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3 Things to Consider 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's expert on small-business. She started at NerdWallet in 2015 and spent six years as a personal finance journalist and spokesperson before switching gears to focus on the financial decisions and challenges faced by small-business owners. Kelsey's articles have appeared in The New York Times, The Washington Post, Nasdaq and MarketWatch, among other publications. 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 been as a guest on "Today" 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. Before becoming a member of NerdWallet, Kelsey covered college (and how to pay for it) at U.S. News & World Report. The location of her work is Washington, D.C.
The publication was published on January 29, 2021. at 6:00 AM PST
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Shutdowns, layoffs, and salary reductions brought about by the have caused millions of Americans searching for alternative sources of income. People who have recently shifted to gig work could be weeks away from a financial shock in the shape of tax bills that aren't expected and fine print on insurance coverage.
"These are the two most crucial things that new business owners overlook," says Chris Russell who is a certified financial planner who has a specialization in business owners and self-employed.
Are you not a small-business owner? We'll start with that.
To the IRS, you are a small-sized business
Sure, you're operating food delivery. However, that's not enough to make you a small-scale business according to the IRS. That's the only one that matters in the tax world.
"Basically you're an independent contractor," states Garrett Watson, a senior policy analyst at the Tax Foundation, a nonprofit organization. "You aren't required to create anything complex. There is no need to integrate or do anything like this."
However, you will need to pay taxes on any money you earn from gig work. This is usually an unpleasant, and costly, surprise for new gig workers. As an employee, income and tax withholding are automatically taken from your salary. However, this is not the case with gig workers, Russell says.
"No taxes are deducted from the earnings you earn as a business proprietor," Russell says. "Meaning that you'll likely be owing a significant amount towards the IRS when you file your taxes."
A best practice is to that you should follow is: for each dollar you earn through gig work, you should save 30% to put toward your income and . As time goes on, you must estimate and pay those taxes every quarter to avoid paying a penalty due to the IRS.
If you're thinking "I didn't earn much. I'm not going to report it. What will the IRS be aware?" Don't. It'll know.
Get the most value for your cash
Track all your spending at a glance to understand your patterns and identify opportunities to reduce your expenses.
Tracking expenses is your best partner
The gig work you do isn't just money in the bank. You're incurring costs as well. Keep track of those as you can likely take some of them off and reduce that tax bill we talked about a second ago.
"Keep good and honest documents to make the most of all deductions that you're legally entitled," says Ryan Greiser an expert certified financial planner from Doylestown, Pennsylvania.
Apps such as Stride, Hurdlr and MileIQ will automatically track your miles and expenditures, at no cost or a minimal cost to help you calculate taxes. Based on your specific situation, Greiser suggests QuickBooks might be worth exploring.
"It is a low-cost investment to , estimate your quarterly taxes, monitor your mileage and pay your quarterly tax on the internet," Greiser says.
Also, you should research the specifics of what is able to and cannot be deducted depending on your specific work Watson states, pointing to ride-hailing as an illustration.
Imagine you drop a rider off and drive across town to catch the next one and he tells you. Are you able to deduct the cost of fuel used between rides? (You can. )The is a great place to get answers to your questions.
Insurance can be complicated
The IRS isn't the only agency who needs to be aware of your new income stream. Your insurance provider needs to be aware, too. Not disclosing your work could result in you being removed off your insurance in some instances. In addition your insurance agent will help you understand what aspects of your work protected.
Moving people or food? It's important to find out if your personal car insurance policy covers incidents while you're on the job (It most likely won't.). Commercial or rideshare insurance might fill any gaps.
The platform you're using on might provide you with a commercial policy but it's only applicable only in certain circumstances. It's important to know the specifics of the protection.
Uber and Lyft offer commercial insurance for drivers, but it applies only if you have passengers in your vehicle or are on the route to collect the passenger who has accepted the ride. DoorDash offers liability insurance only and just when food is inside your car. Grubhub and Instacart do not offer commercial insurance for delivery drivers using their platforms.
The post originated from NerdWallet and was originally printed through The Associated Press.
About the author: Kelsey Sheehy is a personal finance writer for NerdWallet. Her work has been featured in The New York Times, USA Today, CBS News and The Associated Press.
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