You are paying for my expertise, not my time. What online tax programs do not tell you, but a professional will about the taxes you owed this spring.
In the past few years when jobs were lost, careers derailed, and getting the bills paid was a job many employees suddenly found themselves in what has now been called the “gig economy”. What is the gig economy? Just as it always was self-employed at whatever trade or type of work for cash they could find.
Skip ahead to January 2022 when the companies they worked for sent them a piece of paper called a 1099-NEC (non-employee compensation).
Examples of Gig Work
Taxpayer Allen did Door Dash and Uber Eats for quick money. Sometimes he received cash tips at the door, other times the meal delivery companies paid him his trip fee plus any tips. Both sent him a 1099-NEC because he earned more than $600.
Taxpayer Allen also did some courier services for attorneys around town, some sent him a 1099 form, and others did not. It’s tax season, and Allen needs to file his taxes, so his solution is to go to an online program.
Taxes Through an Online Program
Taxpayer Allen goes to an online tax program. He enters his wife’s W2 and then ponders what he’s supposed to do with these 1099 Forms he was sent. Following the prompts, he places them on a form Schedule C Profit and Loss from a Business.
WAIT! Allen thinks I don’t have a business I just did some driving. Under the Internal Revenue Code Allen, yes, you did have a business. Now poor Allen owes a few thousand dollars he doesn’t have because there were no taxes withheld on these earnings and he was stuck with a bill for income tax and his Social Security and Medicare tax, commonly called self-employment tax.
Next stop — call Karen and say that he thinks Turbo Tax made a huge mistake. After preparing his tax return based on the information Taxpayer Allen provides, he does indeed owe the money to Uncle Sam and his State.
Choosing a Professional
If Taxpayer Allen had come to a professional and paid for a minimum of one hour of the professional’s charge when he first began, he may have saved himself money in the long run.
What would a professional have advised Taxpayer Allen when he started working at these jobs?
- How to calculate and record expenses such as mileage
- Not commuting, but from one stop to another — some companies will give you the mileage they say you should have driven between stops, but they never take traffic and detours into consideration
- Parking and tolls required
- PPE needed/required
- Other business expenses to do the work
- i.e. specialized equipment, insurance, supplies, etc.
Each taxpayer is unique, and each gig is unique, so it’s important to seek advice BEFORE you get too far into the work.
Are you looking into gig-working jobs? Make sure to reach out beforehand and let’s get a plan together on how you can best track your side hustle and get the most out of your return for the 2022 tax season.