Gig Workers on the Radar: How On Demand Workers Can Reduce Their IRS Audit Risk
September 18, 2023

As the transition from traditional employment to self-employment and entrepreneurship continues, many individuals are finding themselves in novel circumstances. The Internal Revenue Service (IRS) has taken notice of this shift towards gig work, freelancing, and self-employment, and their auditors and agents are increasingly directing their attention towards these emerging small business proprietors.

While the chance of an average individual taxpayer receiving an IRS audit notice is less than 1%, the audit rate is on the rise for small business owners, particularly those in the gig economy.

This uptick in audit rates for small business owners is a matter of concern.

If you’re currently undergoing an IRS audit or if the IRS claims you owe $10,000 or more, we urge you to contact our firm promptly for a consultation. You can reach us at 1-844-601-8999.

To remain in good standing with the IRS and minimize your personal audit risk, consider these strategies:

  1. Maintain Earnings Records on the App or Platform: One of the primary triggers for IRS audits is unreported or inaccurately reported income. It’s crucial for gig workers, freelancers, and self-employed individuals to diligently track and correctly report their earnings. Tracking your income doesn’t need to be burdensome; many gig economy participants can easily access their total earnings through platform-based services.
  2. Request 1099 Forms from Small Volume Clients: Gig workers often serve numerous individual clients, making accurate accounting and tax reporting challenging. Encourage each client to provide a 1099-MISC form detailing their payments throughout the year. Smaller clients might not be aware of this reporting requirement, so kindly explaining its importance could help.
  3. Verify Figures with Payment Processors: Utilize your preferred payment processor, such as PayPal or Stripe, to monitor your earnings. These services not only facilitate quick client payments but also provide comprehensive reports to assist small business owners in tracking their income. Whether through detailed reports or a bit of investigation, payment processors can provide the necessary information for IRS reporting.
  4. Keep Deductions Within Legal Limits: As a gig worker, you’re akin to a small business owner, granting you access to various tax deductions. However, excessive or inappropriate deductions can attract IRS scrutiny. To remain off the IRS radar, ensure your claimed deductions fall within reasonable and legally allowed limits.
  5. Timely Payment of Estimated Taxes: While occasional gig workers may not need to make quarterly estimated tax payments, your obligations may change as your business grows. Ensure you make these payments promptly, marking your calendar and budgeting accordingly. Timely quarterly payments are crucial for the self-employed, including the expanding group of gig workers.

The gig economy is experiencing rapid growth, offering opportunities for individuals to pursue self-employment. However, as more employees transition to these roles, the IRS is taking notice, potentially posing challenges for those who are unprepared or reckless with their tax obligations. The aforementioned tips can help mitigate your risk of encountering tax troubles, allowing you to focus on building your business without IRS-related concerns.

Should you face IRS issues, owe $10,000 or more in back taxes, or find yourself under audit, please reach out to our tax resolution firm. We are here to schedule a free and confidential consultation, thoroughly explain your options, and assist you in permanently resolving your tax problems. You can contact us at 1-844-601-8999.