Gig or Sharing Economy Income
According to a recent survey1 there are an estimated 56.7 million freelancers in the U.S. gig economy alone. Freelancers represent 1/3 or 33% of all U.S. workers. The number has increased by 3.7 million over the last five years. Learn more about what defines an Independent Contractor or a Freelancer.
When small to large businesses rely mainly on freelancers or independent contractors compared to permanent employees, then gig refers to a one-off job a person gets paid to do on an infrequent or casual basis. Thus the income generated in a gig or sharing economy is treated very similar to taxable income as an independent contractor or freelancer. The payer issues a 1099 for the tax year in which the work took place and submits it to the payee (freelancer, independent contractor) by January 31 of the subsequent year.
Typically freelancers do not register a business. The following factors determine the independent contractor status:
- Work remotely at their own location, time
- Work most the time with more than one client
- Negotiates Rates with the Payer
- Estimates and pays self-employment taxes
- Are eligible for certain tax deductions e.g. mileage, travel expenses etc.
- Does not hire employees
Often when organizations try to avoid paying benefits they shift permanent jobs into temporary jobs, thus these employers/employees are also considered part of a gig economy. However, in comparison to freelancers, part time workers receive a paycheck as payment and the annual income is reported to the employee and IRS on a W-2 form by January 31 of the subsequent tax year.
In a sharing economy goods and services are distributed differently in comparison to the traditional model of corporations hiring employees and selling products to consumers. In the sharing economy, consumers rent or share things like their cars, homes and personal time to other individuals in a peer-to-peer manner. Sharing might include the following: renting, borrowing, lending, swapping or bartering. Companies like Etsy, Airbnb, Flipkey, HouseTrip, HomeAway, Lyft and Uber are just a few that are part of the new gig or sharing economy.
You should receive one of these Income Statements: Form 1099-MISC (Miscellaneous Income), Form 1099-K, Payment Card and Third Party Network Transactions, Form W-2, Wage and Tax Statement, or some other income statement, especially if you operate in a foreign country. Even if you don't receive any of these statements your income is most likely taxable. Overview of taxable income
Expense Deductions, Depreciation
Expenses must be ordinary and necessary: e.g. business-related food, lodging, office expenses, home office deduction, required equipment or materials, supplies, cell phones, auto expenses, food and drinks for passengers, parking fees, tolls, roadside assistance plans, permit fees, professional education expenses, taxes, and incentives associated with certain electric and hybrid vehicles. Learn more here
. Depreciation is a tax deduction for wear and tear and deterioration of property with a life longer than one year. It is an annual allowance that lets you recover, over time, the cost or other basis of certain property you own. The kinds of property you can depreciate include machinery, equipment, buildings, vehicles and furniture.
Home Rental Rules
Calculating rental Income from Home or Vacation properties can get complex in the sharing economy. Please click and view the current Home Rental Rules
by Tax Year.
Independent Contractors in the Gig Economy will have to make tax estimate payments to the IRS and maybe the State Tax Agency. However, if your gig or shared economy income is only a portion of your entire income e.g. W-2 from you or your spouse, we suggest you use the free eFile.com Taxometer to estimate your tax withholding
based on your personal tax return goals. If you need to make independent tax estimate payments use Form 1040-ES
for the given tax year.
You can estimate your Tax Return for the current or previous Tax Year here on eFile.com for free. We encourage you to do this before you make tax estimates or adjust your W-4 Tax Withholding. You will have a more accurate base to estimate your taxes due. You should consider these Tax Return Goals
eFile.com makes it very easy for you to find out if you have to prepare and eFile an IRS Income Tax Return. Visit the FILEucator page
and use this free and easy tax tool to get the right answer for your tax question without having to read a lot of complicated tax mumbo jumbo.
You can prepare your freelance, independent contractor, gig or shared economy tax return - together with W-2 income you or your spouse might have - here on eFile.com with Premium Taxpert support at a significantly lower price than you would pay with a tax professional, TurboTax® or H&R Block®. Simply click the Start button below or contact one of our Taxpert with your gig questions.
Start Your Tax Return Now
TurboTax® is a registered trademark of Intuit, Inc.
H&R Block® is a registered trademark of HRB Innovations, Inc.
12018 Survey of 6,000 US Workers by the Freelancer Union and Upwork.