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As You Become More Involved in Gig Economy, Don’t Forget the Taxman

The gig economy has proved empowering for a lot of people. But its advent has prompted lots of folks embarking on this new form of self-employment to chafe against the demands of the IRS.

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A new survey of enrolled agents reveals the number one reason for why taxpayers are receiving CP2000 forms, or notices of underreported income, is because those who are self-employed are doing a less-than-stellar job of accurately reporting their earnings at tax time.

A related problem is that the IRS is seeing a spike in the number of taxpayers being hit with penalties related to non-payment, or underpayment, of quarterly estimated taxes. According to an article over at CNBC.com, the number of taxpayers nailed penalized for getting their estimated taxes wrong is going up significantly; in 2010, the number was 7.2 million, and by 2010, the figure had climbed to 10 million.

Good news, though: It’s not difficult to get up to speed with your tax obligations as a self-employed, gig economy go-getter. Maybe the biggest challenge is simply developing the discipline, as soon as possible, for dealing with them.

For starters, the best thing to do is to get yourself a bookkeeper, assuming you’re regularly working and making more than just a few dollars at your labors. An accountant will keep you on the straight and narrow, and make sure you’re not only paying your federal and state taxes, as appropriate, but that you’re meeting your obligations to Social Security and Medicare through the self-employment tax.

Something else: If you’re managing all of this through your personal bank account, it may be time to set up a separate account for the business. Your accountant can best advise you on how to proceed with this.

As for recordkeeping, working in the gig economy means you’re genuinely self-employed, so keep close track of who you’re working for, how much you’re being paid, and all of that.

When it comes to reporting income, remember that even if one of your employers doesn’t issue a 1099, you’re still responsible for declaring the income you earned, regardless. The point is, keep your own, good records on what you’ve earned, and double-check the figures against whatever 1099s you’ve been issued before you file your taxes. If you find discrepancies, contact the company to see if they made an error, and have them issue an amended 1099, if necessary. Regardless, be sure to report all your earnings to the government.

If you do receive a notice from the IRS about underreported income, and know you’ve been earnest about filing and reporting, there’s no reason to panic. In a case like that, the issue is likely a minor discrepancy. That said, this is why it’s good to establish a relationship with a bookkeeper as soon as you know you’re serious about working for yourself; it greatly reduces the likelihood that you’ll have any problems at all.

By Robert G. Yetman, Jr. Editor At Large

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