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Tax tips for Americans new to gig work

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Posted at 11:41 AM, Feb 15, 2021
and last updated 2021-02-15 14:47:01-05

Gig work has been getting more popular, especially during the pandemic. A recent survey from freelance job platform Upwork found 36% of the U.S. workforce did freelance work in the past year.

But if you're new to gig work, you may not have a good understanding of how that impacts your taxes.

Tax filing is open now, so we want to help you out. You may face a shock with the self-employment tax rate. For 2020, it's 15.3% on the first $137,700 of net income.

This is not the same as income tax.

Tax Time

Tax Time

1:20 PM, Oct 04, 2018

You can help offset this by claiming your expenses. If you haven't been tracking them since you started gig work, you can try to reconstruct them.

“So, a lot of times, you can go to bank records, look at your credit card statements, if you have a glove box, full of receipts, it's not a fun process, but you can reconstruct a lot of those expenses likewise with your mileage. You may be able to reconstruct those and if you're working for a platform, make sure you check and see what they might have tracked for you on your behalf,” said Andy Phillips, Director of The Tax Institute at H&R Block.

If you're a W-2 employee working from home, you're not eligible to deduct expenses that are not reimbursed by your employer. But gig workers can deduct home office expenses.

“For home office deductions for small business owners, including folks that are maybe working in a gig space, where they do work from home, you know, that your home office space has to be used both continually and exclusively for business to be able to deduct some of those expenses.”

Another question that's going to come up is what forms to fill out. You may have received a 1099-K or a 1099-NEC. Or you may not have received anything.

“Even if you don't get a 1099 of any type, that income is still taxable. So again, it goes back to record-keeping. If you didn't get a 1099, those platforms should have a good account statement showing the payments you received during the year, so that's going to be your backup. You're going to use that to prepare your return and you're going to keep that to substantiate your income should your state or the IRS have any questions.”

Two ways to get a faster tax refund are filing electronically and making sure you're avoiding any mistakes on your taxes.

You may be more likely to make mistakes if you're in a new tax situation, so this could be the year to get help from a professional. There are virtual options if you're not comfortable going in person.

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NEW TAX LAW

If you’re wondering how you’re affected, not to worry, we have your back. We’re doing the work to make sure our products are up to date and that you can use them to file your taxes with complete confidence.

That said, many folks are wondering what’s in the bill and how it might affect them. Here’s a recap of some of the major tax provisions in the new tax bill and how they may impact you.

Increased Standard Deduction: The new tax law nearly doubles the standard deduction amount. Single taxpayers will see their standard deductions jump from $6,350 for 2017 taxes to $12,000 for 2018 taxes (the ones you file in 2019). Married couples filing jointly see an increase from $12,700 to $24,000. These increases mean that fewer people will have to itemize. Today, roughly 30% of taxpayers itemize. Under the new law, this percentage is expected to decrease.

Increased Child Tax Credit: For, families with children the Child Tax Credit is doubled from $1,000 per child to $2,000. In addition, the amount that is refundable grows from $1,100 to $1,400. The bill also adds a new, non-refundable credit of $500 for dependents other than children. Finally, it raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000.

Personal and Dependent Exemptions: The bill eliminates the personal and dependent exemptions which were $4,050 for 2017 and increased to $4,150 in 2018. State and local taxes/Home mortgages: The bill limits the amount of state and local property, income, and sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax deductible. The bill also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000 down from $1,000,000 in current law.

Health Care: The bill eliminates the tax penalty for not having health insurance after December 31, 2018. It also temporarily lowers the floor above which out-of-pocket medical expenses can be deducted from the current law floor of 10% to 7.5% for 2017 and 2018. So for 2018, you can deduct medical expenses that are more than 7.5% of your adjusted gross income as opposed to the higher 10%.

Fastax Has You Covered

Don’t worry about memorizing these tax changes the majority of which are for 2018 taxes that you file in 2019. Fastax has you covered and will be up to date with the latest tax laws. Call us for tax help at 661 493-8512