NYT: Tax Tips for Those Who Make Money in the Gig Economy

[Kevin Slater]

Nothing terribly new here, but perhaps a good primer to fellow escorts wondering what to do around taxes:

 

Tax Tips for Those Who Make Money in the Gig Economy

 

Kevin Slater

[+ honcho]

I hope Kevin won't be overly annoyed if I mention that all those tax tips are also applicable

to folks pursuing a hobby.

 

If you pursue a clearly defined activity and show a loss in 3 or more out of 5 years, then

the IRS says that activity is a hobby and limits your deductions to the extent of the income.

 

There's a blessing and a curse about this. You don't actually have to file the schedule C;

it goes elsewhere; the income gets reported on Form 1040 line 21 (other income), and the

expense up to the amount of income gets reported on Schedule A line 23. Equipment

that you use in pursuit of a hobby is not subject to property tax. Equipment that

you use in a business is. (that's the blessing). However, there is an exclusion of 2% of your

AGI on miscelleneous deductions, so you wind up paying some tax on your hobby income

even though you lost money on it. (The curse).

 

Alternatively, although the IRS requires you to report every penny of income; it does not

require you to report all of your expenses. If you're income magically exactly equals your

expenses, even for a number of years, you can claim to be running a business, although you

will then be subject to business licenses & taxes owed to your city.

 

Some cities like Oakland California, have been aggressive about checking resident's

federal income tax returns looking for schedule C activity and assess tax penalties for folks

(like musicians) who fail to get city business licenses and pay city taxes. [As reported in the

AFM local 6 newsletter].

 

I am not a tax accountant. I do pursue two hobbies and I'm reporting the advice I got.

[The second hobby is recording other people's concerts for them].

[+ quoththeraven]

Do recognize that if you do not report all of your income in order to avoid the downsides of reporting as a hobby (or whatever), you are playing audit roulette.

 

ETA: I meant expenses. Whoops!

[Frequentflier]

Do recognize that if you do not report all of tour income in order to avoid the downsides of reporting as a hobby (or whatever), you are playing audit roulette.

 

You're right. And while criminal prosecutions for not reporting (tax evasion) aren't common, they do occur. I am accountant but don't practice that profession everyday. Taxes in the US are too complicated for most Americans to optimize. A visit with an accountant at least every few years can result in lower taxes while remaining compliant with the law; for those that are comfortable filing on their own between visits. Interest on delinquent taxes isn't crazy, currently 3%, but the underpayment penalties are painful and very difficult to get waived. Tax liens on someone's credit report are devastating to credit ratings/eligibility. Too often people look at ways to reduce taxes when they are working on their tax returns, they should be looking at opportunities at the beginning of the tax year and/or when they are starting a new business/hobby/etc.

[+ honcho]

Do recognize that if you do not report all of your income in order to avoid the downsides of reporting as a hobby (or whatever), you are playing audit roulette.

 

ETA: I meant expenses. Whoops!

 

The tax guy who told me that I didn't have to report all of my expenses was an enrolled agent who had previously worked for the IRS, and claimed he had never lost an audit.

 

I agree that it's better never to get called up for an audit than to win one, though . . .

[+ quoththeraven]

The tax guy who told me that I didn't have to report all of my expenses was an enrolled agent who had previously worked for the IRS, and claimed he had never lost an audit.

 

I agree that it's better never to get called up for an audit than to win one, though . . .

 

It probably never would be caught, and it would not be a worthwhile case to pursue as an evasion case, but still. There's a difference between "the law lets you do this" and "as a practical matter, there aren't likely to be consequences," although I have said that as far as I am concerned, if a law is aspirational only and provides no penalties, it might as well not exist.