40% of Gig Workers Are Making This Major Tax Mistake

MarketsMotley Fool

If you're working a side hustle, whether to explore new career avenues or bring home extra income, you're in good company. TaxSlayer estimates that 28% of Americans have two or more income sources to report to the IRS. The bad news? Roughly 40% of gig workers say they don't take deductions related to that independent work -- that's a problem because they're missing out on a huge opportunity to lower their taxes.

If you have freelance income to report on your upcoming return, it pays to take the time to figure your related deductions -- even with the April 17 filing deadline looming. Here are a few you might look into.

Continue Reading Below

1. Direct business expenses

Sometimes you have to spend money to make money. If you purchased equipment or other items in order to do freelance work, you're entitled to write off those costs on your taxes. For example, if you did work as an independent IT consultant and bought cables and a laptop to do your job, those items can all be deducted. The same holds true if you purchased office supplies, like envelopes and paper, to invoice clients.

2. Mileage

If you used your personal vehicle to perform your side gig, you're allowed to claim a deduction for mileage when you file your return. For 2017, the IRS rate is 53.5 cents per mile, which means that if you drove 300 miles for business purposes (say, to get to and from clients), that's $160.50 that you get to write off. The only catch, however, is that you're supposed to maintain a detailed log showing what your various mileage was for. If you didn't create one last year, and therefore can only guess at your mileage, you open yourself up to problems. But if you use your vehicle regularly for independent work, be sure to track your mileage going forward to capitalize on this deduction.

3. Travel costs

Maybe you went to a seminar last year to learn new skills for your side business. Or maybe you had to fly cross-country to meet with a client in person. No matter the circumstances, if you incurred travel expenses in order to do your job, you can deduct them on your return. These include air or rail fare, lodging, and reasonable meal costs.

4. The home office deduction

If you did freelance work out of your home, you may be eligible for the home office deduction. To qualify, you'll need to meet two criteria. First, you must have a dedicated space in your home that you used solely for business purposes (setting up shop at your kitchen table doesn't count). Secondly, your home office must constitute your primary place of business. If you rented an office for your side gig and mostly worked out of it, you won't be eligible.

Assuming you qualify for the home office deduction, there are two ways to calculate it. Using the simplified method, you can claim $5 per square foot of office space you have, up to a maximum of 300 square feet. This means that if your home office is 100 square feet, you get a $500 deduction.

Using the standard method, you'll need to tally your home expenses that enabled you to do your work and claim a portion of them based on the size of your office relative to the rest of your living space. For example, if you spent a total of $20,000 on electricity, heat, water, and other such things that were necessary to work from home, and your home office takes up 100 square feet of a 2,000-square-foot living space, you get a $1,000 deduction. You have the option to choose between the simplified and standard method when claiming a home office, so it makes sense to run both calculations to see which gives you the greatest deduction.

If you earned freelance income last year, don't miss out on these money-saving deductions. If you need more time to dig through your receipts and calculate your expenses, you can always request a tax extension and buy yourself extra time to file your 2017 return. Keep in mind, however, that if you wind up owing the IRS money, you're still required to pay your tax bill by the April 17 deadline -- though if that's the case, claiming the aforementioned deductions might make that total much less painful.

The $16,122 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,122 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

The Motley Fool has a disclosure policy.