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3 Things to Consider if You're new to gig work
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3 Things to Know If You're Not Experienced with Gig Work
Written by Kelsey Sheehy Senior Writer | Small business, personal finance Kelsey Sheehy is a senior writer and NerdWallet's expert on small-business. She joined NerdWallet in 2015 and spent six years as a personal finance journalist and spokesperson before switching gears to cover the issues and financial decisions faced by owners of small businesses. Kelsey's work has appeared on The New York Times, The Washington Post, Nasdaq and MarketWatch among others. She is also the author of a column on millennials and money for The Associated Press along with some other writers from NerdWallet. Kelsey has appeared in the "Today" talk show 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 being a part of NerdWallet, Kelsey covered college (and how to pay for it) in U.S. News & World Report. She is located in Washington, D.C.
(image: https://compacom.com/sites/default/files/images/article/payday_loans_no_credit_check_0.png)The publication was published on January 29, 2021. 6:00AM PST
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Shutdowns, layoffs and pay cuts triggered by the government have left millions of Americans seeking new income sources. Anyone who has recently switched to working gigs could be just a few weeks away from an unexpected financial surprise in the form of unexpected tax bills and fine print on insurance coverage.
"These are two of the most important items that most new business owners overlook," says Chris Russell, a San Diego-based professional certified in financial planning who specializes in business owners and self-employed.
Do you think that you are an owner of a small business? Well, let's start there.
To the IRS you are a small business
You're running food delivery. However, that's not enough to make your business a small one according to the IRS. That's the only one that counts when it comes to taxes.
"Basically you're as an individual contractor" states Garrett Watson who is a senior policy analyst for the Tax Foundation, a nonprofit organization. "You don't need to be doing anything complicated. It's not necessary to integrate or do anything like this."
But you do need to pay taxes on any money you earn through gig work. This is usually an unpleasant, and costly unexpected surprise for those who are new to gig work. As an employee, income and tax on payroll are automatically deducted from your pay. That's not the case for freelancers, Russell says.
"No taxes are taken out of the earnings you earn as a business owner," Russell says. "Meaning that you're likely to owe a lot of money towards the IRS in the event that you submit your returns."
A good rule of thumb for calculating your earnings is to: For each dollar you earn through gig work, save 30% of it to use towards your income and . Going forward, plan to estimate your tax bill and pay it every quarter to avoid paying a penalty due to the IRS.
If you're thinking "I did not make a lot. I'm not reporting it. How will the IRS be aware?" Don't. It'll know.
Make the most of your money
Track all your spending in one glance to assess your spending patterns and spot opportunities to save money.
The expense tracking app is your most trusted buddy
It's not just about cash in the bank. There are expenses to be incurred also. Keep track of those since you could deduct some of them and reduce the tax bill we talked about a second ago.
"Keep up-to-date and accurate records in order to benefit from all deductions that you are legally entitled," says Ryan Greiser who is a certified financial planner in Doylestown, Pennsylvania.
Apps such as Stride, Hurdlr and MileIQ automate the tracking of your mileage and expenses for free or a nominal fee, to help you calculate taxes. Based on your particular situation, Greiser says QuickBooks could be worth a look.
"It is a low-cost expense to estimate your quarterly taxes, track the mileage you drive and pay your quarterly tax online," Greiser says.
You also want to investigate the details of what can and cannot be deducted based on your specific gig work, Watson states, pointing to ride-hailing services as an example.
Say you drop a passenger off and then drive to get your next ride He says. Can you deduct the cost of the gas you use between rides? (You can. )The is a great resource to find answers to your concerns.
The insurance process can be confusing
The IRS isn't the only agency which needs to know about your new source of income. Your insurance provider needs to be informed, too. In the event of not disclosing your work, it could get you dropped off your insurance in some instances. Beyond that the insurance company can help you understand what aspects of your gig work are covered.
Moving people or food? You need to know the extent to which your auto insurance policy covers incidents while you're at work. (It most likely will not.). Commercial auto insurance or rideshare could fill the gap.
The platform you're using on may cover you under commercial policies however, it is only activated when there are certain conditions. It is important to understand the specifics of the protection.
Uber and Lyft provide commercial coverage for drivers, however it is applicable only if you have passengers in your vehicle or are on the way to pick up passengers after having accepted the ride. DoorDash provides liability coverage only and just when food is in your vehicle. Grubhub and Instacart don't provide any commercial insurance for delivery drivers via their platforms.
This post originated from NerdWallet and was first printed in The Associated Press.
About the author: Kelsey Sheehy is a personal finance journalist at NerdWallet. Her work has been featured by The New York Times, USA Today, CBS News and The Associated Press.
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