If you’re dreaming of working from home, being your own boss, or owning your own business in the gig economy, think carefully. You need to be aware of some pertinent facts that will significantly affect your financial health and welfare. It can be especially shocking and frustrating when it’s time to file your federal income taxes. Be prepared – you’re going to pay more in taxes in 2025 when you report your 2024 earnings.
The IRS defines gig workers as self-employed if they earn $400 or more. As such, you must pay employer and employee federal income taxes. That means Social Security, Medicare, and a self-employment tax. The self-employment tax is 15.3 percent of what your gig work earnings, 12.4 percent for Social Security, and 2.9 for Medicare.
You Might be a Gig Worker…
You could be a gig worker and not even realize it. If you do on-demand freelance projects, you’re a gig worker. The realm of gig work encompasses food delivery, driving a rideshare, or walking dogs.
Ways to Reduce the Burden
The first rule as a gig worker is to save every receipt for money you spend in connection with your work, whether you consider it gig work, freelancing, or a side hustle. You can deduct those expenses on your income tax return.
Hire an Accountant
With gig work, your taxes become more complex, complicated, and require more forms. The services of an accountant familiar with gig work and the tax structure is indispensable. He or she can help you find ways to minimize taxes, while maximizing what you keep.
Software and Setting Aside Funds
It can be helpful to use home accounting software, but you have to be diligent about making entries. You’ll need to set aside a portion of your earnings to cover the cost of your taxes when you file, since it’s difficult to know exactly how much you’ll owe. A good rule of thumb is to set aside 30 percent.
At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs. We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today (843) 347-0849 and discover why our clients return to Peavy and Associates, PC year after year!