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3 Things to Know If You're Not Experienced with Gig Work
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3 Things to Consider if You're Not Experienced with Gig Work
Written by Kelsey Sheehy Senior Writer | Personal finance, small business Kelsey Sheehy is a senior writer and NerdWallet's expert on small business. She joined NerdWallet in 2015 and spent the next six years working as a financial writer and spokesperson before switching gears to write about business decisions and issues faced by owners of small businesses. Kelsey's writing has been featured in The New York Times, The Washington Post, Nasdaq and MarketWatch among others. She also writes a column about the millennial generation and money for The Associated Press along with a handful of other NerdWallet writers. Kelsey has been 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. Before joining NerdWallet, Kelsey covered college (and how to pay for college) for U.S. News & World Report. She is located in Washington, D.C.
Published on Jan 29, 2021 6:01 AM PST
Edited by Kirsten VerHaar Senior eBay, Yahoo! Kirsten VerHaar works as an editor in personal finance. She holds an English literature degree from the University of Colorado Boulder. In the past she was the chief editor at eBay, where she managed a team of writers who wrote about the company's global content team. She also wrote for Yahoo. After joining NerdWallet since 2015 she has written about subjects as diverse as vacuums (yes, really), budgeting and Black Friday.
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Shutdowns, layoffs and pay reductions brought about by the recession have caused millions of Americans seeking new income sources. People who have recently shifted to working gigs could be just a few weeks away from an unexpected financial shock in the form of tax bills unexpectedly incurred and fine print on insurance coverage.
"These are the two most crucial things that new business owners overlook," says Chris Russell who is a professional certified in financial planning who has a specialization in business owners and the self-employed.
Are you not a small-business owner? Well, let's start there.
To the IRS, you are a small company
Sure, you're just running food deliveries. This simple fact makes your business a small one according to the IRS. And that opinion is the only one that matters when it comes to taxes.
"Basically you're an independent contractor," says Garrett Watson who is a senior policy analyst at the Tax Foundation, a nonprofit organization. "You don't have to create anything complex. It's not necessary to integrate or do anything like this."
But you do need to pay taxes on any money you earn from gig work. This can be an unpleasant, and costly, surprise for those who are new to gig work. As an employee, your income and payroll taxes are automatically withheld from your paycheck. That's not the case for gig workers, Russell says.
"No taxes are taken out of the money you make as a business owner" Russell says. "Meaning that you're likely to have to pay a large amount towards the IRS as you prepare your returns."
A best practice is to for calculating your earnings is to: For every dollar you earn doing gig work, save 30% of it to use towards your income and . Going forward, plan to estimate your taxes and pay them quarterly to avoid a penalty due to the IRS.
And if you're thinking "I didn't earn much. I won't report it. How can the IRS know?" Don't. It'll know.
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Keep track of all your expenses in a glance to see your trends and spot opportunities to reduce your expenses.
The expense tracking app is your most trusted partner
It's not just about cash in the bank. There are expenses to be incurred, too. Be aware of them as you can likely be able to deduct some of them to reduce that tax bill that we mentioned just a moment ago.
"Keep up-to-date and accurate documents to make the most of all deductions that you're eligible to take," says Ryan Greiser who is a certified financial planner in Doylestown, Pennsylvania.
Apps like Stride, Hurdlr and MileIQ automatically track your mileage and expenses for free or for a small cost, to assist you in calculating taxes. Based on your particular situation, Greiser suggests QuickBooks may be worth looking into.
"It is a modest expense to estimate your quarterly taxes, monitor your mileage , and pay your quarterly taxes on the internet," Greiser says.
You also want to investigate the nuances of what can and cannot be deducted based on the portion of your work Watson suggests, pointing out ride-hailing as an illustration.
Say you drop a passenger off and drive across town to catch the next one and he tells you. Can you deduct the cost of the gas you use between rides? (You can. )The is a good place to find answers to your questions.
The insurance process can be confusing
The IRS isn't alone which needs to know about your new source of income. Your insurance agent needs to be clued in, too. In the event of not disclosing your work, it could get you dropped off your insurance in some cases. Beyond that, your insurance agent can help you understand what aspects of your gig are protected.
Moving people or food? It's important to find out the extent to which your auto insurance policy covers accidents when you're on the job (It likely will not.). Commercial auto insurance or rideshare can help fill in the gaps.
Although the platform you're working on might cover you with a commercial policy, it only kicks in when there are certain conditions. It's crucial to be aware of the details of that policy.
Uber and Lyft offer commercial insurance for drivers, but it applies only when you have passengers in your car or are on the route to collect passengers after having accepted the ride. DoorDash offers liability insurance only and just for food items in your car. Grubhub and Instacart don't provide any commercial insurance for delivery drivers on their platforms.
This piece was written by NerdWallet and first printed by The Associated Press.
About the writer: Kelsey Sheehy is a personal finance writer at NerdWallet. Her writing has been featured by The New York Times, USA Today, CBS News and The Associated Press.
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