Photo: Hazel Miller – gig worker! Editor’s note: Why is this article here? Because most musicians are “gig workers” – We can cite at least 3 cases in Colorado where the musician was asked to pay thousands of dollars in back taxes. Keep good records and, above all, if you collect the band’s wages and then distribute them to the band members, make sure you keep track of those payments and have an independent contractor form filled out for them.

In the past decade, a surge of workers flowing into the gig economy has created a realistic avenue for earning a living outside of just collecting a paycheck from an employer. Many who earn income from self-employment do so in a part-time capacity on top of another job, though plenty also engage in this type of work full-time. Gig work can offer attractive benefits, such as flexible work schedules, increased earning potential, or the ability to make money with your unique experience and skills from multiple businesses simultaneously.

As a result of tax reform and changes in healthcare policy from the Affordable Care Act, people have more financial flexibility to pursue work of their own making. Whether through side projects or ongoing freelance work, many of those who operate in this type of work have access to a substantial number of tax advantages that are well worth understanding.

Pass-through deductions for independent contractors
Prior to tax reform, gig workers could deduct several self-employment expenses. Now, the reform changes often provide the ability to reduce tax liability to businesses with a pass-through deduction on qualified business income (QBI) for eligible businesses.

Formally known as the Section 199A deduction, this tax code provision allows most self-employed taxpayers and small business owners to exclude up to 20% of their QBI from federal income tax (but not self-employment tax), whether they itemize or not.

The deduction amount depends on the taxpayer’s total taxable income — including wages, interest, capital gains, etc. — in addition to income generated by the business. In 2020, once the taxable income reaches or exceeds $163,300 ($326,600 if filing jointly), the type of business also comes into play.

Below that level, the deduction amounts to 20% of either taxable income (minus dividends and capital gains) or of the QBI, whichever is less. Above that level, the deduction phases out or eliminates altogether, depending on the nature of the business.

Read the whole article here – full of valuable tax info:

AD: Don’t worry about knowing which tax forms to fill out when you are self-employed, TurboTax Self-Employed will ask you simple questions about you and your business and give you the business deductions you deserve based on your answers. TurboTax Self-Employed uncovers industry-specific deductions. Some you may not even be aware of.

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