Page 27 - BusinessWest January 20, 2021

Tax Planning in a Gig Economy
Take Important Steps to Limit Your Overall Liability
IBy Ian Coddington
n recent years, we have seen a rise in so-
called side hustles and gig work, where
individuals take on part-time jobs or proj- ect-based work for additional income.
This ‘gig economy’ has been accelerated by
“This form is different from your W-2 in that 1099 income is considered self-employment earnings, which is taxed differently than W-2 wages.”
use it to have extra spending money. If you took on additional sources of income during the pan- demic, there might be some tax considerations you might not be aware of.
expense against your self-employed earnings. If you used a home office for business, you could potentially deduct a portion of your mortgage, utilities, and even repairs to that space. Prior
to taking this deduction, you should review the rules closely.
Meet with an Advisor
These benefits sound good, but what if you have unique situations for your side hustle? What if you are paid through cash apps like Venmo or Zelle? Can you deduct the transaction fees paid to payment processors like PayPal or Stripe? What if you receive a Form 1099-K? Questions like these can be answered by an advisor, like a licensed tax preparer. Here is a quick list of things to bring to a meeting with a tax preparer:
• Any W-2s or 1099s received;
• Personal or business bank statements;
• Information on your home office, including
square footage;
• Log of mileage; and
• Purchases for the business.
Working a side hustle can be an exciting and
hopefully profitable venture; however, it can add complexity to your tax return. Take charge of the additional complexity, gather the required docu- mentation, and minimize your tax liability. u
Ian Coddington is an associate at the Holyoke- based accounting firm Meyers Brothers Kalicka, P.C.; (413) 536-8510.
the effects of the coronavirus outbreak; Ameri- cans are being laid off or have to remain at home or socially distance. Without a primary income source, people have turned to other solutions to pay their bills.
Ventures like DoorDash, Uber, Amazon, and Fiver all offer individuals the ability to earn income by doing work for companies and indi- viduals. However, this does not make up the entire market of gig work.
People who sell artwork or wrap Christmas presents, handymen, and movers are all exam- ples of individuals who could earn income on the side. We have seen how some side hustles can turn into profitable ventures, while others just
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need doesn’t,” he continued. “On one hand, if they don’t have the event,
they don’t have to spend money on
it, so that’s good. But these events are money makers. They were counting on this revenue. The visibility we get from these events is nice, but the real reason we do it is to support that cause, not because they put our logo on a T-shirt.”
Kevin Day, president and CEO of Florence Bank, said his institution had no inclination to take back money spent to support such events.
“COVID drove everyone indoors this year, and a lot of events got can- celed,” Day said. “We usually sign up for events, and we send money ahead of time. The nonprofits all reached out and said, “we’re not going to hold this ball or gala. Do you need the money back?’ But we’re here to support you, and the fact that you can’t throw a ball actually makes it more important that we support you. So even though we didn’t get to go to these events, we still made the donations; that didn’t change a bit.”
Later in the year, as nonprofits scrambled to find other ways to raise funds, banks looked for new ways
Self-employed Vs. W-2
Unlike a normal employed job where you receive a Form W-2, most gig work will consider work- ers independent contractors, and issue you a Form 1099. The most common form received for this work was a 1099-MISC, which is now replaced with the new Form 1099-NEC.
If you were paid at least $600 from a business that was not your employer, you can expect one of these forms come tax time. This
Banks
form is different from your W-2 in that 1099 income is considered self-employment earnings, which is taxed differently than W-2 wages. When you work for an employer, they will withhold a percentage of your wages for taxes. However, when you are self-employed, you are subject to self-employment taxes and might be subject to estimate payments.
Depending on your level of income and other withholdings, one benefit of this is a self-employ- ment tax deduction, where you can deduct what an employer would have paid on your tax return. For delivery drivers, it is important to track your mileage, as you can deduct the allowable mileage
“
need doesn’t. On one hand, if they don’t have the event, they don’t have to spend money on it, so that’s good. But these events are money makers.
They were counting on this revenue. The visibility we get from these events is nice, but the real
reason we do it is to support that cause, not because they
good on that pledge by supporting 11 different food pantries and homeless shelters.
“We’ve always supported many of these organizations,” he was quick
to add, but cast a wider net this year, donating nearly $100,000 to 10 organi- zations that address food insecurity.
“We are so grateful. Without the support of donors, we would not have been able to continue our mission,” Ruben Reyes, executive director of Lorraine’s Soup Kitchen & Pantry in Chicopee, one of the recipients, said in December. “COVID has affected us very hard. All of our fundraisers were can- celed, and we were very worried about how to fund our programs.”
Compounding the problem, COVID-19 has also affected Lorraine’s clientele. Reyes said he is seeing an additional 200 to 300 families each month, and provides a month’s supply of groceries and dinners five nights a week to a total of 600 to 700 families. “We’re seeing a lot more families who typically would not need pantry ser- vices. They are coming to our doors for
Banks
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The event may go away, but the
MATT BANNISTER
put our logo on a T-shirt.
”
BusinessWest
BANKING & FINANCE
JANUARY 20, 2021 27
to support them, Bannister added. “Like, the Community Foundation put together an emergency COVID fund — there’s a new need. We contributed to buy PPE for the frontline workers — that was something that wasn’t a need before. And a number of chambers put together microgrant programs for the members in their communities, with
a special round of fundraising for that, and we supported that, too.”
Food for Thought
Like PeoplesBank, Florence Bank directs its philanthropy in a few general ways.
“We’ve always focused on what we call the three H’s: hungry, hurt, home- less. We thought food-insecure people having trouble getting food and buy- ing food might be a big deal this year, so we said, ‘hey, let’s do everything
we can in that area, if possible,’” Day said, adding that Florence has made