global financial meltdown, when many people lost jobs and got by working several freelance jobs—or “gigs.”
Then smartphones and apps made part-time rideshare and hospitality workers out of more and more of us. Meanwhile, contract work gained in popularity in the tech world and other industries.
The advantage of being a gig worker is that you often make your own hours. Disadvantages? Well, taxes to start. Gig workers don’t technically have bosses, and taxes aren’t automatically taken out of their earnings. So to avoid getting slammed come tax season, they need to set aside a portion of their earnings each quarter for taxes.
“Not everybody realizes they have to set aside money to pay quarterly estimated tax payments,” says Karen Tenenbaum, a tax attorney at Tenenbaum Law on Long Island. “That’s probably going to be the biggest issue for a freelancer—they might not realize what’s due and when it’s due.”
Experts recommend making estimated tax payments in April, June, September and January. If your gig work is in addition to a full-time job, you can have your non-gig employer increase your tax withholdings as well.
Tenenbaum says that, regardless of whether you view your work as a business or a hobby, you’ll want to keep records in a businesslike manner. She recommends using a bookkeeper or a software program to track expenses and possible deductions.
Neil D. Katz, a tax attorney at Katz, Smith & Chwat, agrees. “For anybody who’s working in a freelance world, the most important thing to do is to keep meticulous records,” he says. “They’ll want to have all of their expenses very clearly documented, using whatever documentation system they have, so that they can justify and support what they are ultimately going to be reporting on their returns.”
Come tax season, most companies mail 1099 forms to their contract or freelancer workers, who will most likely also have to fill out Schedule-C—a form that reports income and expenses from self-employment. But be careful. “If you’re not able to support, with documentary proof, that the expenses are justifiable, then you’re going to be subject to additional tax, to interest on the tax and potential penalties,” Katz says.
Additionally, make sure you’ve gone over your deductions. For example, if you’re a rideshare driver, mileage you put on your car during work hours can be deducted. However, Katz notes that, due to 2017’s Tax Cuts and Jobs Act, some things have gotten trickier. “We’re still waiting for a lot of guidance from the federal government,” he says. “There’s an indication that some types of meals may be deductible, while entertainment is not. My opinion is, you take somebody out to a ball game, a play, to play golf—those types of expenses are not going to be deductible.”
Katz recommends meeting with a lawyer or tax adviser before getting involved in the gig economy so you can be prepared for potential errors. “Unfortunately, we often get involved on the tax-side while helping to work through an audit, or something beyond an audit,” he says. “There are a lot of things that people don’t consider, because they might be young and it might be a part-time thing,” adds Tenenbaum. “You don’t realize you have to treat it like a business.”
Jorge Rodriguez, a tax attorney at Rodriguez Law Firm, says it’s more important than ever to work with a tax attorney instead of simply an accountant. “In New York,” he says, “there is no accountant-client privilege.”
If you want more information on the IRS, income taxes, filing taxes, tax deductions, gig economy workers (self-employed individuals) and self-employment taxes, independent contractors, income tax returns, business expenses, taxable income, see our tax overview.