Tax Considerations for Self-Employed Professionals and Gig Workers

The rise of the gig economy has provided new opportunities for individuals to earn income through self-employment. However, with these opportunities come important tax obligations that differ significantly from those of traditional employees.

Understanding tax reporting requirements, payment obligations, and available deductions is critical to ensuring compliance while maximizing tax efficiency. Below, we outline key considerations for freelancers, consultants, and independent contractors navigating their tax responsibilities.

Taxable Income and Reporting Requirements

All self-employment income is taxable, whether received through cash, checks, or digital platforms such as PayPal or Venmo. The IRS is increasing oversight on gig economy earnings. Starting in 2025, platforms must issue Form 1099-K for earnings over $5,000, with the threshold decreasing to $2,500 in 2026 and $600 in 2027.

Even if a tax form is not received, all income must be reported. Maintaining detailed financial records—including invoices, receipts, and bank statements—is crucial for accurate tax filing and compliance.

Estimated Tax Payments and Compliance

Unlike traditional employees, self-employed individuals do not have taxes withheld from their earnings. Instead, they are responsible for making quarterly estimated tax payments to cover income tax and self-employment tax obligations.

2025 Estimated Tax Deadlines:

• April 15, 2025
• June 16, 2025
• September 15, 2025
• January 15, 2026

Failure to make these payments may result in IRS penalties. However, individuals who earn both W-2 and self-employment income can adjust withholdings from their paycheck to reduce or eliminate quarterly tax payments.

Self-Employment Tax Obligations

Self-employed professionals must pay both the employer and employee portions of Social Security and Medicare taxes, totaling 15.3% of net earnings. To help offset this cost, the IRS allows a 50% deduction of self-employment tax when calculating taxable income.

Strategic tax planning is key to minimizing these obligations and ensuring financial stability.

Tax Deductions and Expense Management

One of the advantages of self-employment is the ability to deduct business-related expenses to lower taxable income. Common deductions include:

• Home Office Deduction – Available for those using a dedicated space for work.
• Technology & Software – Expenses related to business operations (laptops, subscriptions, etc.).
• Internet & Phone Expenses – Pro-rated deduction for business use.
• Mileage & Travel Costs – Business-related vehicle use and professional travel.
• Marketing & Advertising – Website costs, social media promotions, and networking expenses.

Additionally, some pass-through businesses—such as sole proprietorships, partnerships, and LLCs—may qualify for the 20% Qualified Business Income Deduction (QBID). This deduction is currently set to expire at the end of 2025 unless extended by Congress.

Proper documentation is essential—detailed expense tracking and record-keeping will ensure compliance and substantiate deductions in the event of an IRS audit.

Retirement Planning for Self-Employed Professionals

Without employer-sponsored retirement plans, self-employed individuals must proactively save for retirement. Options such as Solo 401(k)s and SEP-IRAs allow for tax-advantaged savings while lowering taxable income. The Solo 401(k) contribution limit for 2025 is $69,000, with additional catch-up contributions for those over 50.

Many retirement plans allow contributions to be made until the tax filing deadline, offering flexibility for year-end tax planning.

For more information or questions, please reach out to your LMC professional.