The on-demand economy is spawning thousands of new opportunities across America and giving millions of people the chance to either supplement their existing incomes or go out on their own.
Research conducted by my company, Xero, shows there are now more than 53.7 million freelancers working in the United States, equating to about one-third of the nation's labor force. Of that, about 11.4 million workers are finding on-demand opportunities online, a trend being driven by the emergence of online platforms like Uber, Lyft, TaskRabbit, Upwork and Freelancer.com.
Surveying hundreds of on-demand workers, the data returned some staggering insights into this growing labor pool. But what stood out was that a quarter experience difficulties keeping track of expenses, and a whopping 73% don't deduct any expenses at all.
Keeping track of your work expenses is one of the simplest ways to maximize your take-home income.
By not deducting work-related expenses, like for example software subscription costs, phone bills, gas, car maintenance or travel, many on-demand workers could be paying too much tax, and giving themselves an undeserved pay cut.
Being your own boss comes with many perks, including deciding when and where you want to work. But with this flexibility also comes a level of responsibility that many people don't realize. According to the research, many on-demand gig economy workers lack experience in simple accounting practices, such as deducting business expenses, and would be well served by online services that provide simple bookkeeping functionality, requiring minimal accounting knowledge.
Using expense management apps like TaxTouch, on-demand workers who file a schedule C can simply keep track of work expenses, estimate their tax bills and figure out what their take-home income is.
The word tax can send many people into a spin. It's highly complicated and can also result in many people throwing everything to do with tax in the 'too hard basket' which means when tax time rolls around, they find themselves confused and without the detail to retain the most of their income.
Early on in my career, an economics professor explained the US tax system was set up to ensure each individual pays the most amount of tax. The onus to lower your taxable income is on you and the best way to do that is keep detailed records.
More than a third (35%) of these freelancers interviewed report having trouble understanding and paying taxes, and 62% don't make estimated tax payments. However, just 20% turn to a professional for tax and bookkeeping advice, and 73% file their taxes without help.
Enlisting the help of a pro or just keeping good records are two ways to lower your taxable income, ensure you're following the rules and unravel any tax stress which seems to rear its head at this time of year.