New IRS Rules Create Opportunities—but Only for Workers Who Plan Ahead
Earning more does not always mean keeping more.
Uber and Lyft drivers, DoorDash and Instacart delivery workers, freelancers, and independent contractors often focus on gross income—how much they received from platforms or clients. But the number that matters most for tax purposes is generally the profit remaining after properly documented business expenses.
The IRS recently released new guidance explaining how the Working Families Tax Cuts affect gig economy workers. The changes may create valuable tax-saving opportunities, including a new deduction for qualified tips, permanent Qualified Business Income deductions, and 100% bonus depreciation for certain business property.
But these benefits are not automatic.
Gig workers who wait until tax season to organize their income and expenses may miss deductions, make unnecessary purchases, or face an unexpected tax bill. A better approach is to build a tax strategy while the income is being earned.
What Changed for Gig Economy Workers?
According to the IRS, four major provisions may affect eligible self-employed workers.
1. A New Deduction for Qualified Tips
For tax years 2025 through 2028, eligible taxpayers may deduct up to $25,000 in qualified tips from taxable income.
For self-employed workers:
- The deduction cannot exceed the net income from the business in which the tips were earned.
- The tips must be included in amounts reported on Form 1099-NEC, Form 1099-MISC, or Form 1099-K.
- The worker’s occupation and the tips received must satisfy the qualification requirements.
The phrase “No Tax on Tips” can be misleading. It does not mean tips can be excluded from business records or left off the tax return.
Gig workers must continue reporting their income properly. The deduction also does not automatically eliminate every tax connected with self-employment.
Tax strategy: Separate and document tips now
Do not wait until the end of the year to determine how much of your platform income represented tips.
Save monthly platform statements and maintain separate records showing:
- Fares or service payments
- Delivery payments
- Customer tips
- Bonuses and incentives
- Platform fees and commissions
- Refunds or adjustments
If your platform statement combines these amounts, download the detailed reports before they become difficult to retrieve. A deduction is far more defensible when the records clearly identify the income being claimed.
2. The Qualified Business Income Deduction Is Now Permanent
The Qualified Business Income deduction—commonly called the QBI deduction—has been made permanent.
Eligible self-employed taxpayers may be able to deduct a portion of their qualified business income, subject to applicable limits and restrictions. Making the deduction permanent allows freelancers and independent contractors to incorporate it into longer-term tax planning.
However, not every dollar reported on Schedule C automatically qualifies. The IRS also states that certain tip income may be excluded when calculating QBI.
Tax strategy: Consider how every deduction affects the entire return
Claiming more business expenses generally lowers Schedule C profit. That can reduce income tax and self-employment tax—but it may also reduce the income used to calculate the QBI deduction.
This does not mean legitimate expenses should be ignored. It means deductions should be evaluated as part of the entire tax return rather than one item at a time.
Good tax planning asks:
- How much will this expense actually reduce the total tax?
- Will it affect the QBI deduction?
- Will it affect retirement-plan contribution limits?
- Should a major purchase be deducted this year or recovered over several years?
- Could income or expenses be timed more strategically?
The largest deduction is not always the best overall strategy.
3. The Form 1099-K Threshold Returned to Its Previous Level
Third-party settlement organizations, including certain payment apps and online marketplaces, generally must issue Form 1099-K when both of these conditions are met:
- Payments exceed $20,000 during the calendar year; and
- The total number of transactions exceeds 200.
However, this is the reporting threshold for the payment platform—not the income-reporting threshold for the worker.
You are generally required to report taxable gig income even when you do not receive Form 1099-K, Form 1099-NEC, or another information return.
Tax strategy: Never use Forms 1099 as your bookkeeping system
Forms 1099 may not show the same amount that should ultimately appear as net business income.
For example, a form may report gross payments before subtracting:
- Platform commissions
- Service charges
- Processing fees
- Refunds
- Other business expenses
Reconcile each Form 1099 with your platform statements and bank records. Simply entering the form and stopping there may cause you to overstate income or overlook deductible fees.
On the other hand, leaving income off the return because no Form 1099 was received can create an underreporting problem.
4. Permanent 100% Bonus Depreciation for Certain Property
The new law allows 100% bonus depreciation for certain qualifying property acquired after January 19, 2025.
Depending on the circumstances, this may help gig workers who purchase qualifying computers, equipment, or vehicles for business. The IRS guidance states that the property generally must be used more than 50% for business to qualify under the provision discussed.
Vehicle deductions and depreciation rules can be complicated. Passenger-vehicle limitations, business-use percentages, purchase dates, and the choice between the standard mileage and actual-expense methods may affect the deduction.
Tax strategy: Time necessary purchases—do not buy only for a deduction
A tax deduction does not make a purchase free.
Spending $10,000 solely to obtain a deduction usually leaves you with less cash than not making the unnecessary purchase. Bonus depreciation is most valuable when you already need the property and can strategically choose when to place it in service.
Before buying a vehicle or expensive equipment, consider:
- Whether the purchase is genuinely necessary
- The expected business-use percentage
- Whether the standard mileage or actual-expense method is more favorable
- Whether deducting the cost immediately is better than spreading it over future years
- How the purchase affects cash flow and estimated taxes
Make the calculation before completing the purchase—not after the year has ended.
The Tax Deductions Gig Workers Commonly Miss
The most valuable opportunities are often not unusual loopholes. They are ordinary business expenses that were never properly tracked.
Depending on the type of work and the applicable tax rules, potentially deductible expenses may include:
- Business mileage or qualifying vehicle expenses
- Platform commissions and processing fees
- The business portion of a cellphone and data plan
- Supplies and equipment
- Business insurance
- Parking and tolls related to business activity
- Software and subscriptions
- Advertising and marketing
- Professional fees
- A qualifying home office
Only the business portion is generally deductible. Personal expenses do not become business deductions simply because a taxpayer earns gig income.
Five Moves to Make Before Tax Season
1. Open a separate account for gig income and expenses
A separate business checking account or credit card makes it easier to identify deductions and reconcile platform statements.
2. Track mileage when the driving occurs
Reconstructing an entire year of mileage during tax season is unreliable. Maintain a contemporaneous log showing the date, destination, business purpose, and miles driven.
3. Review profit every quarter
Do not confuse gross platform deposits with taxable profit. Review income, fees, expenses, and expected net profit at least quarterly.
4. Calculate estimated taxes before a balance becomes a problem
Independent contractors generally do not have an employer withholding taxes from their payments. Quarterly estimated tax payments may be necessary to cover both income tax and self-employment tax.
5. Conduct tax planning before year-end
By tax season, many planning opportunities have already expired. Equipment purchases, retirement contributions, estimated payments, income timing, and documentation should be reviewed while there is still time to act.
The Bottom Line
The new law may help eligible gig workers reduce their federal taxable income, but tax savings rarely happen simply because a new rule exists.
They happen when the taxpayer:
- Maintains accurate records
- Separates business and personal expenses
- Understands what each tax form actually reports
- Claims every legitimate deduction
- Plans purchases and payments before year-end
Your goal should not be to report the smallest number possible. It should be to report the correct number while using every legitimate strategy available under the tax law.
That is the difference between simply filing a tax return and actively managing your taxes.
If you earn income through driving, delivery work, freelancing, consulting, or other independent-contractor services, WiseBeing Tax & Accounting can help you review your records, identify potential deductions, and develop a tax strategy based on your actual business activity.
Official IRS source: The Working Families Tax Cuts: What gig economy workers should know — FS-2026-07
Additional IRS resource: IRS Gig Economy Tax Center
This article provides general information and should not be considered individualized tax advice. Eligibility and tax results depend on each taxpayer’s specific circumstances.