Many workers are now in a completely different scenario as the transition from traditional
employment to self-employment and business ownership keeps moving forward. As more people
turn to gig labor, freelancing, and self-employment, the IRS has taken note, and its auditors and
agents are now paying closer attention to these brand-new small business owners.
Less than 1% of regular individual taxpayers will receive an audit notice from the IRS. However,
the audit rate is increasing for small business owners, which implies you if you operate in the gig
economy.
Concern should be expressed over the small business owner audit rate, which is on the rise.
Contact our office right away for a consultation if the IRS is auditing you or if they are asserting
that you owe $10,000 or more. www.cottslaw.com
These tactics could significantly lower your individual risk of an audit if you want to maintain
excellent relations with the IRS.
Track Earnings on the Platform or App
Unreported or incorrectly reported income is one of the major warning signs for IRS auditors.
All gig workers, independent contractors, and other self-employed people must keep meticulous
records of their income and file accurate tax returns.
It does not have to be difficult to keep track of those earnings; in fact, many gig economy
participants already make it simple. There is no need for a calculator or spreadsheet if you are
employed by an app-based service because you could be able to find your complete profits on the
site.
If you’re not, it’s crucial to use a program like Quickbooks to keep track of all of your money. In
this way, you will be prepared if the IRS requests more information from you.
Request 1099 Forms From Low Volume Clients.
Accurate accounting and tax reporting may be challenging when one gig worker serves dozens of
different individuals. Asking each client to provide a 1099-MISC form detailing earnings for the
entire year is one of the greatest strategies to narrow this gap.
Smaller clients might not be aware they have this kind of reporting obligations, even though
major clients may already be issuing these 1099-MISC forms. They might agree to fill out the
form if you ask respectfully and emphasize the value of honest reporting.
Verify The Numbers With Payment Processors
Utilizing the payment processor you use is another simple approach to keep track of your
income. Services like PayPal, Stripe, and Payoneer enable clients to rapidly pay freelancers and
gig workers, but they also compile each individual’s profits and offer small business owners
useful reports.
You can just enter the information into the payment processor app or website and add it all up if
you are unclear of what to submit to the IRS. Some payment processors make it simple with
thorough reports, while others call just a little detective work. You may probably find the
information you require in any case using this method.
Limit Your Deductions to the Lowest Amount Permitted by Law
You are eligible for a variety of new tax deductions since, in essence, you are a small business
owner if you operate as a gig worker. Numerous items you use every day might be written off to
reduce your overall tax burden, from the vehicle you drive to the electricity that powers your
home office.
When gig workers and freelancers become overly zealous, they run afoul of the IRS by
deducting personal goods and services from their invoices. Make sure the deductions you request
are within an acceptable range if you want to avoid being investigated by tax authorities. For
auditors, disproportionate deductions are a significant red flag, and taking too many might put
you at the top of the list.
Pay Your Estimated Amounts When Due
You might not need to worry about making anticipated tax payments to the IRS if you only
perform a few gigs here and there. However, when your company expands, it’s likely that you
will need to make those expected payments or risk further fines.
Mark your calendar and make sure you have enough money saved up to pay the IRS if you must
make quarterly installments; otherwise, you risk being penalized. For the self-employed, which
increasingly includes gig workers, these quarterly payments are a way of life.
Good news for people who yearn to be their own bosses is the rapid growth of the gig economy.
The IRS is already taking note as more and more employees transition to self-employment,
which could be bad news for unsuspecting and careless taxpayers. The aforementioned advice
can assist you in lowering your chance of trouble, allowing you to concentrate on growing your
company rather than worrying about the IRS.
Reach out to our tax resolution firm if you’re having issues with the IRS, owing $10,000 or more
in back taxes, or are under audit; we’ll set up a free, private consultation to go through your
choices and assist you in finding a long-term solution to your tax issue. www.cottslaw.com.
