The gig economy has revolutionized the way we work. It gives people the opportunity to carve out their own, bespoke careers. Whether you’re supplementing your income with ad hoc gig work or replacing a full-time 9-5 with a more flexible role, the gig economy can enable you to develop your skills and build a reputation in your preferred industry.

Although there are many benefits associated with being a gig worker, there can be some drawbacks too, and dealing with your tax liability is one of them. Attracted by the chance to boost their earnings and work on a custom schedule, many people overlook the importance of completing tax declarations, self-assessments, and tax returns when they first join the gig economy.

Alternatively, some people are put off becoming gig workers because they assume that the tax and administrative liability will be more hassle than it’s worth. Fortunately, this isn’t the case at all!

With our handy guide, you can find out everything you need to know about managing your taxes as a gig worker and streamline your admin. To get started, take a look at our top tips for managing your taxes as a gig worker now:

Know Which Rules Apply to You

Luckily, this doesn’t generally mean that you’ll need to pay tax in a whole host of different jurisdictions. Instead, you’re typically taxed according to the regulations and laws where you reside. If you’re based in the U.S. and have clients in the UK, Japan, or Australia, for example, you’ll only have to file your taxes with the Internal Revenue Service (IRS).

If you’re a freelancer who enjoys travel, however, you’ll need to consider whether this will affect your tax liability. If you travel abroad for an extended period and continue to work remotely, for example, this could affect your status as a taxpayer. Due to this, it’s vital to check which regulations apply to you and determine where and who you need to pay tax to.

Register as Quickly as Possible

Tax authorities won’t automatically know that you’re working as a freelancer or independent contractor, so it’s best to let them know straight away. When you do, you’ll gain access to a range of resources that can help you to manage your tax liability.

In some cases, the registration can take a fairly long time to complete, which is why it’s generally best to register well in advance of upcoming deadlines. Remember – you’ll need to register with whichever tax authorities you’re liable to pay tax to. This may be the IRS in America, for example, or HMRC in the UK. Once your registration is complete, you’ll be able to log in to an online portal and access information that’s relevant to you.

Look Out for Self-Reporting Options

When you’re a gig worker, you’re responsible for telling the tax authority how much you’ve earned in income. In many instances, you’ll be able to self-report, rather than hiring a professional to verify your submissions for you. As well as keeping your costs down, this can simplify the management of your freelance career and enables you to keep up to date with your tax liabilities more easily.

Do be aware, however, that some tax authorities will require you to register for self-assessment separately from registering as a freelancer, sole trader, or sole proprietor. The first will enable you to submit your income details, while the latter merely notifies the tax authority that you’re generating revenue.

Keep Records of Your Finances

One of the most important things you can do as a freelancer is to keep detailed financial records. When your finances are well-managed, it makes dealing with your tax liabilities so much easier. In fact, you will be able to identify your earnings, expenditure, and profit in seconds when you keep your finances up to date.

There are many ways you can do this, from handwriting a spreadsheet to using an app on your phone, so simply find one that works best for you. Many tax-related apps and online platforms can be linked to your bank account or your invoicing software, which can simplify your tax management even further. If you want to streamline your tax declarations as a gig worker, finding the right app and digitizing your finances is usually the easiest way forward.

Deduct the Right Expenses

As a freelancer, you’re most likely to have to pay income tax on what you earn. However, work-related expenses can sometimes be deducted from your earnings before your tax liability is calculated. This reduces the amount of tax you have to pay but it’s extremely important to check which types of expenses can be deducted before you submit your self-assessment.

If you work from home, for example, you won’t be able to deduct the cost of a new shirt from your earnings, even if you wear it for virtual meetings. However, you may be able to deduct the cost of a new keyboard, providing you only use it for work purposes.

Although tax authorities like the IRS provide extensive information regarding legitimate deductible expenses, it can be complex. If you’re unsure about whether or not expenditure can be deducted from your income, it’s always advisable to seek help from a professional, such as an accountant or tax advisor, or from the tax authority itself.

Set Money Aside Every Time You’re Paid

When you’re an employee, you’re usually taxed at source, which means that the amount of income tax you owe is taken out of your wages before you get paid each month. In contrast, freelancers and independent contractors are required to pay income tax once their liability has been calculated.

You’ll usually need to pay tax on a quarterly or annual basis, depending on regional or local regulations, so it’s important to set some money aside so that you’re able to pay your tax bill on time. By calculating your tax liability in advance, you can find out how much you need to set aside from each invoice for tax purposes.

Depending on the app or online platform you use, this information might even be calculated for you, which makes it easy to ensure that you’re setting aside a sufficient amount to pay your tax. Financial penalties do typically apply when you pay your tax late but getting into the habit of saving a portion of your earnings for upcoming tax payments will help you to make the relevant payments on time.

Managing Your Tax Liability as a Gig Worker

Dealing with a tax declaration and self-reporting your income can seem overwhelming at first, particularly if you’ve never done it before. However, it’s much easier in practice than it sounds. With millions of people successfully generating income via freelancing gigs and side hustles, managing your own taxes is becoming increasingly common.

What’s more – there’s plenty of help available. From online guides and official helplines to personal accountants and handy apps, you can access expert advice and independent support at any time.

Once you’ve set up a simple and straightforward tax management system, you’ll free up your time to focus on your career. As a result, you’ll be able to immerse yourself in the world of freelancing, boost your earnings, and enjoy becoming a successful gig worker.