Gig Worker & Small Business Owner Tax Checkup Tips

If you’re a gig worker or small business owner, you need to do regular and frequent tax checkups. Get a head-start and stay on track, so you’re not surprised when tax season rolls around with these tips.

Even if you have W-2 income or retirement income with tax withholding (which covers self-employed tax liability), you should take some extra steps and strategies to make tax filing easier and less painful. 

5 tips for self-employed tax checkups:

1. Do tax checkups regularly, but especially when there are changes in income, in your tax situation, and if your business expenses go up significantly. 
   
   You may need to estimate your income tax, social security tax, and medicare tax liability every quarter so you can make estimated tax payments. If you need to make estimated tax payments each quarter and don’t, you can be subject to penalties and interest even if the total taxes are paid in full for the year. 

2. Keep up with tax changes that may impact you. Maybe your favorite news source provides coverage on tax changes. However, a great source for federal tax changes is straight from the IRS. The IRS provides free newsletters with updates. You should consider the e-News for small businesses newsletter and the IRS Newswire. 

3. Keep good records. One of the news items for 2022 was that the mileage rate made a rare mid-year change. In the first six months of the year, the business standard mileage rate was 58.5 cents per mile. The second six months are 62.5 cents per mile. If you already keep good mileage records that include the date of the miles traveled, you’ll already have this covered. The IRS does provide an example of an acceptable mileage log which can be found in Publication 463.
   
   If you already have good records when you do your tax checkup, you can quickly determine your profit and taxable income for the year so far. Making sure your income and expense records are up to date each month will make tax checkups easier and preparing the tax return easier. 

4. Compare the current year to the previous year and factor in any seasonal trends. For example, if you are checking on your tax situation in September, but you make a whole lot of money in the holiday season, maybe you’ll want to project higher income and more taxes for November and December than you would for other months. 

5. Review your expenses as part of your tax checkup. Compare what you have so far this year to what you reported on your tax return last year and make sure you aren’t missing anything. And review your spending to make sure you capture all of your expenses. This is where keeping your gig or business spending separate from your personal spending saves you time. 
   
   Keeping separate bank accounts and credit card accounts for your self employment is a good accounting practice. If you don’t meet the requirements to open a business account, it is okay to use separate personal accounts. 

In many cases for gig workers, especially for those with W-2 income, the IRS tax withholding estimator can be a relatively easy way to determine tax liability for the year. You need to know your self-employment net income to be accurate with that estimator, and the tips above can help you with making sure that the net income number is accurate.

A practice tax return or a planner in tax return software (some software has this option) can also be a good method to do the tax checkup. But realize the tax return will be a year behind when doing the tax checkup with a practice return, and if there were big changes in tax law the checkup may be less accurate.

Finally, if most or all of your income is from self-employment, you may want to consider more detailed projections. Hiring a tax professional may be the right answer for that. But if you want to dive into it yourself, a good place to start is the Self-Employed Individuals Tax Center on IRS.gov.