Why Pay and Prepare Your Taxes

Have a question ? Contact@LAPremierTax.com

Tax Tips for Gig Workers – Uber | Lyft | DoorDash |InstraCart | Airbnb

Prior to covid-19, the gig economy seems to be on steriods. The emergence of Amazon, Uber and Lyft, Airbnb, InstraCart, Grubhub, DoorDash were all new entries into the way we now live. More and more people tend to use gig work to supplement their income.

If you take up gig work on a part-time or full-time basis, often through a digital platform like an app or website. Gig work, such driving a car for booked rides, selling goods online, renting out property, or providing other on-demand work, is taxable and must be reported as income on the worker’s tax return.

Here are some things gig workers should know to stay on top of their tax responsibilities:

Gig work is taxable:

  • Earnings from gig economy work is taxable, regardless of whether an individual receives information returns. The reporting requirement for issuance of Form 1099-K changed for payments received in 2022 to totals exceeding $600, regardless of the total number of transactions. This means some gig workers will now receive an information return. This is true even if the work is full-time or part-time.
  • Gig workers may be required to make quarterly estimated tax payments.
  • If they are self-employed, gig workers must pay all their Social Security and Medicare taxes on their income from the gig activity

Proper worker classification:

While providing gig economy services, it is important that the taxpayer is correctly classified.

  • This means the business, or the platform, must determine whether the individual providing the services is an employee or independent contractor.
  • Taxpayers can use the worker classification page on IRS.gov to see how they should be classified.
  • Independent contractors may be able to deduct business expenses, depending on tax limits and rules. It is important for taxpayers to keep records of their business expenses.

Paying the right amount of taxes throughout the year:

  • An employer typically withholds income taxes from their employees’ pay to help cover income taxes their employees owe.
  • Gig economy workers who aren’t considered employees have two ways to cover their income taxes:
    • Submit a new Form W-4 to their employer to have more income taxes withheld from their paycheck if they have another job as an employee.
    • Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.

The Gig Economy Tax Center on IRS.gov answers questions and helps gig economy taxpayers understand their tax responsibilities.


More information:
Publication 5369, Gig Economy and your taxes: things to know
Publication 1779, Independent Contractor or Employee
Is My Residential Rental Income Taxable and/or Are My Expenses Deductible?

Share this tip on social media — #IRSTaxTip: Here are some things gig economy workers should know about their tax responsibilities. http://go.usa.gov/xJ7KX

IRS Rules Regarding 1099’s

Below are the IRS 1099-Misc. rules regarding paying someone for services they provide. 

File Form 1099-MISC for each person to whom you have paid during the year:

  • At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
  • At least $600 in:
    • Rents.
    • Prizes and awards.
    • Other income payments.
    • Medical and health care payments.
    • Crop insurance proceeds.
    • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
    • Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
    • Payments to an attorney.
    • Any fishing boat proceeds.

In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

Source: IRS Rules for 1099-Misc

What is Schedule C (Form 1040) – Uber, Lyft and Taxi Drivers (Gig Workers)

If you earned $600 or (someone pay you $600) or more, you were not an employee of a company or the person that paid you the $600, you are consider Self-Employed or an Independent Contractor for IRS tax filing. You will have to file Form Schedule C – Profit or Loss From Business.

If someone pay you for work done or perform and they decide to tell IRS, they will issue you a 1099-Misc, 1099-NEC, or a 1099-K. They are required to report payment to vendors over $600 under our tax laws. You now are going to have to file a Schedule C as part of your tax filings.

So, what is Schedule C?

Schedule C is the form the IRS expects Self-Employed, sole proprietors or Independent Contractors to complete and report their income – i.e. Profit and Loss. Only use Schedule C if you are not a Corporation or an Limited Liability Company LLC with more than one member.

Single member LLCs should file Schedule C also. The IRS refer to Single Member LLCs as Disregarded Entity.

Schedule C is the only form use for filing taxes for independent contractors or self-employed individuals. It is widely use and popular with the IRS. It incorporates Home Office Expenses, Business Travel & Meal Expenses, and Mileage Deductions. All these are tax credits and deductions are tax advantages for taxpayers.

Because Schedule C is widely used, it is the most AUDITED SCHEDULE. We tell clients that they should keep good records when it comes to Schedule C filings. Quickbooks Self-Employed is your Bookkeeper. Sign up for QB Self-Employed.

The story we tell most clients especially retirees who volunteer their time at Church or some charitable organization and the organization decides to show appreciation by paying the individual $1,000 or more for his or her time; Guess what? The charitable organization is now obligated to report such payment to the IRS. The only way the organization can tell the IRS they give you $1,000 is by issuing you a 1099-Misc.

You the receipient of the payment now have to include the 1099-Misc. (i.e. income) with his or her filing. You are now self-employed under the IRS rules. You now have to a file Schedule C.

This law does not make sense but that’s the law. Most people who are paid with a 1099-Misc. or 1099-NEC that come to our practice do not keep records. We see this all the time. We strongly recommend QB Self-Employed for Uber, Lyft, Postmates, DoorDash, etc. etc. etc.

However, in additional to filing schedule C, you also will need to file Schedule SE which stands for Self-Employment Tax. The IRS require you to pay 7.5% in Self-Employment Taxes (Schedule SE). So then, the $1,000 or more you did received for voluntary service at a charitable organization will now be tax twice. One for self-employment taxes. The other tax is for ordinary income on your “Net Profit.” The IRS do not like self-employed individuals to show business losses. (Side note: Between us, the IRS is after self-employment taxes more than anything else.)

What does this means? It means that $1,000@7.5% = $75 SE taxes you owe. Then the $1,000 less $500 business expenese leave you with $500 taxable ordinary income. Let’s caculate your taxes on the $500.

The Federal Tax Rate for oridinary income varies depending on your tax bracket. You can view your tax bracket the 2020-2021 tax season at Bankrate. The $500 income falls under the 10% bracket. Therefore, $500@10% = $50. Now the total taxes you owe on the $1,000 is $125.00. [$75+$50]

This rule is burdensome and can cause lots of headaches | extra work for tax practitioners.

We can help you with filing Schedule C and tracking those business expenses

Per the IRS: Gig economy workers are all consider Schedule C filers. The IRS monitors these filings closely.
Let us first look at what is a Gig Work?

A gig work is a certain activity that you do to earn income, often through an app or website (digital platform), like:

  • Drive a car for booked rides or deliveries
  • Rent out property or part of it
  • Run errands or complete tasks
  • Sell goods online
  • Rent equipment
  • Provide creative or professional services
  • Provide other temporary, on-demand or freelance work
  • Note: This list does not include all types of gig work.

What are Digital Platforms?
Digital platforms are businesses that match workers’ services or goods with customers via apps or websites.
This includes businesses that provide access to:

  • Ridesharing services
  • Delivery services
  • Crafts and handmade item marketplaces
  • On-demand labor and repair services
  • Property and space rentals

You now have to file Schedule C along with whatever form was issued to you by company that employ you. Ridesharing workers usually get form 1099-K.

Taxpayers must report gig economy earnings when filing taxes – Issue Number:  Tax Tip 2022-07

Whether it’s a full-time job or just a side hustle, taxpayers must report gig economy earnings on their tax return. Understanding how gig work can affect taxes may sound complicated but, it doesn’t have to be. The IRS offers several resources to help gig economy taxpayers properly fulfill their tax responsibilities.

Here are some things gig workers should keep in mind.

Gig work is taxable:

  • Earnings from gig economy work is taxable, regardless of whether an individual receives information returns. The reporting requirement for issuance of Form 1099-K changed for payments received in 2022 to totals exceeding $600, regardless of the total number of transactions. This means some gig workers will now receive an information return. This is true even if the work is full-time, part-time or if an individual is paid in cash.
  • Gig workers may also be required to make quarterly estimated income tax payments and pay their share of Social Security and Medicare taxes.

Check worker classification:

  • While providing gig economy services, it is important that the taxpayer is correctly classified.
  • This means the business, or the platform, must determine whether the individual providing the services is an employee or independent contractor.
  • Taxpayers can use the worker classification page on IRS.gov to see how they are classified.
  • Independent contractors may be able to deduct business expenses, depending on tax limits and rules. It is important for taxpayers to keep records of their business expenses.

Pay the right amount of taxes throughout the year:

  • An employer typically withholds income taxes from their employees’ pay to help cover income taxes their employees owe.
  • Gig economy workers who are not considered employees have two ways to cover their income taxes:
    • Submit a new From W-4 to their employer to have more income taxes withheld from their paycheck, if they have another job as an employee.
    • Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.

The Gig Economy Tax Center on IRS.gov answers questions and helps gig economy taxpayers understand their tax responsibilities.

More information:
Publication 5369, Gig Economy and your taxes: things to know
Publication 1779, Independent Contractor or Employee
Is My Residential Rental Income Taxable and/or Are My Expenses Deductible?

Tax Planning Requires Good Record Keeping

The Internal Revenue Service – IRS encourages people to plan for tax season. Like all of us, we just don’t. Below are tips recommended by the IRS

What taxpayers can do now to get ready to file taxes in 2022

There are steps people, including those who received stimulus payments or advance child tax credit payments, can take now to make sure their tax filing experience goes smoothly in 2022. They can start by visiting the Get Ready page on IRS.gov. Here are some other things they should do to prepare to file their tax return.

Gather and organize tax records
Organized tax records make preparing a complete and accurate tax return easier. They help avoid errors that lead to processing delays that slow refunds. Having all needed documents on hand before taxpayers prepare their return helps them file it completely and accurately. This includes:

Taxpayers should also gather any documents from these types of earnings. People should keep copies of tax returns and all supporting documents for at least three years.

Income documents can help taxpayers determine if they’re eligible for deductions or credits. People who need to reconcile their advance payments of the child tax credit and premium tax credit will need their related 2021 information. Those who did not receive their full third Economic Impact Payments will need their third payment amounts to figure and claim the 2021 recovery rebate credit.

Taxpayers should also keep end of year documents including:

  • Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance child tax credit payments
  • Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the recovery rebate credit
  • Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance premium tax credits for Marketplace coverage

Confirm mailing and email addresses and report name changes
To make sure forms make it to the them on time, taxpayers should confirm now that each employer, bank and other payer has their current mailing address or email address. People can report address changes by completing Form 8822, Change of Address and sending it to the IRS. Taxpayers should also notify the postal service to forward their mail by going online at USPS.com or their local post office. They should also notify the Social Security Administration of a legal name change.

View account information online
Individuals who have not set up an Online Account yet should do so soon. People who have already set up an Online Account should make sure they can still log in successfully. Taxpayers can use Online Account to securely access the latest available information about their federal tax account.

Review proper tax withholding and make adjustments if needed
Taxpayers may want to consider adjusting their withholding if they owed taxes or received a large refund in 2021. Changing withholding can help avoid a tax bill or let individuals keep more money each payday. Life changes – getting married or divorced, welcoming a child or taking on a second job – may also be reasons to change withholding. Taxpayers might think about completing a new Form W-4, Employee’s Withholding Certificate, each year and when personal or financial situations change.

People also need to consider estimated tax payments. Individuals who receive a substantial amount of non-wage income like self-employment income, investment income, taxable Social Security benefits and in some instances, pension and annuity income should make quarterly estimated tax payments. The last payment for 2021 is due on Jan. 18, 2022.

Share this tip on social media — #IRSTaxTip: What taxpayers can do now to get ready to file taxes in 2022. https://go.usa.gov/xeEMp

Friendly Tax Services

Friendly Tax Services is the premier income tax preparation firm for individuals, families, small business owners and the self-employed; Uber, Lyft, Taxi, and Limousine drivers; Actors, Independent Contractors and Entrepreneurs. We have empathy and understand the toll driving takes on Uber, Lyft, Taxi, and Truck drivers. That driving is time consuming. Uber drivers just don’t have the time it takes time to keep track of those business-related expenses.


Contact Us

  • Address :

    1010 N Central Ave. Suite 415 Glendale, CA 91202
  • Call Us :

    (323)451-5768
    (866)542-9551
  • E-mail Us :

    Contact@LAPremierTax.com
FRIENDLY Tax Services (Accountants and Tax Preparers)