Freelance Workers Should Make These Tax Moves Now
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What is the main topic discussed in this episode?
Here's your money briefing for Monday, December 9th. I'm J.R. Whalen at The Wall Street Journal in New York. Freelance workers can score some sizable tax deductions and avoid the wrath of Uncle Sam if they make some key moves before December 31st. Wall Street Journal tax reporter Laura Saunders will be here in a moment to explain. First, some money and market news you should know. People whose personal data was impacted by the 2017 Equifax data breach had two options to get reimbursed. A $125 cash payout or 10 years of free credit monitoring. While those who thought that cash in hand was the better option may be rethinking. Earlier this year, regulators had warned they were unlikely to get anywhere near the $125 promised.
What tax deadline should freelance workers be aware of before December 31st?
Now it turns out each of them was only in line for about 15 cents. That's because as of December 1st, Equifax had only put aside about $31 million for the payouts to 4.5 million people. Lawyers say the free credit monitoring is the better deal. That's worth up to $1,900.
For freelance workers, the recent explosion of online platforms such as Uber, TaskRabbit, and Upwork can make it easy to find work. But with all those jobs come specific tax responsibilities. Wall Street Journal tax reporter Laura Saunders is here with some tips for workers in the gig economy to be ready when Uncle Sam comes looking for his share of the pie. So Laura, December 31st is a hard deadline for freelancers to firm up their paperwork, and potentially cut their taxes in April, but there's quite a bit of confusion that results in freelancers leaving deductions on the table.
People with freelance or gig income are very confused, and they're both risking thousands of dollars in IRS penalties and possibly leaving lots of deductions or benefits on the table. People are just so confused about this.
And freelancers get a better deduction when it comes to health insurance costs.
Well, that's exactly right. They get to put it, we call, above the line.
How did the Equifax payout example illustrate tax or financial pitfalls for individuals?
They get a full deduction for their health insurance costs, whereas if someone is an employee, they wouldn't get the same kind of break.
The growth of the self-employment world can be kind of problematic for the IRS.
Oh, absolutely. This is where about a quarter of the cheating goes on. It's probably $120 billion a year because there's just not a lot of controls. There's not withholding, like from your pay. Sometimes the employers don't send out the forms to the IRS and to people that work for them, either legally or illegally. There's just a lot of stuff that goes on.
So what is the rule governing when an employer is required to issue someone a year-end 1099 form?
One rule says the business has to send a 1099-MISC as a miscellaneous form to anybody that performs more than $600 worth of services. And, okay, that's fine. Some people ignore that. Some firms ignore it, and they shouldn't. But the really interesting thing is that there's also a form called a 1099-K, and a lot of the online platforms use this form instead. And they don't have to send the form until they're $20,000 of income and 200 transactions. So let me tell you what this means. Like if you're an Airbnb host and you made $100,000 renting your beach house in the summer, if you only rented it five times, there would be no paperwork for the IRS and no paperwork for you.
Really?
Really.
Uncle Sam's letting all that money go?
Well, that's just how the law is written. This is legal. Oh, my. Congress kind of made a mistake when they were doing this, and now they need to redo it. But it's, you know, the laws cast are set in cement, and so it's hard to change things that already exist. But this can even be weirder. Say you might work for a rideshare company, and you get a $700 bonus for referrals or something like that. Well, you might get one 1099 form that reports the $700 to you and to the IRS for the year. But you made $18,000 giving people rides, but you don't get a form for that.
Wow.
But the whole thing is taxable. Just because you don't get a form doesn't mean it's not taxable.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:05–0:49
2
What tax deadline should freelance workers be aware of before December 31st?
0:49–2:10
3
How did the Equifax payout example illustrate tax or financial pitfalls for individuals?
2:10–5:28
4
What tax reporting responsibilities come with gig platforms like Uber, TaskRabbit, and Upwork?
5:28–6:44
Speakers
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