As the great recession gave rise to the gig economy, CPAs say they are seeing more and more people embrace the concept of freelancing.
"Some people come in with 2, 3, 4 W-2s and 1099s," said John Lieberman, CPA at Perelson Weiner LLP.
"Being your own boss" carries some very specific consequences during tax time. Certified Public Accountant for Freelancers Jonathan Medows says one common mistake freelancers make is failing to claim all the expenses they're entitled to.
"Your hardware, your software, meals and entertainment," Medows said. "Also I would say office supplies, from paper clips to pens that can be deducted as well."
Of course if you keep every receipt for every box of paper clips you buy, you'll soon be drowning in documentation. Luckily, CPA John Lieberman says a lot of this can now be done with a quick notation in your calendar.
"If you have $75 a day or less of undocumented expenses, as long as you write them down in your diary and show a business purpose, this is good enough for an audit," said Lieberman.
Freelancers who work from home may want to deduct the costs associated with their home office. The key to doing that is to have a clearly defined area specifically used for that purpose.
"It doesn't have to be a separate room per the Internal Revenue Code but it has to be some sort of delineated space," Medows said. "So if you live in a studio and clearly half of it is only for business use, you might be able to take it."
Another common mistake freelancers make is underestimating the taxes they have to pay, specifically the self-employment tax. When you work for someone else, you pay half of your social security and Medicare taxes, while your employer covers the other half. However, this is not the case for freelancers.
"When you work for yourself, you match yourself," Medows said.
This means that your social security and Medicare tax responsibility doubles from a combined 7.65 percent to 15.3 percent.
Of course, there are some income limitations and net earnings to consider as well as various strategies that might lessen the overall blow. This is why Lieberman says tax planning is vital if you're in the gig economy.
"Speak to your professional," Lieberman says. "Plan before the end of the year. Don't come in on April 14th and say what can we do? Come in December and November and say the same question."