Many Americans may like the idea of “being your own boss,” but it comes with some headaches during tax season. Individuals who are self-employed, freelance, independent or part of the “gig economy” will likely need to file their own taxes, and it’s more likely they will owe money rather than receive a refund. However, some deductions may also be available that are not available to every taxpayer.
“Gig economy workers are eligible for the same deductions available to other small business owners. This allows gig economy workers to deduct certain operating costs to determine net business income,” said an August Congressional Research Service report, ‘Tax Treatment of Gig Economy Workers’' “Some deductible expenses include business-related mileage in a personal vehicle, equipment and materials needed for work, and the use of a home office. Gig economy workers may also deduct half of self-employment taxes paid as an above the-line deduction on their individual income tax returns. These deductions are available to gig economy workers whether they itemize their deductions or not.”
An important consideration is what can be legally deducted and what cannot. H&R Block warned that many new small-business owners – as well as gig workers – often deduct certain expenses, like cars, cell phones, in-home offices, and travel and meal expenses. However, the IRS may view many of these expenses as personal and therefore not deductible, unless you can prove that the expenses were, in fact, business-related. This makes it important for you to keep excellent records.
Some deductions available to the self-employed/gig worker includes the "home office deduction," if it is a workspace that is used regularly and exclusively for your business. This also applies whether you own or rent your home.
There are two options for the calculation. In the simple method, you can elect to deduct $5 per square foot, with a maximum of three hundred square feet or a $1,500 deduction. Alternatively, you can keep records of mortgage interest, utility bills, homeowner’s insurance, home repairs, and similar expenses. According to TurboTax, in this method, you can use a percentage of your home’s square footage to determine your deduction.
Additionally, mileage driven to conduct business is tax-deductible for gig economy workers. There are also two ways to determine the miles. The first is to use the IRS-determined standard mileage rate; or to calculate your actual expenses based on the cost of operating your car – and that includes gas, oil changes, car insurance, etc.
Other deductions can include internet and phone bill, health insurance premiums, retirement plan contributions, business travel and meal expenses, business loan or credit card interest, publications and subscriptions, rent, business insurance, startup costs, advertising, contract labor, materials and supplies, office expenses, and licenses. Gig workers and the self-employed can also write off education expenses, if you take classes to maintain or improve the skills directly related to your business.
The devil is in the details, so keep those detailed records.
Peter Suciu is a Michigan-based writer who has contributed to more than four dozen magazines, newspapers and websites. He regularly writes about military small arms, and is the author of several books on military headgear including A Gallery of Military Headdress, which is available on Amazon.com.