DEDUCTIONS FOR A GIG ECONOMY

• Published in: Practical Tax Strategies 2020-07, Vol.105 (1), p.4-12
• Main Author: Livingstone, Jane R
• Format: Article
• Language: English
• Subjects: Business expenses; Costs; Credibility; Documentation; Employees; Gig economy; Self employment; Tax deductions; Tax returns; Taxpayers; Travel & entertainment expenses; Vehicles
• ISSN: 1523-6250

Specifically, expenses for travel, gifts, and any listed property are subject to heightened substantiation requirements.6 Listed property includes passenger automobiles, other transportation property, and property generally used for entertainment, recreation, or amusement.7 Cellular phones were removed from the definition of listed property in 20108 and computers were removed in 2018.9 The stricter substantiation requirements under Section 274(d) require substantiating the amount of the expense, the time and place (or date for gifts) of the expense, the business purpose of the expense, and the business relationship to the taxpayer of any person receiving a benefit. The items discussed in more depth here are auto costs; cellular phone service; internet service; work clothing; tools, supplies, and equipment; meals when not away from home; organization membership, licensing, and continuing education; and inventory, cost of goods sold, and selling expenses. For the actual method, the taxpayer has to keep track of the costs of operating the vehicle including cost of gasoline, auto insurance, maintenance (including oil changes, new tires and tire rotations, and car washes), and repairs, and the taxpayer can also deduct depreciation. The standard mileage method is an IRS provided estimate of the average cost per mile for operating a vehicle and it incorporates all of the costs that would be deductible if the actual method was used. [...]if the standard mileage method is chosen, no actual auto costs are deductible.