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3 Things to Know if You're Not Experienced with Gig Work
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3 Things to Know If You're New to Gig Work
by Kelsey Sheehy Senior Writer | Personal finance, small-business, and personal business Kelsey Sheehy is a senior writer and NerdWallet authority on small-business. She joined NerdWallet in 2015 and spent six years as a personal finance journalist and spokeswoman before shifting gears to write about issues and financial decisions faced by owners of small businesses. Kelsey's work has appeared in The New York Times, The Washington Post, Nasdaq and MarketWatch, among other publications. She is also the author of a column on the millennial generation and money for The Associated Press along with some other writers from NerdWallet. Kelsey has been featured on the "Today" program, NBC News and ABC's "World News Tonight" and has been quoted by the Los Angeles Times, CNBC, American Banker, NPR and Vice, among other publications. prior to her becoming a member of NerdWallet, Kelsey covered college (and how to pay for it) in U.S. News & World Report. She is located in Washington, D.C.
Published Jan 29, 2021 6:00AM PST
Edited by Kirsten VerHaar, Senior Assisting Editor eBay and Yahoo! Kirsten VerHaar works as an editor of personal finance. She holds an English literature degree from the University of Colorado Boulder. In her previous roles as a chief editor at eBay, where she managed an entire team of writers who produced coverage for eBay's content team across the globe. She has also written for Yahoo. Since joining NerdWallet in 2015, she's covered issues as diverse as vacuums (yes it really is), budgeting and Black Friday.
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Shutdowns, layoffs and salary cuts brought on by the have resulted in millions of Americans looking for new sources of income. Anyone who has recently switched to gig work may be weeks away from a financial surprise in the form of tax bills unexpectedly incurred and insurance coverage fine print.
"These are the two most crucial things that new business owners don't think about," says Chris Russell, a San Diego-based certified financial planner who is a specialist in business owners as well as the self-employed.
Do you think that you are a small-business owner? Let's get started.
To the IRS you are a small company
You're running food deliveries. This simple fact makes your business a small one according to the IRS. And that opinion is the only thing that counts when it comes to taxes.
"Basically you're to be an independent contractor" Says Garrett Watson who is a senior policy analyst with the Tax Foundation, a nonprofit organization. "You don't have to be doing anything complicated. You don't need to incorporate or something similar to this."
However, you must pay taxes on any money you earn through gig work. This fact is often an unwelcome and expensive unexpected surprise for new gig workers. When you are an employee, your earnings and payroll taxes are automatically withheld from your pay. However, this is not the case with gig workers, Russell says.
"No taxes are taken out of the money you make as a business owner" Russell says. "Meaning that you'll likely have to pay a large amount to the IRS as you prepare your taxes."
A good rule of thumb: For every dollar you earn doing gig work, set aside 30% to be able to apply to income as well as . As time goes on, you must estimate and pay those taxes each quarter to avoid penalties by the IRS.
If you're thinking "I did not make a lot. I won't report it. How can the IRS know?" Don't. It'll know.
Make the most of your cash
Keep track of all your expenses in one glance to assess your spending patterns and spot opportunities to reduce your expenses.
Tracking expenses is your best buddy
It's not just about money that you deposit in the bank. There are expenses to be incurred, too. Make a note of these expenses since you could take some of them off and reduce the tax bill we talked about a second ago.
"Keep accurate and truthful records in order to benefit from the deductions you're eligible to take," says Ryan Greiser an expert certified financial planner in Doylestown, Pennsylvania.
Apps like Stride, Hurdlr and MileIQ automatically track your mileage and expenses for free or a nominal fee, to help you calculate taxes. Based on your specific circumstances, Greiser suggests QuickBooks could be worth a look.
"It is a small expense to estimate your quarterly taxes, track your mileage and pay your quarterly tax online," Greiser says.
Also, you should research the nuances of what is able to and cannot be deducted depending on the portion of your gig work, Watson states, pointing to ride-hailing services as an example.
Say you drop a passenger off and then drive to get the next one and he tells you. Is it possible to deduct the price of fuel used between rides? (You can. )The is a good place for you to get answers to your questions.
Insurance can be complicated
The IRS isn't the only agency which needs to know about your new source of income. Your insurance agent needs to be clued in, too. The failure to disclose your work can cause you to be removed from your policy in some circumstances. Beyond that, your insurance agent can help you understand what aspects of your gig work are protected.
Moving people or food? It is important to determine whether your car insurance policy will cover accidents while you're working. (It likely won't.). Commercial auto insurance or rideshare can fill in the gap.
Although the platform you're working on might cover you with commercial insurance however, it is only activated when there are certain conditions. It's crucial to be aware of the specifics of the protection.
Uber and Lyft provide commercial coverage for drivers, but it applies only if you have passengers in your car or you are on your route to collect the passenger who has accepted a ride. DoorDash offers liability insurance only and just for food items in your vehicle. Grubhub and Instacart do not provide commercial insurance for delivery drivers using their platforms.
This post originated from NerdWallet and first published in The Associated Press.
About the author: Kelsey Sheehy is a personal finance journalist at NerdWallet. Her writing has been covered on The New York Times, USA Today, CBS News and The Associated Press.
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