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4 Year-End Tax Tips for Gig Workers in 2021

4 Year-End Tax Tips for Gig Workers

#1 Set Aside Money for Taxes

Avoid going into debt from holiday shopping. Set aside money for taxes and pay your bills now. Then can you only determine how much you can spend on gifts. Prioritize what’s most important for you and your family. Don’t get guilted into spending more than you can afford. 

Hopefully you’ve been using our Finance Tool throughout the year to track your earnings, expenses, and mileage. This will make it easier to estimate how much you’ll owe. When tax season comes, you will be able to easily export your finances to a .csv file through our app. 

#2 Buy for next year, deduct this year

As a gig worker, you have a number of professional expenses. This is your last chance to make any necessary purchases to write off for this year. This can make a huge difference in reducing your taxable income if you need to buy a major item, such as a new car. 

It’s critical to understand what expenses you can deduct. Not deducting everything you're entitled to could cost you thousands more in taxes. There are two categories of deductions you need to remember: operating expenses and vehicle expenses. 

vehicle expenses versus operating expenses

Vehicle expenses are related to your car, such as parking/tolls, car insurance and registration, maintenance, lease payments, depreciation, and mileage. Simplify this process by tracking your mileage and expenses throughout the year with our Finance Tool. You have the option of deducting these costs separately, but the easiest and most common option is multiplying your business miles driven by the standard mileage rate (56 cents in 2021). If you choose the standard mileage rate, you cannot deduct all of the costs listed above separately as they are already calculated into this rate.

Operating expenses account for everything else that requires you to do your work. This includes everything from purchases made for customers (water, insulated bags for deliveries, first aid kit, etc.) to your cell phone expenses. Depending on the gig app, you can also deduct their fees and commissions if the payments they report on your 1099 are higher than what you earned (typical for 1099-K). Finally, if there’s an expense that also benefits you both professionally and personally, you can only deduct a portion of it. For example, if you use your phone 25% of the time for business purposes, you’ll deduct 25% of your phone bill.

#3 Get into the spirit of giving (and saving)!

donate to charity in kind donations volunteer community

In the spirit of the holiday season, let’s talk about charitable giving. It’s not only a worthy cause, but also helps you lower your income tax expense. Donations to qualifying charities (see who the IRS qualifies here) can be written off up to $300 for standard deduction (not required to include receipts). These can be cash donations or in-kind gifts(e.g. clothes, household items, canned food), but try to keep your receipts for good measure.

Unfortunately, you can’t deduct the value of your time volunteering, but you may be able to deduct out-of-pocket expenses you had in order to volunteer, including documented transportation costs. This year it was also announced that those who itemize (receipts required) can even write off 100% of their Adjusted Gross Income!

#4 The Bottom Line

December is your last chance to take action to reduce your tax bill for 2021, so don’t procrastinate any longer. Get organized, track everything, don’t overspend, and maximize your deductions. You got this! If you can't pay your taxes in full, the IRS has a number of payment options (ranging from extensions and monthly installments to offers in compromise).

And if you’re feeling overwhelmed seek a tax professional for personal tax advice. The information we have provided is solely for educational purposes and does not constitute legal or tax advice.

Sapeer Kadoch

Sapeer is our Community Manager. She is abnormally normal, prefers puns intended, and frequently forgets to water her plants.