I know you thought it sounded pretty good when you decided to pick up a few extra dollars by driving for Lyft and Uber. Moreover, most of you didn’t realize how little ‘profit’ (not cash) you would actually generate. To make it worse, this past year, you probably got very few gigs, since folks were (are) petrified of getting sick from traveling in your car. But, if you did make money, there are still big issues.
Like right now, when you have to prepare your income taxes.
How many miles did you drive for business? for pleasure? for your full-time job? Oops. You forgot to track them. That’ll cost you. But, if you drove enough (according to them- not according to you), those guys (Uber, Lyft) actually provide you with an accounting which you can use to complete your taxes.
Did you dedicate a spot in your house for doing your paperwork? No, not the kitchen table. That doesn’t count as a valid home office. So, if that’s where you did your paperwork, then you can’t take the home office deduction.
But, if you did have a dedicated space, there are two ways to determine how much home office is a legal deduction. One is the “simple” method, if your office space is less than 300 square feet; this which entitles you to a straight $ 5 a square foot deduction. Or, you can determine the size of your abode, the size of your office, and deduct a portion of the rent/mortgage interest, utilities, and insurance that you spend each year. A lot more complex, but a better deduction if your office is 325 square feet or larger.
What about meals? That’s a firm maybe. Maybe if you tracked for whom you drove. Or, if you were driving from 5 to 10 PM and picked up a meal over that ‘shift’.
But, no entertainment is deductible. That deduction was eliminated with the passage of the Tax Cut and Jobs Act three years ago.
And, the money that’s left over after deducting all your gig expenses from the income you received? That’s not only subject to income taxes, but to self-employment taxes…And, self-employment is taxed at 15.3% of the net. (To cover Medicare and Social Security- both the employee portion and the employer portion. Since a self-employed person is indeed both the employee and the employer. There is a small credit provided you for paying these taxes, but the self-employment taxes often exceeds the amount of income tax you owe!)
And, owing taxes now means you need to be making estimated tax payments four times a year- to the Feds and to your state taxing authority. (15 April, 15 June, 15 September, and 15 January.) Otherwise, you can expect to pay a fine (called an underpayment penalty) next year.
Oh, yeah. Those tax programs are a lot more expensive when Schedules C and SE (the self-employment/gig/unincorporated business tax forms) are required. About as much as a tax professional might charge. (The good news is that there is a discount offer for access to Turbotax Home and Business! I’ve also heard that Luft and Uber sometimes subsidize their drivers for the costs.)
Hurry up. Because if you are going to need help, you need to know that most professionals raise their rates this time of year. That’s if they have the time to add you to their queue.
This will be very helpful for many self employed.
Good! Then, I accomplished my task, Martha!
I am so glad that I am retired and no longer need to file a tax return. I do file anyway just to get back the $250 taken from my wife’s pension but at our ages, we don’t reach the income bracket where we need to pay.
ChefWilliam recently posted..Diamonds In The Rough After You Retire
It is a great idea to get back all the money you deserve, ChefWilliam!
Interesting. There is so much to think about when you are self employed. Stuff that your boss would normally do.
Alice Gerard recently posted..It’s time for some writing fun!
That’s for sure, Alice. Because if you are self-employed, you ARE the boss.
Self employment tax gets you every time!
Yes- too many folks don’t realize that at the lower end of the financial spectrum, it is often the major tax burden,
I am not yet a gig worker or self employed at this time… since my blog does not really generate any income .
But I know I need to keep these in mind for whatever I choose to take up as my gig
And until then, so glad you wrote this to benefit those who are in that position
Glad you have an idea of the parameters to track when and if you do convert your blog to an income generation machine. (I, too, do not employ my blog as a financial revenue source.)
“Wow” (knowing someone who drives for Uber or Lyft on the side). So much to consider, and this should be a must read if you are even thinking about doing something like this.
Alana recently posted..The Crochet Summit
Yes, Alana! Forewarned is forearmed. Especially when taxes are involved.
Strange how a kitchen table cannot serve also as an office!! Mine does!! But then again, I’m not a gig worker.
I think you misunderstood the thrust of the issue, Kate. Sorry for not making it clear. You are personally welcome to have an office wherever you desire- on the kitchen table, on the commode, etc. But, only a dedicated room can serve as a DEDUCTIBLE office for tax purposes.