With more people turning to side gigs like Uber, DoorDash, and Walmart Spark for extra income, tax season can bring unexpected surprises. Financial expert Paul Hood joined News On 6’s Jonathan Cooper for Money Monday to break down what gig workers should know about taxes and deductions.
Side Gig Workers Are Considered Self-Employed
Unlike traditional jobs where taxes are withheld from each paycheck, gig workers are considered self-employed, meaning they must handle their own tax obligations. Hood explained, “You’re considered self-employed. So it doesn’t matter whether you have a paper route, you’re a consultant, you drive for Uber. Now, all of a sudden, the world of deductions opens up because about 80% of the Internal Revenue Code is written for people in business for themselves.”
Maximizing Deductions: Mileage and Home Office
One of the biggest tax deductions for gig workers is mileage. Hood emphasized, “The biggest thing for, say, Uber or one of those is going to be your mileage. Now, a couple of things. One, you’re going to want to establish a home office. And that’s to have a room that’s used regularly and exclusively for business. And you get a deduction for it.” Without a home office, the IRS may not allow workers to deduct their mileage. Hood added, “The IRS says commuting miles are not deductible, meaning going from home to work. Well, where is your work? And so if you don’t have an established home office, which would be your office, your work, they can disallow most of your miles.”
Gig workers can choose between actual expenses or the standard mileage rate for deductions. The mileage rate covers gas, repairs, insurance, and maintenance, but workers must track their business miles and total miles throughout the year.
IRS Audits: Should You Be Worried?
Some gig workers worry about increased chances of being audited, but Hood said it’s all about keeping good records. He stated, “If you do anything that’s outside the norm… they can be audited without the IRS even contacting them. So once you get into that, you have a farm, a business, rental property, sure. But that’s not a reason not to do it. Just keep good records and document.”
How to Stay Organized
Hood recommends using tax software and mobile apps to track expenses and mileage. He said, “There’s software now that you can put on your phone that you can keep track of things.” As tax season approaches, gig workers should prepare early, keep thorough records, and take advantage of available deductions to avoid unexpected tax bills.
In conclusion, gig workers need to be aware of their self-employed status, maximize deductions like mileage and home office expenses, stay organized with good record-keeping, and be prepared for potential IRS audits. By following these tips, gig workers can navigate tax season with confidence and avoid any surprises.
