Gig economy: the changing workforce

Your Guide to State, Local, Federal, Estate + International Taxation

gig economy, tax, IRS, UberMy news feed has recently been filled with updates regarding the newly enacted tax reform proposals. After perusing those articles, a sentence in another article caught my eye. The author indicated that accountants may discover new sources of revenue by providing their service to the gig economy.

As every good business person does, we are always looking at new areas that we can offer our services. I have to admit, I had no idea what a “gig economy” was. So, as you might do, I looked it up. What was a gig? What I found was a pronged spear for catching fish, something that whirls or maybe a light, two-wheeled carriage drawn by one horse. Not one of these made a bit of sense to me and I certainly couldn’t make the correlation between providing accounting services and gig. And then I found it – the gig economy is comprised of workers who operate as independent contractors. The gig economy has expanded beyond the textbook definition of a single booking for a musician or comedian to perform at a club or concert.

So, what is the big deal about a gig economy? How much impact does it really have? Intuit has estimated that 34% of the workforce is comprised of the gig economy and anticipates that by 2020, just a mere two years away, that number will rise to 43%. If you look towards specific industries such as ground transportation (think Uber and Lyft), you will find that the number of gig economy workers increased 44% more than the traditional payroll employee. The gig economy is a significant element of the working population and just as my curiosity was raised, so too is watchful eye of the Internal Revenue Service.

If you’re part of the gig economy what do you need to do? Most likely you’ll be reporting your income and expenses on a Schedule C which will become part of your individual income tax return. Likely if you’re just entering the gig economy, you’ve never had to complete this form. We are often asked when meeting with clients what expenses can be deducted and what strategies are there for reducing taxes that one must pay. This is where the advice of an accountant can help you succeed in the gig economy. Tax laws are complex and despite political rhetoric, they have not gotten easier. The recent tax legislation includes a provision related to a deduction for pass-through entities. It may very well be that your “gig” will be impacted with this new deduction. Consultation with your accountant can provide you with knowledge regarding choice of entity structure, deductible items and how to develop your accounting system to provide you with the information you need when filing your taxes.

Does the IRS really care about you, the gig workers? The answer is a resounding yes. The Schedule C is a popular schedule when it comes to IRS audits. The fact that you report your income and expenses on Schedule C doesn’t necessarily make you an audit target, but keeping good records and adequate documentation can help you avoid any negative repercussions should you ever find yourself in an audit situation.

The gig economy is here to stay. The Bureau of Labor Statistics in 2017 recommenced gathering data on what they term contingent workers as recognition of the importance to the economy. The recently enacted Tax Cuts and Jobs Act has led to speculation that the deduction for “pass-through” entities will result in an increase in the number of workers who seek independent contractor status to avail themselves of this deduction. If you represent someone in the gig economy or are contemplating a change in status, you should consider consultation with an accounting professional to help make your gig the success you desire.

Cheryl Dickerson, CPA