Ep. 15 | What (and who) is the gig economy?
Download MP3Welcome to the Teaching Tax Flow podcast, where the goal is to empower and educate you to legally and ethically minimize taxes paid over your lifetime.
Speaker 2:Welcome back to Teaching Tax Flow, the podcast. I'm your host, John Cherpalski, along with my cohost here, Chris Pacira. How are you, bud?
Speaker 3:John, I'm great. And for the first time ever in Teaching Tax Flow podcast history, I'm on your
Speaker 2:left. Oh, good point. Good point. Well, in in actually, in the sense of mixing it up. So let's mix up topics a little bit.
Speaker 2:I know we're always talking about a lot of strategies Mhmm. Related to tax. Correct? So let let's talk about something that's actually come up in a lot of conversations lately. And, actually, I would bet that all of us well, I'd say majority of us actually interact with somebody that's in this world we're about to talk about every day.
Speaker 2:So let's talk about the gig economy.
Speaker 3:The gig economy from a tax perspective, I can't wait to talk about it. But first, we have to thank Strategic Associates, our sponsor for this podcast. If you are a high income earner, real estate investor, or successful entrepreneur with $75,000 or more of annual tax liability, strategic associates can help. And if you are in that situation by the way, congratulations.
Speaker 2:Absolutely.
Speaker 3:If you're paying 75,000 of tax, we'd love to talk to you and and help you help you look at that, but also strategic associates would be a part of that conversation. Your first step to saving thousands, and I can tell you our clients have saved hundreds of thousands, is to contact Roger Roundy. His email is roger@strategicag.net, or give him a call at (801) 641-2956. Be sure to let him know Teaching Tax Flow sent you, and you can see his information in the show notes. So, hopefully, if you're a gig economist, you get to the point where you need need to talk to Roger.
Speaker 2:And before we get into it too deep, so this whole gig economy may be new the term may be new to some people, but the actual individuals working in it I mean, heck, people might actually be a gig worker, and they don't even know it. So what's what's our definition, at least by IRS definition? What makes up gig work?
Speaker 3:Absolutely. So the IRS has some resources for for gig workers. And according to IRS, a gig work is certain activity you do to earn income often through an app or website.
Speaker 2:Uber. Uber, like, Grubhub.
Speaker 3:Drive a car for book drives. Uber. Rent out property or part of it. Now this one's interesting. So our friends that are doing house hacking, meaning renting out a portion of your home, or actually running out a short term rental or your home is is considered gig work.
Speaker 3:There's there will have other content on on that. Running errands, completing tasks. You know, an example would be someone that goes and grabs groceries for people. Like a task rabbit,
Speaker 2:I think is what one was called.
Speaker 3:Sell goods on I haven't heard of that one. Sell goods online, rent equipment, provide creative and professional services. So those are just examples of what the gig work is according to the IRS. Typically, a gig gig work will, be accompanied by a ten ninety nine from someone. And, typically, someone that is a gig economist has a primary job, but not always.
Speaker 3:So you
Speaker 2:could like, somebody by IRS definition, so providing creative or professional services, I think, is how they worded one of those. So, really, that could be a, really, a a freelancer of any sense. Right? Free I mean, you could be a creative writer. You could be a marketing consultant.
Speaker 2:You could be a graphic design.
Speaker 3:Software programmer.
Speaker 2:Software An engineer, technically, I
Speaker 3:mean Absolutely. Software.
Speaker 2:Fall into that?
Speaker 3:Absolutely. A software engineer. We have I I know just thinking about friends and client people in our private practice, we have people that are clear to closers in the real estate business. We have people that really yeah. It could be anything.
Speaker 3:Some musicians do let's say they they work, as a full time music teacher, and they do and they, give out music lessons on the side or teachers. Some teachers do, private tutoring as a as a side gig.
Speaker 2:So this might also come interesting to somebody because not too long ago, if I remember right, there there was kind of something that was up in the air. Right? Like, you had, we'll just use Uber drivers, for example. I think that's probably one that that we kinda run into maybe the most, at least everybody generally. A lot of them, at least from what I know, they didn't know how to file their taxes or there were there was some kind of gray area.
Speaker 2:Right? So I don't I don't know personally, but if they weren't getting, you know, ten ninety nine by Uber or Airbnb wasn't issuing ten ninety nines directly, it was kind of up to the individual. And that's changed now. Correct?
Speaker 3:Exactly. So the thing is we have well, there's we're gonna have some more content coming out with the the the rules for October are gonna be changing. They were supposed to change here for the 2022 tax year effective basically 2023 now that they've got bumped a year. We're required to pay tax on our gross income regardless if someone gives provides you with a ten ninety nine. Now, again, you you run into situations where you have a babysitter that that that made a couple hundred dollars over the year helping out.
Speaker 3:You know, there's thresholds for filing, obviously, and when you need to file a tax return. Most gig workers simply file a schedule c, which is the self employment schedule, and attach that to their personal tax return. And a lot of times, gig workers I I feel bad because I I can't tell you how many times we've seen that someone receives a $10.99, and they don't know what to do with it. Mhmm. You know why?
Speaker 3:Because they
Speaker 2:haven't listened or they haven't watched the mini lesson.
Speaker 3:Exactly. We haven't been a part of teaching tax law.
Speaker 2:Kind of a two part to that too. So you did mention thresholds. I don't wanna get off that too soon. So I know there's I know there's a number in place of what is it 4 or $600? You would know this better than anybody else as it is right now.
Speaker 2:So so there is that threshold. So if you're under that, you likely will not get or will not get a $10.99 from that company or or organization. Correct?
Speaker 3:There are so there are a couple of different rules at play. There's a and and I and by the way, not that you asked me my opinion, but I think these rules are really outdated and the thresholds are too low, and it's actually creating a burden for people administratively, and actually thinks it's creating a burden for the IRS as well. That being said, tangent usually, you go on tangents.
Speaker 2:I know. This is good. Anyway You can have you can have Yes. The baton.
Speaker 3:If you pay an independent contractor for a service of $600 or more and that person is, unincorporated, it could be an individual, a single member LLC that hasn't made a tax election. We are going to be having some people on in the future talking about ten ninety nines. If I pay John eight hundred dollars, for social media work as an independent contractor, I have to issue you a ten ninety nine. So that threshold for issuing a ten ninety nine is is $800. Now regardless if I issue you the ten ninety nine or not, you should be reporting all $800 as gross income on your tax return.
Speaker 3:For someone that does gig work, I'm gonna read you from the IRS. Says, you must file a tax return if you have net earnings from self employment of $400 or more from gig work, even if it's a side job, part time, or temporary. That's a very interesting comment by the IRS because when you define net earnings, I look at net earnings as income after deductions, but I believe that they're referring to net earnings as income after fees. So if let's say you spent a week doing food delivering, you made $300, and you and you hated it and you quit, you you don't have to file a schedule c in that case.
Speaker 2:And is that is that threshold or is that number do you kind of assume that that is throughout the entire calendar regardless of one, quote, unquote, gig. Right? That is the collective of all gigs rolled in. So if you're selling something on Etsy, you're renting out your power washer out of your garage, you're house hacking, you're doing fifteen minutes of consulting work on annual basis, It's even if you're a job jumper, you can't really avoid that.
Speaker 3:Exactly. It really doesn't matter. The IRS looks at everything in a calendar year. So if you have one gig that pays you x amount of dollars, that's that's you're you're reporting that. And we run into this a lot when you have bands, for instance.
Speaker 3:Let's say you had a band. Let's say you were cool enough to have a band. I know it's a stretch.
Speaker 2:Start one. I don't know how good it would be.
Speaker 3:It would be bad. And let's say you you grabbed some of you and a four other people and you did a gig, and you got paid $2. Right? And but you paid out you each split split the money. The ten ninety nine would probably be in your name personally.
Speaker 3:So now you've got a pickle. Not pickleball, but a pickle, and you've gotta pay each band member $400. Well, it's under the threshold, so you wouldn't have to issue a $10.99 to the other band members. But in your your tax return, you're gonna receive a $10.99 for $2,000, and you'll have to report that you had out outside labor of 1,600 in that case, and you'd pay tax on the $400. Of course, John, you know there are other deductions, and that's what really one thing I would love for anyone that's in the gig economy to understand that you are many of these people are are have spent a lot of time being an employee.
Speaker 3:You get a w two, taxes are taken out, based on the withholding that you let your employer know that they should be taking out. But when and and you're paying tax on your gross income. Well, with a gig account a gig worker, you pay tax on your net income. So if you had to drive to get to that gig and you have a home office, if you had to buy music, if you had to if you have any, business expenses related to that activity that are ordinary and necessary, you can deduct those expenses and you pay tax on your net income and not your instead of your gross income.
Speaker 2:And I think that's something that and really to harp that one home a little bit. So there's a lot of I wouldn't say a lot of detail to scare anybody off, but, obviously, there's a lot of opportunity there. Right? So in a sense, if somebody even just has a basic understanding of some of the deductions that they could take as a gig worker or a self employed individual, I mean, there are a lot. So, I mean, they're they're taking advantage of the same deductions if they make $30,000 a year delivering groceries.
Speaker 2:They're taking the same not the same amount in in sense, but the same deductions and the same classes as somebody who really could be making a million dollars plus being self employed. They're just obviously taking a little differently. So that so say, for example, you are a Uber driver, GrabPro, something along those lines that, you know, you may be doing it part time. It may eventually pick up, and you're you're doing it full time. Let's think of a couple things.
Speaker 2:Right? So home office is one. So likely, you're gonna take a mileage deduction on your vehicle. Right? So unless it makes sense to actually dive into, you know, lease or buy, that's a whole another
Speaker 3:Woah. We're getting in all We're
Speaker 2:not we're not gonna dive into for
Speaker 3:the full price, Johnny. Johnny.
Speaker 2:But there's So there's so there's some opportunities there. Right? I mean, you have, obviously, transportation costs. So you're you're taking on expenses, but that's where the deductions really counteract that, if we will.
Speaker 3:Absolutely. And in our one of our most recent polls in our private Facebook group called defeating taxes, the number one concern was that the taxpayers were afraid of how much they're gonna owe. And what we want to say is, especially, you know, the the one of our passions here at teaching tax was to help people out. And if someone earned $5,000 as a gig in the gig world and has $4,000 worth of deductions, it's very hard for that person to prepare their own tax return without some guidance guidance that we can we can provide on our platform or go and hire someone because, quite frankly, if you're hiring a CPA to prepare your tax return, if you did $5,000 worth of gig work or 500,000, it takes absolutely the same amount of time to prepare that tax return. It's a couple zeros in in software.
Speaker 3:So we have a bunch of people that now have complicated their tax situation. They're working hard. We want them to keep more of their money, and they need help figuring out what they can deduct. So you can deduct anything that's ordinary and necessary in your trader business against that gross income. I just hate when people see that $10.99.
Speaker 3:Golly, John. We've I've had clients in the past where we reviewed their prior year tax returns in our private practice. Let's say they were selling, they were part of a, a direct let let's say they were selling I don't wanna name any So, like, nutritional supplements. Yeah. Exactly.
Speaker 3:Nutritional supplements, and they have a lot of cost to that. Mhmm. And they sometimes they even have a trip that they won that has an economic value, and they get a $10.99 for a ridiculous amount of money even though they may have have a $10.99 for 80,000. They truly made $5,000.
Speaker 2:Mhmm. And
Speaker 3:they don't know what to do, and they and they're trying to navigate through, some self guided tax software and make a huge mistake and don't like you alluded to, they don't know that they're entitled to auto and car and truck deduction, home office deduction, cost of goods sold deduction. So that's really where I want people to understand that we want you to have a side hustle. I want people to like, we were it it's kinda funny in that read. We want to have them have $75,000 worth of tax to pay, but we also want them to legally and ethically repay the tax that they're required to, not not anymore.
Speaker 2:And something too, I I think, you know, doesn't necessarily have to be a closing note because we can talk on this for a while, but I think that we definitely drive home one thing, at least that I can think of that I I mean, I could almost guarantee there's a handful of individuals not knowing this getting into that, then getting the, you know, the big old surprise at the end of the year that you owe a bunch because you file I wouldn't say filed incorrectly, but didn't maximize any deductions. And then it just it's a it's a, basically, a snowball effect. Right? So let's say somebody makes that transition over to gig work, really doesn't understand the tax implications of that and what that what their returns are gonna look like after after some time doing that, especially if you say you start in January and really you're cranking a full year of it. You get hit with a very large tax bill.
Speaker 2:Don't do anything with it or scares you a little bit. And this is looking back at our podcast, with Andrew Pulos last week as well. Say worst case scenario, you just don't pay it. I mean, then you're on the then you're on the naughty list. Right?
Speaker 2:So you're on the IRS's naughty list. They're looking at you. You obviously don't pay it. We're gonna assume that you're probably not even gonna file your taxes the next year or the year after that or the year after that because it just snowballs, then you run into a whole host of problems. Right?
Speaker 2:So as Andrew mentioned, the worst thing you can do is not open not open the letters that you may get, which may be may be a notice from that. But then, also, let's talk about that three years, so that statute of limitations. And not to go too deep into it, but just to drive home the importance of having an understanding of this right from the get go. Well, you opened up a bunch
Speaker 3:of questions, and I'm sure we're gonna have a follow-up podcast on this. But the probably the most important thing that you mentioned was the the thought of understand that if you if if you have income from an activity and that even if your expenses are more than that income, you're you're going to want to prepare that a tax return and put that on your tax return. Because what what you have to understand is all the ten ninety nines that are issued to you are also provided to the IRS. The IRS has no idea what your expenses are. So once in a while, you'll have someone that said, oh, I got an I got a ten ninety nine for for $12,000 because I was doing, I was had my own travel booking website, and I was but, you know, I didn't make any money on it because I put I spent $12 on the package to get started and this and other thing, so I don't have a profit.
Speaker 3:So I'm not gonna put it on my tax return. Well, the problem is IRS doesn't know that. And now all of a sudden, you're gonna get a notice saying you owe $34,000 on your tax return, and now you've got a a myriad of other issues. So if you have income, even if you don't have a net profit, report it on your tax return. The statute of limitations is three years.
Speaker 3:So sometimes you might have more deductions than you have income, and that's common when you first start your business and you have a loss. And sometimes that loss can offset your w two wages. But if you don't take that loss and you don't and if three years goes by, then you've lost that opportunity to take those deductions. So, you know, we really want to, make sure that people in the gig economy I'm sure I think we all have been in the gig economy at some point. And and for some people, that that side hustles, like, a lot of people like to say it, and I like the word hustle because hustle is it just shows effort, and, that becomes your full time job.
Speaker 3:So Mhmm. Absolutely. We want, we want to make sure that all of our friends in the gig economy and if you if you if you don't do something, you know someone that does something, really looks at their situation, and I'd encourage them because we know a lot of times when they're getting started, they don't have tons of revenue. Reach out to us here at teaching tax law. Jump into our, defeating taxes private Facebook group.
Speaker 3:Maybe maybe take a lesson, really small cost, small time commitment to get yourself situated, and I guarantee you're gonna have a a high ROI on that education.
Speaker 2:Absolutely. And and I guess with without opening a completely another can of worms, I think it's really important, obviously, understanding what your tax situation is gonna be, what if you make that shift from a w two to, just say, a ten ninety nine, and then also to related but not we don't have to get into it, that understanding that a write off is not something that's free. So we we won't jump into that whole realm.
Speaker 3:No. We're gonna have another podcast on that, but there there are no standard deductions in business. But, again, we're we'll talk about deductions, but my really keep track of your deductions. And if you get to the point where you're you have a substantial amount of net income, then you're gonna wanna start paying estimated tax payments. We're gonna have additional content on that coming up.
Speaker 3:But be organized and, and have fun. Like, work, have a side hustle, do something you're passionate about even if you have a w two job that you might not be that passionate about. You know, understand that you get to pay tax on your net income, not your gross income. So
Speaker 2:Excellent closer. Excellent. Well, this has been a this has been a fun one to talk about because, again, it comes up a whole lot and, you know, again, it's the goal is to get everybody or at least those, you know, that that take advantage of the resources such as this podcast and really just elevate everybody together. So what do they what do they say? It's, you know, rising tide raises all ships or something along
Speaker 3:the lines. Iron sharpens iron as we like to say.
Speaker 2:So it's obviously, our our Facebook group is a is a fantastic fantastic resource for that. Look it up, Defeating Taxes. And then, Chris, why don't you go ahead and thank our sponsors again?
Speaker 3:Thank you, Roger Roundy, and the team at Strategic Associates. We hope that some of these gig economists are in touch with you in the near future down the or maybe it's gonna be down the road. We would love your feedback. Please rate, review, subscribe to this podcast, and we appreciate your time.
Speaker 2:Absolutely. Well, thank you everybody again as always for joining in with us. A great topic. Again, something that usually comes up and is you know, this is related just gig workers. However, anybody that gets a ten ninety nine, this, you know, this content is very relevant to them.
Speaker 2:So we will see you soon, and have a great week.
