In the aftermath of COVID-19, the promise of more flexible working conditions and being your own boss has driven millions of workers into the embrace of the gig economy—trading stuffy office jobs for freelance opportunities and turning hobbies into side hustles. Almost half of all millennials currently find work using online gig economy platforms, and more than 90% of U.S. workers report that they would consider freelancing and independent contracting.
Self-employment is booming in Georgia, especially—with research ranking the Peach State #7 in the list of the top 10 states for freelancers with a freelancer score of 8.78/10. As of 2023, self-employed workers make up 2.57% of the population, and with a low cost of living, Georgia makes a good home for gig workers.
But before you take the plunge into the world of contracting, gigs, and side hustles to supplement or even replace a traditional full-time or part-time job, you need to know how to navigate the unique tax challenges faced by the self-employed, including how to file taxes as an independent contractor.
Understanding Tax Obligations for Contractors, Freelancers, Gig Workers, and Side Hustlers
Dealing with tax obligations as a traditional employee is hardly fun, and while freelancing and working in the gig economy can bring freedom and flexibility to your career far beyond what you can find in a 9-to-5 grind, it comes with a trade-off—a more complicated tax situation.
In the state of Georgia, nearly everybody has to pay federal, state, and local taxes, whether they’re part of the traditional economy or the gig economy. Without understanding the complex realities of tax on freelance work, you can land yourself in hot water by accidentally underpaying your taxes.
Larger Tax Obligations
As an employee, you and your employer both pay an individual share of certain taxes, such as Social Security and Medicare. But since freelancers, gig workers, and side hustlers are all generally classified as independent contractors, you’re also responsible for paying these taxes in full, along with other self-employment taxes.
Quarterly Estimated Taxes
Unlike an employee, an independent contractor’s taxes aren’t automatically withheld from their pay. Freelancers and gig workers need to make quarterly estimated tax payments to cover income and self-employment taxes.
Rules and Limits for Deductible Expenses
If you’re working as a freelancer, you can write off some expenses and reduce your taxable income, but you need to carefully track and document these expenses and understand the rules and limitations on what can be deducted from your federal or state taxes.
Record-Keeping For Tax Write Offs
As a freelance contractor, you’re responsible for keeping meticulous records of your income and expenses, including invoices, receipts, and documentation of deductible business expenses. With these records, you can be certain you’re paying the right amount of taxes and have evidence to back up your claims if there is ever a discrepancy.
How to File Taxes as a Gig Worker in Georgia
Working in the gig economy can make taxes more complicated, but it’s not impossible to understand the ins and outs of how to file taxes as a gig worker. After all, hundreds of thousands of self-employed professionals in Georgia do it just fine. You just need to keep a few important things in mind:
- Determine your filing status. Self-employed workers in Georgia need to file as sole proprietors by reporting income and expenses on Schedule C of their federal tax return.
- Gather your income information from employers. Many of the gig platforms used by freelancers, such as Fiverr, issue 1099-NEC and 1099-K forms to report income.
- File federal taxes. Once you’ve used Schedule C to report your net profit or loss from your gig work, transfer the information to your Form 1040.
- Pay self-employment taxes. Schedule SE calculates how much you have to pay to cover both the employer and employee portions of Social Security and Medicare taxes.
- File state income taxes. Use Form 500 to file your state income tax return. Georgia is switching to a flat income tax of 5.49% in 2024.
- Make quarterly estimated tax payments. Use Form IT-ES to cover quarterly tax liability to the Georgia Department of Revenue.
- Explore deductions and credits. Research any qualifications you may have for tax deductions.
- Check for local taxes. Depending on your location, your town or city may require you to pay certain local tax obligations.
The best and easiest way to file taxes as a gig worker is to file electronically, which can reduce the chance of errors. If you’re unsure about your tax situation or want to ensure you’re taking advantage of the maximum deductions and credits, consider consulting with a tax professional.
Understanding Gig Worker Tax Deductions
Gig workers and freelancers in Georgia can take advantage of federal and state-level deductions on expenses such as:
- Costs for equipment, supplies, tools, and software necessary for your gig work
- Certain expenses for a home office, potentially including a portion of your rent or mortgage
- Costs for business-related mileage on your vehicle
- Travel expenses
- Fees paid to professionals for services related to your gig work
- Health insurance premiums and retirement contributions
You may also be eligible for tax credits on earned income, dependent children, education, or retirement savings contributions.
It’s important to check with tax professionals about tax deductions for gig workers in Georgia before you claim deductions or credits on your taxable gig work income.
How to Report Side Hustle Income
Knowing how to do taxes for side hustles is becoming an increasingly important skill in this economy. Many people who participate in the gig economy still work part-time or even full-time, but also supplement their income by monetizing their hobbies in their free time.
In addition to filing taxes as an employee for your job, you must also report your own independent income stream. You will have a W-2 from your employer and a Form 1099 from your clients if you were paid $600 or more during the tax year.
Because your income is less unpredictable when you have a day job and a side hustle, side hustlers in Georgia tend to have a less intricate tax situation, though many of the same rules for calculating gig economy income still apply.
How to Reduce Taxable Income with a Side Business
One of the benefits of running a side hustle on top of your day job is your potential to reduce your taxable income and lower your overall tax liability compared to if you only had your day job. Having a side hustle may make you eligible for certain deductions and credits you would not be eligible for as a full or part-time employee, such as:
- Legitimate business expenses, including supplies, equipment, business-related travel, home office expenses, and any other costs directly associated with running your side business
- Deductions for relevant expenses relating to your home office, such as rent or mortgage payments, utilities, and property taxes
- Federal and state business tax credits
Knowing how to file taxes as an independent contractor and who to turn to for help is essential for succeeding in the gig economy. If complicated and intricate self-employment taxes have left you with difficult federal and state tax burdens, the experienced tax attorneys at Wiggam Law can help you find relief and get a fresh start on the next chapter of your freelance career.