Read about; Pay-as-you-go tax payments for Gig-job workers
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Gig-job has a comfortable ambient; they work at home, no boss or colleagues that can add stress only the clients that are far away, maybe even in another part of the world. It is easy to think that the tax authorities are not existing for the gig industry, sure they are not alone, the IRS is always there.
If you are in the Gig business take note.
Starting from $400 net income you will have to start paying self-employment taxes.
Underpaying the taxes during the year may end with penalties. Topic Number 306 – Penalty for Underpayment of Estimated Tax
As a Gig business, you have a little or none experience with payroll and paystub calculation and tax deductions. Look for a professional tax filing expert, before looking for your tax guy read the IRS recommendations Choose Your Tax Preparer Wisely | Internal Revenue Service – IRS.gov
Independent workers — Gig workers have no employer to do the with-holdings for them. Gig workers have to be paying by themselves an estimated taxes. It may be very tempting to work and get a flow of cash to your bank account. Pay your bill and buying your dreamed things like a new computer or even a new car, most of the gig workers do not make the quarterly payments of estimated taxes, some do not think that they should pay or do not know what estimated taxes is.
If you are in the Gig business you should know:
You are expected to pay income taxes as you earn it along the tax year, this is called pay-as-you-go, regular employees are paying part of any pay whether the payroll is paid monthly, biweekly or weekly. In case you do not have an employer to withholding the taxes from your income and transferring it to the IRS and State tax department, it is your responsibility to do it every quarter of the year. See the chart below.
|Payment period||Due date|
|January 1 to March 31||04/17/18|
|April 1 to May 31||06/15/18|
|June 1 to August 31||09/17/18|
|September 1 to December 31||01/15/19|
Self-employment taxes where not changed by the new tax law. If your earnings are living you a profit of $400 and up to $128,400, you will have to pay the 15.3% self-employment tax that is made of 12.4% of Social Security tax and 2.9% for Medicare tax.
Employees share the tax with the employer on 50%, while self-employed people will have to pay the 100% as a double role employer and employee. Keeping the double role status the gig worker can deduct the 50% employers share from his gross income as an expense. For a Gig worker to enjoy the 20% deduction, your income should not pass the $ 157,500 for a single or $315,000 for a couple that files a joint tax return.
The 20% deduction is in addition to the low tax rate for individuals that you will have to pay as an independent worker.
Penalties by the IRS:
The 2018 tax may be lower than 2017, but you still have to pay the estimated taxes. You can get a penalty if you own to the IRS more than $1,000 in taxes by the end of the tax year unless:
1) Earning $150,000 or less make payment of 90% of the current-year tax obligations or 100% of the last year’s taxes bill; or
2) Earning $150,000 or more, paying at least 90% of your present-year tax obligations or 110 percent of what you paid the last year.
Regular employees are less likely to fall into penalty because their paycheck is issued and taxes are paid at the same time.
The size of a penalty is based on the amount of unpaid taxes and the time of delayed payments.
The IRS rate for a penalty is around 4%
For gig workers that have time in the business, it will be relatively easy to know how much they should send to the IRS as estimated taxes; they have the last years income, on the contrary, are the newcomers to the Gig world that have no past information and less conscious of the problem. A good way can be sending some more money to the IRS and wait for the tax return check to balance the situation.
Gig workers are alone wolves working with no boss on them, but they do have a partner that they must report, the IRS is always there to share the cake. You should be keeping all your expenses in order and learn about taxes; you need to know to subtract the business expenses and see what are the deductions and credits that you use for 2018 tax-year, what will be your income tax rate. Yes, you do have to pay taxes from your income as a self-employed and as a business.
If you are one of those gig workers that are doing it together with having other employment or income, do not forget that you have to join it all and calculate your tax burden.
“Make yourself a rule “put aside 30 cents of every dollar you got into your pocket for your tax filing.”
Once you got a number that estimates as you year ahead income, divide it by four and make your plan for making check and mailing it on the due dates. Use the form 1040 to make the payment of your estimated tax payments and remember to pay the state tax.
It is important to save some money form your income for paying the taxes you owe to the federal and state revenue taxation institutes.
If you have more sources of income, you need to remember to pay more estimated taxes to avoid a problem with the tax authorities.
You are self-employed, the “self” means to be your business, and the employed mean that you work for your business. Like any business, you need accounting and information kept in order. It is easy for a taxi driver that works in the streets or a graphic designer that see the screen all day long to forget about being a business that should be administrated and must have bookkeeping and paperwork as a business.
There are different options for you to use as a legal entity, you better learn about it.
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