Tax Planning for Gig Economy Clients

Post-COVID, more people than ever are freelancing, finding remote work, or maybe they started a fashion blog, but no matter what the newest trend is, the gig economy is here to stay. Tax preparers can help clients be better prepared this tax season by providing planning and education unique to gig work.

Even clients who have full-time jobs are more and more often coming in with 1099s from “side gigs”. Many of them are unprepared for the tax implications and have no idea where to start in terms of what they should or could be writing off. To make life easier for yourself as a preparer, I highly recommend creating a list of the most common Schedule C deductions. Other templates that can be helpful to your clients and save you time are workpapers for home office deductions and mileage. Creating these templates ahead of time makes it easier for your clients to fill in the data and faster for you to capture the information you need.

Most critically, we need to plan for the implications of the 1099-K. Gig workers who may not previously have been getting 1099s from payment processors like PayPal or Venmo might have a mess on their hands this year as they work to untangle what payments they received for business income and what might be a reimbursement for a friend’s coffee. The IRS recommendation is for gig workers using these payment apps to try to mark payments as “business” whenever possible. The advice is not going to be a foolproof method though to getting 1099-k information correct. The additional recommendations for taxpayers include adjusting any mis-reported income from the 1099-k in the other income and adjustments section of the taxpayer return.

Gig workers often don’t know what kinds of expenses can be deducted beyond the obvious business expenses they have such as product purchases, advertising, or office expenses. Keeping a list of less common expenses like self-employed health insurance, software expenses or bank fees may help prompt your client for better information that aids in reducing their tax liability.

Don’t forget to ask about SEP IRA contributions if applicable. If gig workers are previously used to only having a W-2, they haven’t necessarily been told about the benefits of SEP IRAs and other tax planning strategies that are more specifically beneficial when there is self-employment income on a tax return. Starting to have these conversations now can also help your client better plan from a cash flow perspective to not only pay their taxes but fund any other accounts that you might discuss for tax planning purposes.

As remote work continues to become more accessible, tax preparers are going to continue to face more questions from gig workers about write offs, strategies and what else they should be doing to help improve their tax position. Make is easier on you and your team to answer and put together ready-to-go templates and lists customized to gig workers that you can easily send out to create a happy client.

Christine Gervais

Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.

At Cultivate Consulting Group, we understand that you want to achieve lasting financial stability that leads to the legacy you envision for your company and family. The problem is traditional CPA firms are not known for proactive communication, which leads to uncertainty when it comes to your business’s tax efficiency and financial standing.
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