One in every three Americans do not have a boss. You could be part of the “sharing economy” – you know, Uber, Lyft or Favor drivers. Or maybe you’re a freelancer.
The Freelancers Union – yes, there’s a union for that – says almost half the adults in this country will be freelancing part or full-time by 2020. But don’t get too excited. But even if you don’t have to answer to a boss, you still have to answer to Uncle Sam.
Jason Torres is a Bilingual Teacher in Manor, Texas. While Torres’s kids work in groups, he tells me he’s a husband and a father. Though he teaches full time, he says it’s expensive to keep his family comfortable.
“A salary of $40 to $45 (thousand) before taxes is not enough,” Torres says. “Some weekends I drive for Uber to make some extra cash.”
Like Torres, almost 13 million Americans freelance to compliment their incomes and about 6 million more have ditched their bosses altogether. All of their income now comes from freelance gigs.
CPA Michelle Hayman says that the increase in freelancers has lead to an increase in certain tax filing questions as April 15 nears. But the bottom line is this: you still have to file.
“Penalties and interest can be pretty significant if the IRS finds them first,” Hayman says.
So to be in compliance, Hayman says first make sure you have the right form.
“Uber would issue a 1099 – they are treating those drivers as contract labor,” she says.
If you’re freelancing for an established entity such as Uber or a university – that entity is responsible for sending you the correct paperwork. But it’s still your responsibility to keep an eye on it.
Now beware – income collected from websites such as Etsy, where jewelers and artisans sell handmade products, that income is a little trickier. You’ll need a 1099 K, but Hayman says you’ll only get one if – and this is a big if – you make “200 transactions or $20 thousand dollars.”
What if you make less? Are you off the hook?
CPA Thomas Mangold says all income is reportable, unless there’s a specific exclusion.
He says if you make $2, you have to report it. If you make $200 – same thing.
And Mangold says there are a few other things freelancers should know. First, be aware you will no longer file taxes once a year but every quarter.
Second, Mangold says: “We usually tell people plan on putting away 10 to 20 percent of your gross to help handle those tax payments when they come due. Thirty percent would be a great number if we could get everybody to do that – then they wouldn’t get the big surprises or they’d be ready for them anyway.”
What about income from an AirBnb, or an even longer-term rental? Dan Mottola gives me a tour of his property. There’s an apartment on top of his house.
CPA Michelle Hayman says people who rent a room or a garage apartment really need to get some professional help because those are really quirky.
So there you have it. This is just a taste of how our complicated tax laws are trying to accommodate the new ways we make money. You’ve been warned. There is now just over two months until April 15.