As a gig worker, you have the luxury of being your own boss. That privilege also comes with the responsibility to track your business expenses. Why track business expenses? As a gig worker, you are technically self-employed in the eyes of the Internal Revenue Service (IRS). Self-employed individuals have the unique opportunity to deduct business expenses from their self-employment income.
Schedule C, Profit or Loss From Business, is where you'll record income from your job in the gig economy. It is also where you report deductible expenses that you incurred related to that job. The net profit from Schedule C—your self-employment income minus allowable expense deductions—flows through to your Form 1040, U.S. Individual Income Tax Return.
To maximize your tax deductions, it pays to know which business expenses you can use to offset your self-employment income. Here are some of the most commonly missed tax deductions for gig workers.
Cell Phone Bill
If you have a dedicated work cell phone that you do not use for personal purposes at all, your tax deduction is straightforward. You simply include the entire bill on your Schedule C. However, if you use the phone for both personal and business purposes, you will need to do some calculations to arrive at the deductible amount.
Personal use of cell phones is nondeductible; business use of cell phones is deductible. How do you allocate your cell phone costs between the two? Consider the percentage of your time spent on business versus personal use. If 75% of your time on the phone is for business purposes, you can deduct 75% of the total phone bill.
You can deduct the business-use portion of software subscriptions. For example, if you work from home and frequently use Zoom to host meetings with your clients, you can deduct the cost of your Zoom subscription. Other subscriptions to keep in mind include Microsoft Office 365, Quickbooks, and website hosting fees.
What if you paid in advance for a multi-year subscription? You will need to prorate your payment and include only the portion corresponding to the tax year in question.
If you make a reasonable and necessary electronics purchase, it is tax-deductible. Of course, like all other deductible expenses, you can only include the expense to the extent you use the item for business purposes. Keep track of your expenses if you purchased a new laptop, desktop, monitor, or printer that you use partially or fully for your job in the gig economy.
You can deduct your car insurance if you use the car for business purposes. Keep in mind commuting does not qualify as a business expense. If you use your car partially for personal purposes, you will have to prorate the cost of your car insurance. Be sure you keep an accurate record of your car travel, so you have supporting documentation in case the IRS audits your car insurance deductible.
Meals are deductible when meeting with clients, traveling for work, or at a business conference. You can deduct the actual expenses from your qualifying meals if you keep your receipts. Business meals are temporarily 100% deductible for the 2021 and 2022 tax years. Normally, business meals are only 50% deductible.
If the cost of your meal includes entertainment, you can only deduct the portion related to the meal. If the meal and entertainment are not specifically identified and separated on your bill, you cannot deduct any of the expense.
There is a simplified option available as well. You can take a standard per diem rate if you use the Meals & Incidental Expenses (M&IE) on the U.S. General Services Administration (GSA) website.
To qualify for the deduction, business travel has to take you away from your tax home, last longer than a typical workday, and require you to get sleep or rest. Expenses that qualify for this deduction include transportation, lodging, and meals. If you don't keep all your receipts, there is a simplified option for lodging. You can take the standard per diem lodging rate on the GSA website.
The important thing to keep in mind with business travel is you can only deduct the portion that relates to the business portion of your trip. For example, you can deduct the cost of your meals while entertaining clients in Orlando, but you cannot deduct the cost of Disney World tickets for you and your family.
Additionally, if your family joins you on your business trip, you can only deduct the expenses you would have paid if you had traveled alone. In other words, you cannot include the cost of the plane tickets for your spouse or children unless they also work with you.