There’s still some confusion about freelance and gig work earnings being taxable income, so this article from Delaware Title Loans, Inc. is here to clear the air. Simply put, you do need to pay taxes on those kinds of incomes, as self-employed income is still subject to federal taxes.

This article will tell you all about paying taxes for gig workers and freelancers, including what happens if you don’t and how to prepare for it throughout the year. We will also explain how freelancers and gig workers who experience financial emergencies can turn to online title loans for quick emergency cash.

Is Money From Gig And Freelance Work Taxable Income?

Yes, gig workers and freelancers have to report all their income and pay any applicable taxes. That’s because people doing these kinds of work are considered to be self-employed, with their money being taxable income like any contracted worker. Most income is taxable unless it's specifically exempt, such as gift money, inheritance, and scholarship money.

The same thing applies even if you’re fully employed elsewhere but do freelance or gig work on the side. As someone who participates in that kind of work, you are responsible for self-reporting earnings and paying self-employment taxes. That could also include other applicable taxes like Social Security and Medicare costs.

In some cases, self-employed people in the gig-work or freelance industries must pay their estimated taxes every quarter instead of paying a lump sum during the following year’s tax season.

Filing and paying your taxes correctly are some of the most important personal finance tasks you’ll have to do yearly. That’s why you must do your research and consult a qualified expert to guide you through it if you are confused.

What Happens If I Don’t Pay Taxes On My Gig Or Freelance Income?

Some people make the mistake of thinking that no one will notice their gig or freelance income if they choose not to report it on their taxes. They may have a full-time job and think they could get away with not reporting their taxable income from gig work.

However, not reporting taxable income is a risky practice that could open you up to severe legal and financial penalties.

The following are some negative outcomes of failing to pay taxes on gig work or freelance income:

• Risk of audit: You’ll risk being audited by the tax authorities. That means they’ll review every detail of your income and determine whether or not you’ve failed to report any earnings.
• Financial penalties: An audit can also lead to hefty penalties that you’ll have to pay for failing to report your income correctly. The cost of the penalty depends on how much money you failed to report and whether you filed a tax return at all.
• Legal action: In more severe cases, the tax authorities might choose to take legal action against you. They could take you to civil court to collect owed money or file a criminal charge if you concealed fraud.
• Loss of benefits: Failing to report and pay your taxes can also lead to a loss of benefits like Social Security.
• Collection activities: The tax authorities might begin collection activities, such as garnishing your wages, to force you to pay owed taxes.

How Do Gig Workers And Freelancers Prepare For Tax Season?

The above potential outcomes are to be taken seriously for those who do not report taxable income on their tax return form. As such, it’s critical that you report all your gig work and freelance taxable income according to the rules.

There’s no need to feel overwhelmed or concerned about tax preparation as a gig worker or freelancer. As long as you develop good tax-related habits throughout the year, your next tax season will likely go smoothly when reporting your taxable income.

Here are five things you should do to prepare for tax season as a gig worker or freelancer:

1. Keep Detailed Records

You must keep detailed records of all your financial transactions, including invoices, receipts, and bank statements. You need to keep track of any income you earn during the tax year, as you won’t receive a W-2 form from an employer at the end of the year.

You must have a detailed record of your revenue that can be taxed from your multiple freelance projects, so you have all of your income to report on your tax return.

2. Understand Tax Obligations

Do your research to understand your tax obligations. They can differ between states and countries, which matters if your freelancing clients are online and from overseas.

Understanding how much of your income will have to go toward taxes will allow you to plan your year financially. You will understand how much money to set aside for taxes and how much you can spend on needs and wants.

3. Identify Tax Deductions

Find out what tax deductions you qualify for, such as those for having children, paying for medical and dental expenses above 7.5% of your adjusted gross income, and charitable donations. Tax deductions can help you reduce the overall amount of taxes you must pay.

Your tax bill can be expensive and require a lot of savings throughout the year, so any standard deduction that can reduce your financial burden can help during tax season.

4. Know And Follow Deadlines

Know your tax deadlines and mark them on your calendar with reminders. Knowing when you can start filing your taxes and when any tax payments are due allows you to plan accordingly.

You can build a savings schedule throughout the year that can culminate in when your taxes are due to ensure you don’t miss out on paying taxes for your freelance or gig work income.

5. Set Aside 30% Of All Income

The rule of thumb is to set aside 30% of all your income for tax purposes. It’s alright to set aside a bit extra; just make sure you don’t save too little. This amount of money should be sufficient to pay for your taxes during tax season while still giving you enough money during the year to pay for your essential needs.

Paying For Financial Emergencies With A Title Loan

During the year, financial emergencies can come up, such as medical bills, home or auto repairs, and late bills. These large expenses can cut into the money you are saving for tax season and can leave you in a dire financial situation.

At Delaware Title Loans, Inc., we have emergency cash available through Delaware car title loans. These allow you to use your lien-free auto title as collateral to receive up to between $300 and $15,000 to cover some or all of your emergency costs.

All you’ll need are your lien-free car title, a driver’s license, and a car for a brief inspection. You can begin the process online, set up an in-person meeting at your home or office, have a representative verify your required items, and get approved to receive your emergency money the same of the next business day.

Get Emergency Money Now With The Help Of Delaware Title Loans, Inc.

Remember that you must report and pay taxes on all your freelance and gig work income. Put money aside throughout the year and plan ahead to make sure you don’t put yourself in hot water with the IRS. Find out as much information as possible online and refer to a qualified professional to overview information about your taxable income and ensure you follow the rules regarding your taxable income.

Delaware Title Loans, Inc. is always ready to help you get emergency funds in the meantime, so just submit your details through the online form on this website. One of our representatives will call you back soon after to discuss the next steps for you to get approved for a Delaware car title loan.

Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.