Common tax mistakes made by Gig Workers and how to avoid them

Common tax mistakes made by Gig Workers and how to avoid them

It’s understandable how a gig worker can make mistakes when it comes they taxable, as they do not have an employer to assist them in remitting taxes on their behalf. This ends up overwhelming them with the tax obligations and puts them at risk of making basic errors that can rob them of time and money, let alone anger the IRS.

This blog is intended to help gig workers ease out their tax burden by utilizing WBB Gig Taxes to ensure they do not make common errors in the first place.

Navigating through taxes as a gig worker can turn out to be an exhaustive task, considering the fact that they engage with a plethora of freelance opportunities, ranging from Uber rides to Doordash deliveries and Fiverr gigs and more. Mistakenly thinking that unclaimed earnings will go unnoticed or failing to collect 1099 forms for TLS income are most common errors made by gig workers when it comes to freelance work. Tax liabilityMost commonly saidangleThis is an issue because: The IRS conducts audits and issues penalties on its users for attempting to hide income from them, and as what was montioned earlier, gig workers can also issue freelance services which in turn allows them to file taxes. In such situations where one freelance income is hidden, the IRS is alerted by the gig platforms upon submitting the 1099 forms, ruining its reputation in general. How to keep track of all your earningWhether or not you’ve received a 1099 form, it is best practise to log in all your earnings every time. This way, you would be able to keep a track of all your income, in case the IRS decided to audit you, you can use this log as proof.

Platforms are only obliged to provide a 1099-K tax form to You if you earn $600 or more from platform (as per the IRS’s recent guidelines). If you earn less, it still is a taxable income and needs to be reported.

Use spreadsheets and bookkeeping applications to keep everything in check when it comes to your income.

Navigating taxes as a gig worker can be tricky. Without an employer to handle tax withholdings or provide guidance, gig workers often find themselves overwhelmed with tax obligations, leading to common mistakes that can cost time, money, and even trigger penalties from the IRS.

This blog will highlight the most common tax mistakes made by gig workers, how to avoid them, and how WBB Gig Taxes can simplify the process for you.

1. Failing to Track Income from All Platforms

As a gig worker, you may earn income from multiple sources—rideshare platforms like Uber or Lyft, delivery services like DoorDash, freelance work on platforms like Fiverr, or other side gigs. A common mistake is neglecting to track income from all these sources or assuming the IRS won’t notice unreported earnings.

Why it’s a problem: The IRS receives a copy of every 1099 form issued by gig platforms, so failing to report even small amounts of income can result in penalties or audits.

How to avoid it:

• Keep a log of all your income, whether or not you receive a 1099 form. Platforms are only required to issue a 1099-K if you earn over $600 from them (as per recent IRS updates). If you earn less, it’s still taxable and must be reported.
• Use tools like spreadsheets or bookkeeping apps to stay on top of your earnings.

How WBB Helps: With WBB Gig Taxes, all you need to do is upload your income documents, and our expert tax professionals ensure that every source is accounted for correctly. We specialize in gig worker taxes, so we won’t let you miss a penny of reported income.

2. Ignoring Estimated Quarterly Taxes

In contrast to regular employees, gig workers do not have taxes withheld from their paychecks. It is a common misconception by numerous gig workers that they only pay taxes once they finish a year’s work. In the tax season, many people are surprised to learn they are required to pay taxes as well as owing substantial fines for failing to make estimated quarterly payments. Unlike traditional employees, gig workers don’t have taxes withheld from their income automatically. Many gig workers mistakenly wait until the end of the year to pay taxes, only to discover they owe significant penalties for not making estimated quarterly tax payments.

What’s the issue: If you think your total tax owed for the year will exceed $1,000, you must pay the taxes in four equal quarterly installments, as stated by the IRS. Ignoring these payments results in interest and penalities.

How to avoid it:

• Calculate your estimated tax liability based on your expected income and expenses, and make quarterly payments by the deadlines (April 15, June 15, September 15, and January 15).
• Use IRS Form 1040-ES to calculate and submit your payments.

How WBB Helps: The tax advisors of WBB can assist clients in making accurate quarterly estimates based on the clients’ anticipated earnings or “all deductibles” to these earnings. With our year-round support, you can stay on top of these deadlines and avoid unnecessary penalties.

3. Ignoring Tax Deductions

Undoubtedly, one of the biggest advantages of gig work is the ability to claim deductions for work-related expenses. Sadly, many a times, due to improper or missing bills either fail to claim deductions they qualify for or claim expenses incorrectly, therefore risking IRS audits.

Why it’s a problem: Missing deductions means you’ll overpay on your taxes. On the contrary, including deductions that do not qualify (such as for use of personal car) can have repercussions when the IRS audits your tax return.

How to avoid it:

• Get accustomed to the expenses that are permitted to be deducted such as the mileage (kilometers driven), the cost of maintaining a vehicle, the use of a phone or the internet while at work or at home, the cost of maintaining an office at home, the cost of supplies used for work, etc.
• Retain more detailed documentation and receipts for each expense claimed.

Role of WBB: WBB specializes in identifying every deduction gig workers are eligible for. From mileage tracking to understanding home office rules, we ensure you don’t leave money on the table while staying compliant with IRS regulations.

4. Mixing Personal and Business Finances

An error that multiple gig workers make is using one bank account or credit card for both business and personal expenses. In this case, the tracking of deductible business expenses becomes harder and it might raise red flags with the IRS if you’re audited.

Why it’s a problem: When your personal and business finances are combined, it’s difficult to prove which expenses are work-related, potentially costing you valuable deductions.

How to avoid it:

• For performing gig work, apply for a different credit card and open a different bank account.
• Use this account exclusively for work-related transactions, such as gas, vehicle maintenance, or marketing expenses.

How WBB Helps: At WBB, we encourage gig workers to stay organized by separating their finances. We’ll help you identify work-related expenses even if they’re mixed and ensure your deductions are accurately reported.

5. Forgetting to Track Mileage and Vehicle Expenses

For rideshare drivers and delivery workers, mileage and vehicle costs are often the largest deductions available. However, forgetting to track your business miles or failing to document your vehicle expenses can result in missed opportunities to lower your taxable income.

Why it’s a problem: The IRS requires detailed records for mileage deductions, including the date, purpose, and number of miles driven for work. Without proper documentation, your deduction could be denied.

How to avoid it:

• Use mileage tracking apps like Stride or MileIQ to log your business miles automatically.
• If you choose the actual expense method, keep receipts for gas, repairs, insurance, and depreciation records.

How WBB Helps: WBB Gig Taxes helps gig workers navigate both the standard mileage rate and actual expense methods to determine which option saves you more money. We’ll guide you through maintaining proper records for audit-proof deductions.

6. Missing Filing Deadlines

Between juggling gig work and personal responsibilities, it’s easy to lose track of tax filing deadlines. Missing the April 15 deadline (or October 15 if you file for an extension) can lead to late fees and interest charges.

Why it’s a problem: The IRS charges 5% of your unpaid taxes for each month you’re late, up to 25%. This can add up quickly, especially if you owe a significant amount.

How to avoid it:

• Mark tax deadlines on your calendar and set reminders well in advance.
• If you’re unable to file on time, submit IRS Form 4868 to request a six-month extension. Remember, this extension applies only to filing—not payment.

How WBB Helps: WBB simplifies the tax filing process by handling it for you. Simply upload your documents, and our team ensures everything is filed accurately and on time. We even offer reminders to help you stay compliant with deadlines.

7. Not Seeking Professional Help

Many gig workers attempt to navigate taxes on their own to save money but end up making costly mistakes. From misunderstanding tax laws to missing deductions, filing your taxes without expert guidance can hurt your finances.

Why it’s a problem: Tax laws for gig workers are complex, and even small errors can lead to audits, penalties, or lost refunds.

How to avoid it:

• Work with a tax professional who specializes in gig worker taxes.
• Use platforms like WBB Gig Taxes, which are designed specifically for independent contractors.

How WBB Helps: WBB Gig Taxes offers personalized support from tax experts who understand the unique needs of gig workers. Whether it’s maximizing deductions, filing accurately, or providing year-round guidance, we’re here to make your tax experience stress-free.