Gig work has become increasingly popular in today’s economy. But whether you’re entirely self-employed or use your side hustle to supplement your income, it’s important to be aware that you must claim your earnings on your taxes.

Meeting your tax obligations as a gig worker may seem confusing and overwhelming. But by understanding the IRS’s requirements and planning ahead, managing your taxes can become routine.

Here are five tips on how to handle taxes for side hustles and gig work:

1. Understand Your Tax Obligations

Unlike W-2 workers, who have their taxes withheld from their paychecks, gig workers are independent contractors — which means they are responsible for managing their own taxes. Importantly, if you have earned more than $400 from gig work or a side hustle, you must pay taxes to the IRS. It’s essential to work closely with a tax professional to ensure you understand your tax responsibilities and comply with your obligations.

2. Keep Accurate Records

Since you will need to report your earnings on Schedule C, it’s crucial to keep track of the income you have received from all sources — including checks, direct deposits, PayPal, Venmo, and any other form of payment you accept. You should also retain copies of all invoices you send and 1099 forms you receive. Update your records on a regular basis as you earn income or have expenses to ensure nothing is overlooked.

3. Pay Quarterly Estimated Taxes

While taxes aren’t taken out of your paycheck as a gig worker, you will need to set money aside to pay quarterly taxes, generally speaking. These payments to the IRS cover income tax, Social Security and Medicare, and other applicable taxes. By paying taxes quarterly, you can meet your tax obligations as your income is earned throughout the year, rather than incur a substantial tax bill at the end. This may not apply to all workers- for instance, if you file jointly and your spouse has enough withholding to cover your joint taxes, you may not need to remit quarterly taxes.

Quarterly taxes are due:

• April 15 for income earned between January 1 to March 31
• June 15 for income earned between April 1 to May 31
• September 15 for income earned between June 1 to August 31
• January 15 of the next year for income earned between September 1 to December 31

You can base your estimated quarterly payments on your earnings from the previous tax year, or you can make payments based on what you’ve earned each quarter. If you fail to make quarterly tax payments, you may be subject to penalties for underpayments or late payments, even if you are due a refund.

4. Know What Business Expenses You Can Deduct

As a gig worker, you can reduce your tax burden by claiming deductions for a wide range of business expenses. However, to qualify for a deduction, the IRS requires the expense to be both ordinary and necessary for your trade or business. Some common tax write-offs for gig workers can include:

• Home office deduction — If you use a portion of your home regularly and exclusively for business, you may be able to take a home office deduction.
• Vehicle expenses — You can deduct expenses related to your vehicle, including mileage, gas, tolls, and necessary repairs, if you use it for business.
• Equipment — Equipment and supplies necessary for your gig work can be deducted, including computers, software, office furniture, and other tools specific to your gig work.
• Professional development — Professional development activities used for maintaining or improving your skills in your field can be deducted from your income. Deductible expenses can include books, training programs, workshops, subscriptions, and license renewal fees.
• Advertising and marketing — The expenses associated with advertising and promoting your business can be written off on your taxes. These costs can include things like website hosting, business cards, and paid ads.
• Health insurance premiums — Those who are self-employed can claim a deduction for health insurance premiums (to the extent you have income).
• Internet and phone bills — You can deduct the portion of your internet and phone bills in connection with your gig work.

Be sure to keep detailed records and receipts throughout the year in case of an audit. It may also be a good idea to have a dedicated business bank account or credit card to ensure your personal and business expenses are kept separate — this can make your business expenses easier to track.

5. Consider a Formal Business Structure

Although many gig workers start out as sole proprietors, you might consider forming an LLC or S-Corp as your side hustle expands and your income grows. A formal business structure can offer a number of advantages, including personal asset protection and tax benefits. I strongly recommend consulting a tax professional before doing so.

Contact an Experienced Tax Professional

If you have a side hustle, a knowledgeable tax professional can help you understand your obligations and maximize your deductions. Based in Fairfield, Connecticut, Rolleri & Sheppard CPAS, LLP offers skillful guidance to gig workers and small business owners for a broad range of tax matters. Contact us online or call (203) 259-CPAS to schedule a consultation.