A theme that came through at Part 1 and Part 2 of House Small Business Committee hearings in late May on The Sharing Economy: A Taxing Experience for New Entrepreneurs, was that these freelancers need help with their tax planning and compliance. For example, someone who signs up to drive for Uber or Lyft likely doesn't realize that they just became a self-employed entrepreneur with tax obligations that include:
- Keeping records of mileage for driving and other costs involved in being a driver (or freelancer for some other network platform operation).
- Quarterly estimated tax payments for federal and state income tax as well as federal self-employment taxes.
- Reconciling any 1099-MISC or 1099-K received against their records. And if they don't receive such a form, such as because the payment processor is only required to issue 1099-K and the freelancer did not have more than 200 transactions and over $20,000 of payments, sufficient records to report the income earned.
- Registration at the local level if required, such as for a business license tax. [See for example, San Francisco + 4/15/16 SFGate article.]
- Possibilities of favorable retirement plan options.
- Whether they want to operate as a sole proprietor or perhaps another form, such as a Subchapter S corporation.