Today TaxMama® says that estimated tax payments are due – and that’s timely information for the “Gig” economy.
Dear Friends and Family,
Here are 15 tips for Uber, Lyft and AirBnB workers and others out there on your own. Some of the information comes from chapters 7 and 8 of Deduct Everything
1) Be sure to track all rental days – and/or rental hours if you’re doing pet sitting or providing child care or adult care.
2) Buy rental foods and supplies separately from personal supplies – keep the grocery or store receipts and track them. You can scan them directly into your accounting system if you use Xero or QuickBooks
3) When setting up the house to depreciate the office in home, use your basis (purchase price) or the current fair market value (FMV) – but only if FMV is lower. Be sure to deduct the value of the land first, before computing depreciation.
4) YES, if you are renting your home, you MUST claim depreciation – or use the simplified office in home deduction. Which doesn’t give you enough value when you are renting to tenants instead of using a small office area.
5) For Uber or Lyft drivers with an Office in Home, the simplified method is probably a better idea than all the fuss about actual expenses. You can claim up to $1500/ year ($5 x 300 sq ft) for a separate office area. https://www.irs.gov/businesses/small-businesses-self-employed/simplified-option-for-home-office-deduction
6) The biggest fallacy of people who get 1099s – you are not an employee – you are in business for yourself. Act like it. After all, you will be paying self-employment taxes of 15.3% on all your net profits.
7) Open a separate business bank account.
8) Make IRS and state estimated tax payments each quarter – the next one is due on Sept 15th
9) You can avoid making estimated payments by raising your withholding if you also have a job.
10) How much should you pay in estimated tax payments? Add 15.3% to your IRS tax bracket (say 15% = 30.3%) + whatever your state bracket is. Figure with IRS and state – you should pay about 35% of your profits for the quarter.
11) What’s the best way to pay? Since you don’t have employees, and probably don’t want to go to the trouble of linking your bank account to the IRS’s system (via www.eftps.gov ), use the IRS’ Direct Pay system. It’s free, takes the money from your bank account, provides an instant receipt – and you control where the money is applied – so do it carefully and slowly.
Check to see if your state has a similar system. Of course, you can always use something like www.pay.gov (you can use bank account or debit/credit card)
12) Tracking mileage isn’t too hard, since Uber has a tool that handles it for you. Lyft doesn’t seem to, so use MileIQ or something similar
13) In all cases, be sure you have all the correct licenses. Generally getting them is inexpensive and easy. But not having them generates penalties.
14) If you have people working for you – be sure to put them on payroll if they really are your employees. Treating them like freelancers will cause you untold problems – from so many different sources.
15) If they are really in business for themselves have them fill out a Form W-9 to collect each person’s Social Security number or employer ID number, address, and type of business they operate, if they are an entity. Get this before making the first payment to them. Otherwise, you might have to start holding back 30% of their compensation, or get into trouble yourself.
To make comments and toss in your own ideas, please drop into the TaxQuips Forum.
And remember, you can find answers to all kinds of questions about gigs and other tax and business issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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