4 Can’t-Miss Tax Deductions for Gig Workers in 2024
The face of work has changed. It’s no longer a given that someone will choose to work for an employer. In fact, recent counts have more than 10% of the U.S. population identifying as self-employed, and that number seems to increase with each passing tax year.
That growth is powered, in part, by those who choose gig work, either full-time or in combination with other work. But like everyone else, gig workers have to pay taxes on their income. By using deductions, though, you can reduce your taxable income and keep more of your take-home pay.
Gig Workers and Taxes
If you’re a gig worker, the money you earn is considered self-employment income, even if you have a full-time job. Whether you’re running a rideshare on weekends or renting out a portion of your home, you’re required to report earnings of $400 or more on your annual taxes.
For 2024, you’ll pay 15.3% in self-employment tax on up to $168,600 in income for the year. That money goes toward Social Security and Medicare. If gig work is a side hustle for you, your employer will take care of the W-2 portion of your earnings, but the money you earn as a self-employed worker will be taxed at 15.3%.
Gig work means running your own business, though, and as a business owner, you do have the benefit of deducting expenses. The money you spend growing and supporting your business can be deducted from the money you earn to reduce the amount of your self-employment income that’s taxed. But business owners often miss a key deduction or two, and even $10 a month in forgotten expenses can add up.
Set Yourself Up for Success
As a business owner, tax time doesn’t begin in January when your W-2 form arrives. The planning you do throughout the year will make next year’s tax time much easier…and ensure you don’t miss a deduction. Here are some things you can start doing this very minute to set yourself up for success.
Track Your Earnings
If you’re a gig worker making more than $400 a year in self-employment income, you’ll start with Schedule C. This is where you’ll input your income and expenses. You’ll then take the information to Schedule SE, which is where you’ll determine exactly how much income is subject to self-employment tax.
Those who make at least $20,000 through one business will get a 1099-K detailing your taxable income for the year. Even if you don’t receive a form, though, you’re ultimately responsible for reporting all income. Whether you use a spreadsheet or a budgeting app, track the money coming in and prepare to document every dime going out.
Itemize Your Deductions
On Schedule C, Part 1 has you inputting your income to determine your gross profit. Below that is Part 2, which asks for your expenses. Those are divided into categories like advertising, car and truck expenses and travel and meals.
You’ll need to maintain documentation for every deduction you take. Keep any receipts, account statements or invoices to present if you’re ever audited. If you claim mileage, your app may have a feature that tracks it for you and can output it in a report. Otherwise, maintain a log of your weekly activities and make sure it’s IRS compliant.
Consider Estimated Taxes
Once you start earning substantial income through self-employment, you’ll encounter a new problem. Underpaying taxes. If you wait until tax time, you’ll likely find that you owe penalties. To reduce that risk, the IRS recommends you pay taxes as you earn the money. This is known as estimated payments.
“These payments are due roughly every three months,” Rocky Mengle, senior tax editor at WealthUp, said. “And if you don’t pay enough each quarter, the IRS can hit you with an extra penalty. Use IRS Form 1040-ES and the related instructions to calculate the proper estimated tax payment amount.”
4 Can’t-Miss Tax Deductions
Since you’re going to start tracking right away, here are some important tax deductions you can claim on your next tax return.
1. Vehicle Use
Many gig workers use a personal vehicle to do the job. This not only means you’ll spend more on maintenance, but you’ll probably shorten the life of your car, truck or SUV. The IRS allows you to deduct that cost, either through claiming the mileage or calculating the actual expenses.
To qualify to deduct business use of your vehicle, you’ll need documentation. Your chosen employer may provide a log of the miles you covered in a given year, but maybe you work for more than one app. Using a mileage tracking app can help you stay compliant.
You probably use a cell phone and/or laptop for your gig work. All of that is deductible, from the equipment purchase to your internet and phone service. For pricier equipment, you may be better off depreciating it and taking the deduction over multiple years. You may also qualify for a little extra depreciation, but that’s soon going away.
“A large change, though not favorable, is that bonus depreciation will decrease to 60% in 2024,” Caitlynn Eldridge, CPA and founder/CEO at Eldridge CPA LLC, said. “In 2022, it was 100%, and in 2023, 80%. So when purchasing assets in 2024, keep in mind it won’t have the same tax benefit as assets in prior years did.”
3. Home Office
You don’t have to sit at a desk for 40 hours a week to qualify for the home office deduction. You can designate an area for planning your week, gathering data for tax purposes, or searching for gigs. To qualify, though, the area has to be used “regularly and exclusively” for your business.
“That means you have to use a designated space in your home for business and use it more than just occasionally, and you can’t use it for personal reasons,” Mengle said. “So, for example, you probably don’t qualify for the home office deduction if you’re using your kitchen table to conduct business.”
4. Medical Expenses
Unlike W-2 employment, gig work doesn’t come with health benefits. You can claim those medical costs on your taxes. If you don’t have insurance through a spouse plan or a full-time employer of your own, you can even claim your health insurance premiums.
“The health insurance deduction for self-employed people won’t eliminate your medical insurance costs, but it will help put a dent in those expenses if you’re a gig worker supplying your own coverage,” Mengle said.
Gig work comes with plenty of freedom, but taxes can be…taxing. By tracking your income and expenses throughout the year, you can reduce work at tax time and boost the accuracy of your return.
Stephanie Faris is a professional finance writer with more than a decade of experience. Her work has been featured on a variety of top finance sites, including Money Under 30, GoBankingRates, Retirable, Sapling and Sifter.