Workforce trends continue to shift in favor of the gig economy – roughly 59 million Americans were part of the gig workforce in 2020 and contributed $1.21 trillion, or 5.7 percent, to the U.S. GDP.1
The gig economy spans a wide range of jobs, from ridesharing and food delivery to freelance writers, designers, and project managers. If you drive for Uber, deliver food for DoorDash, sell handmade goods on Etsy, or pick up freelance copywriting jobs through Fiverr or Upwork, you’re likely familiar with paying your taxes using Schedule C on IRS Form 1040. In this article we’ll discuss how to fill out Schedule C on Form 1040 and the importance of good record-keeping for gig workers and independent contractors.
Schedule C: Profit or Loss From Business on Form 1040 is where independent contractors, sole proprietorships, single-member LLCs, and gig workers report earnings, expenses, and overall profits and losses for the tax year in which you are filing. If you earned more than $400 as a freelancer or through your side hustle, you’ll have to report that income to the Internal Revenue Service.
You’ll need to complete the following information about your business and its income:
That last item is extremely important to gig workers, because the deductions you take here directly affect how much you’ll have to pay in self-employment taxes. The home office deduction is likely among the top expenses claimed by freelancers, but there are many other important qualified deductions as well, including office supplies, health insurance premiums, business mileage, and travel expenses.
These expenses are deducted from your gross freelance or gig earnings and determine how much overall profit or loss you have in a given tax year. You also can expense big-ticket items like a new computer, monitor, and desk, but you’ll depreciate those expenses over a period of several years.
Gig workers and freelancers may enjoy a lot of qualified deductions from business expenses, but you’ll have to have evidence to support those claims. Stuffing a bunch of receipts into a desk drawer and handing them to your accountant at tax time doesn’t qualify as good record-keeping. You’ll want to note every expense as it occurs, and track running items such as mileage in a travel log to accurately capture and document your business spending.
It can be onerous at best and impossible at worst to accurately account for a year’s worth of business expenses when filling out Schedule C of your Form 1040. You’ll also need to have that paperwork ready to defend your tax return if you are ever audited. You can use spreadsheets or manually track your expenses, but be sure you do it daily, weekly, and monthly.
If you made money as a freelancer or gig worker, you likely received a Form 1099 that denotes how much compensation you received as a non-employee. If this is how you were paid, you’ll want to complete Schedule C of your 1040 tax form so you can claim any business expenses that will lower your overall tax burden.
Paying taxes and recording expenses for gig workers and independent contractors can be complicated. Consider engaging the services of a certified tax professional to avoid any costly missteps.
1 23 Essential Gig Economy Statistics, Zippia, https://www.zippia.com/advice/gig-economy-statistics/
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