What exactly is the gig economy anyway and why do we as tax accountants need to pay attention to it? It’s a common misconception that this is made up of all Gen Z youngsters who don’t want to get real jobs. A “gig” worker is anyone who is essentially working as a freelancer. About 30% of them are made up of individuals over the age of 40. “Gig” work as it has been dubbed, has become more easily accessible and desired as remote work has become more prevalent.
Every Uber and Lyft driver for example is now a member of the gig economy as they are all set up as 1099 contractors vs. W-2 employees. Nearly half the gig economy workers have bachelor’s degrees or higher and are either looking to grow their own client base or have chosen freelance work for other reasons, such as time flexibility.
Tax professionals need to be prepared to speak with educated business owners who need direction when it comes to their taxes.
Knowing your audience is the first step to meeting their needs. Some gig workers are freelancing on the side of full-time jobs but many are now using this as their full-time profession. With that comes all the challenges of not being an employee. While their time flexibility and entrepreneurial freedom may increase, they will now need help with planning for quarterly estimated taxes, retirement, health insurance, and other issues.
Having an understanding ahead of time of what impacts them the most will help us to provide better advice.
Gig workers will miss common self-employment deductions such as self-employed health insurance, cell phone bills, vehicle depreciation, and home office deductions. Because these deductions are not straightforward to take, they will be in need of clear tax advice to help them ensure that the benefits aren’t missed on their returns.
Some may unknowingly cross state lines with products and services and will also need help identifying potential state nexus issues. Creating a calendar of tax liability dates is a great value add service to provide to your gig worker client base.
Not all gig workers will immediately understand the benefits of working with a tax professional. Many may not have had to deal with any of these issues before.
Those who also have employees or contractors working for them commonly miss deadlines on payroll taxes and annual 1099 filing requirements, in addition to quarterly estimated income taxes.
Not all gig workers will immediately understand the benefits of working with a tax professional. Many may not have had to deal with any of these issues before. Providing education primarily around the savings they can see in just avoiding penalties and interest alone can help to demonstrate the value of tax advice.
Don’t forget ancillary services like financial advising, retirement planning, and insurance needs. These are great questions to ask these clients to ensure them that they are working with a professional who is in their corner.