In recent years, the gig economy has changed how people do business and provide services. Taxpayers must report their gig economy earnings on a tax return – whether they earned that money through a part-time, temporary or side gig. The IRS’ Gig Economy Tax Center provides information and resources to help this group of entrepreneurs and workers understand and meet their federal tax obligations.
Here are key things for individuals involved in the gig economy to remember as they get ready to file in 2023.
Gig economy income is taxable
• Taxpayers must report all income on their tax return unless excluded by law, whether they receive an information return such as a 1099 or not.
• Individuals involved in the gig economy may also be required to make quarterly estimated tax payments to pay income tax and self-employment tax, which includes Social Security and Medicare taxes. The last estimated tax payment for 2022 is due Jan. 17, 2023.
Workers report income according to their worker classification
Gig economy workers who perform services, such as driving a car for booked rides, running errands and other on demand work, must be correctly classified. Classification helps the taxpayer determine how to properly report their income.
• If they are employees, they report their wages from the Form W-2, Wage and Tax Statement.
• If they are an independent contractor, they report their income on a Schedule C, Form 1040, Profit or Loss from Business – Sole Proprietorship.
The business or the platform determines whether the individual providing the services is an employee or independent contractor. The business owners can use the worker classification page on IRS.gov for guidance on properly classifying employees and independent contractors.
Expenses related to gig economy income may be deductible
Individuals involved in the gig economy may be able to deduct expenses related to their gig income, depending on tax limits and rules.
• Taxpayers may be able to lower the amount of tax they owe by deducting certain expenses.
• It is important for taxpayers to keep records of their business expenses.
Pay the right amount of taxes throughout the year
An employer typically withholds income taxes from their employees’ pay to help cover taxes their employees owe.
Individuals involved in the gig economy have two ways to cover their taxes due:
• If they have another job where they are considered an employee, they can submit a new Form W-4, Employee’s Withholding Certificate to their employer to have more taxes withheld from their paycheck to cover the tax owed from their gig economy activity.
• They can make quarterly estimated tax payments throughout the year.
More information:
Publication 525 Taxable and Nontaxable Income
Publication 1779, Independent Contractor or Employee
Tag: business
If you are sex worker full time it may benefit you to form an LLC or an S-Corporation for tax purposes. If you have questions or need help feel free to ask us.
Small business owners have a variety of tax responsibilities. The IRS knows that understanding and meeting tax obligations is vital to the success of all businesses, especially a new one. IRS.gov has the resources and information to help people through the process of starting a new business.
Here are some tips for new entrepreneurs:
Choose a business structure.
The form of business determines which income tax return a business taxpayer needs to file. The most common business structures are:
• Sole proprietorship: An unincorporated business owned by an individual. There’s no distinction between the taxpayer and their business.
• Partnership: An unincorporated business with ownership shared between two or more people.
• Corporation: Also known as a C corporation. It’s a separate entity owned by shareholders.
• S Corporation: A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
• Limited Liability Company: A business structure allowed by state statute.
Choose a tax year.
A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:
• Calendar year: 12 consecutive months beginning January 1 and ending December 31.
• Fiscal year: 12 consecutive months ending on the last day of any month except December.
Apply for an employer identification number.
An EIN is also called a federal tax identification number. It’s used to identify a business. Most businesses need one of these numbers. It’s important for a business with an EIN to keep the business mailing address, location and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party and mailing it to the address on the form.
Have all employees complete these forms:
• Form I-9, Employment Eligibility Verification U.S. Citizenship and Immigration Services
• Form W-4 Employee’s Withholding Allowance Certificate
Pay business taxes.
The form of business determines what taxes must be paid and how to pay them.
1) Tax returns are the only proof of income you have if you’re self-employed and paid mostly, if not entirely, in cash.
2) It’s far better for the IRS to have your numbers to start with than to let them come up with their own.
3) If you get caught after not paying taxes for a number of years and get hit with a five-figure bill, it really sucks.
4) You become another person contradicting the stereotype of sex workers as tax cheats who don’t contribute to society.
5) It makes you (even more) morally superior to GE.
Things you need to file if you are an independent contractor stripper/model/performer/camgirl, an escort, sensual touch provider, etc:
Form 1040
Schedule C for income from a business (you are a business)
Form 8829 for home office deduction (you have a computer in your home where you’re doing business, yes?)
Your receipts for work-related supplies, travel, and other expenses
Records of your income
Even if you lack accurate records, give it your best shot and file. Even if you can’t pay right now, file. Even if what you do is illegal, file (you don’t have to write down what you do. We are all “entertainers”). Read this piece over at the Awl for some good reasons why you should file no matter what. It’s so, so much better to have YOUR realistic numbers than to have the IRS say, “Hey, we have this 1099 from your club, where you sold $1500 in VIP rooms, so we’re assuming that was a normal night for you, so we’re calculating your tax debt based on that,” or “Well, we saw on this 20/20 special about escorts that $2000/hour is a rate people pay in New York, so let’s start there.”
I don’t care if you’re gonna fudge it! Don’t tell me about it. Don’t tell anyone about it, for that matter. I’m not telling you to file because I think we owe it to the country or because I’m a bleeding-heart liberal or because I think the Tea Party is supremely misguided because they aren’t storming the gates of GE and Bank of America to demand they bear their burden of the tax load. I’m telling you to do this because it COVERS YOUR PRETTY PROFESSIONALLY SEXY ASS. Having personally fucked up with taxes before and knowing several dancers and escorts who’ve been in deep shit with the revenuers, I speak from experience when I say it’s to your advantage to stay on top of your taxes.