Gig Workers and the IRS: How On Demand Workers Can Reduce Their IRS Audit Risk

As the economic landscape evolves with the recession, there’s a noticeable move from traditional jobs to self-employment, including gig work and freelancing. The IRS is keenly observing this trend, and their scrutiny is especially directed at new small business owners. While ordinary taxpayers face less than a 1% chance of an IRS audit, the odds are climbing for those in the small business realm. If you’re part of the gig economy, it’s essential to be aware, as the increasing audit rate for small business owners warrants attention.

If you’re being audited by the IRS, if the IRS is claiming you owe $10,000, or more, contact our firm immediately for a consultation

If you want to stay on the good side of the IRS, these strategies could greatly reduce your personal risk of an audit.

Track Earnings on the App or Platform

One of the biggest red flags for IRS auditors is unreported or misreported income. It is critical for all gig workers, freelancers, and other self-employed individuals to track their earnings carefully and report them correctly.

Tracking those earnings does not have to be cumbersome, and many participants in the gig economy already makes it easy. If you are working for an app-based service, you may be able to find your total earnings on the platform – no calculator or spreadsheet required.

If you’re not, it’s important to track all of your income on something like QuickBooks. That way, when the IRS asks you for more information, you have it ready.

Ask Small Volume Clients for 1099 Forms

A single gig worker can have dozens of individual clients, and that can make accurate accounting and tax reporting difficult. One of the best ways to close this gap is by asking every client to issue a 1099-MISC form showing how much was earned throughout the year.

Major clients may already issue these 1099-MISC forms, but smaller ones may not realize they have this kind of reporting responsibility. Asking them nicely and explaining the importance of accurate reporting could convince them that the form really is required.

Check with Payment Processors for Accurate Figures

Another easy way to keep track of your earnings is through the payment processor you rely on. Services like PayPal, Stripe and Payoneer allow clients to pay freelancers and gig workers quickly, but they also tally up the individual earnings and provide handy reports for those small business owners.

If you are unsure about what to report to the IRS, you can simply go into the payment processor app or website and tally it up. Some payment processors make it easy, with detailed reports, while others require a bit of sleuthing. Either way, you can probably get the information you need this way.

Keep Your Deductions to a Reasonable, Legally Allowed Level

As a gig worker you are essentially a small business owner, and that entitles you to a host of new tax deductions. From the car you drive to the electricity powering your home office, lots of things you use every day can be deducted to lower your final tax bill.

The problem arises when gig workers and freelancers get greedy, writing off personal items and services as business expenses and invoking the ire of the IRS in the process. If you want to stay off the tax collection radar, make sure the deductions you claim fall within reasonable limits. Outsized deductions are a huge red flag for auditors, and writing off too much could put you at the top of the list.

Make Your Estimated Payments on Time

If you only do a few gigs here and there, you may not have to worry about making estimated payments to the IRS. But as your business grows, chances are you will be required to make those estimated payments – or face additional penalties down the line.

For those who are required to make quarterly payments, writing those checks promptly is important, so mark your calendar and make sure you set aside enough money to pay the IRS. These quarterly payments are a way of life for the self-employed, and that includes a growing number of gig workers.

The gig economy is growing fast, and that is good news for those who long to be their own bosses. As more and more employees leave their jobs for lives of self-employment, the IRS is already taking notice, and that could be bad news for unwary and incautious taxpayers. The tips listed above can help you reduce your risk of trouble, so you can focus on building your business instead of worrying about the IRS.

If you’re facing IRS problems and owe $10,000 or more in back taxes or are being audited, reach out to our tax resolution firm, and we’ll schedule a free and confidential consultation to explain your options thoroughly and help you permanently resolve your tax problem.

Need More Information?

At the Law Office of Daniela Romero, we believe in relationships that are based on trust. Before we work together, we would like to get to know you and we would like you to get to know us. We want you to be sure you are the right fit for us and that we are the perfect fit for you. This will allow you to be completely comfortable sharing intimate and difficult details of your case, so we can offer you representation to the fullest extent of the law.

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