During the pandemic, many people who were laid off from work or had their hours cut decided to supplement their income with a side business, otherwise known as a side gig. The gig economy includes income-producing activities like driving for Uber, providing shopping and/or delivery services, renting out a spare bedroom, or selling a product or service from home, often on-line.
Some folks don’t realize that income earned through side gigs is usually taxable even if they don’t receive a 1099 or W-2 form or if all payments are received in cash. Besides income tax, workers in the gig economy are usually required to pay self-employment taxes if their net income from the business is greater than $400.
Net income is the remaining dollars after all expenses are deducted from the gross income received for the gig work. Deductible expenses vary based on the type of work. For instance, a gig worker providing shopping and/or delivery services would be able to deduct the cost for use of their personal vehicle and a portion of their cell phone, if that is their means of communicating with their customers.
Someone renting out a spare bedroom would have deductions for the portion of their household costs related to the bedroom (homeowners insurance, real estate taxes, home mortgage interest, utilities, home maintenance) plus any additional costs incurred such as laundry or extra supplies. Did you start a side gig during the pandemic and are wondering how it will affect your 2020 taxes? You can find more information on the Gig Economy Tax Center or, as always, our financial professionals at Crystal will always be happy to answer questions.Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.