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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 Kelsey Sheehy is a senior writer at NerdWallet and a guru on small business. She started at NerdWallet in 2015 and spent an entire six-year period as personal finance writer and spokeswoman before shifting gears to cover the business decisions and issues faced by small-business owners. Kelsey's articles have appeared in The New York Times, The Washington Post, Nasdaq and MarketWatch among others. She writes a column on the millennial generation and money for The Associated Press along with some other NerdWallet writers. Kelsey has been on the "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. Prior to joining NerdWallet, Kelsey covered college (and how to finance college) in U.S. News & World Report. She is based in Washington, D.C.
Published Jan 29, 2021 at 6:00 AM PST
The edit was done by Kirsten VerHaar Senior eBay and Yahoo! Kirsten VerHaar works as an editor for personal finance. She holds an English literature degree from the University of Colorado Boulder. In her previous roles, she was a lead editor with eBay, where she managed an entire team of writers who wrote about the company's global content team. She has also written for Yahoo. Since joining NerdWallet since 2015 she has written about issues as diverse as vacuums (yes, really) budgeting, as well as Black Friday.
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Shutdowns, layoffs, and salary cuts brought on by the have caused millions of Americans searching for new income sources. People who have recently shifted to gig work could be just a few weeks away from an unexpected financial shock in the shape of tax bills that aren't expected and fine print on insurance coverage.
"These are the two most crucial aspects that many business owners are unaware of," says Chris Russell, a San Diego-based certified financial planner who is a specialist in business owners as well as the self-employed.
Don't consider yourself as a small-business proprietor? Well, let's start there.
To the IRS you are an individual business
Sure, you're operating food delivery. This simple fact makes you a small business according to the IRS. This is the only one that counts when it comes to taxes.
"Basically, you're considered as an individual contractor" says Garrett Watson an analyst in senior policy for the Tax Foundation, a nonprofit organization. "You aren't required to be doing anything complicated. You don't need to integrate or do something similar to this."
However, you must pay tax on any income you earn from gig work. This fact is often an unpleasant, and costly shock for those who are new to gig work. When you are an employee, your earnings and tax on payroll are automatically deducted from your paycheck. This isn't the case for freelancers, Russell says.
"No taxes are deducted from the money you make 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 good rule of thumb: For every dollar you earn doing gig work, set aside 30% to put toward income and . In the future, you should plan to estimate and pay those taxes each quarter to avoid penalties from the IRS.
If you're thinking "I haven't made a lot of money. I won't report it. What will the IRS be aware?" Don't. It'll know.
Maximize the value of your money
Track all your spending at a glance to understand your patterns and identify opportunities to reduce your expenses.
(image: https://p.turbosquid.com/ts-thumb/vj/BPger3/3NOjbh4y/nescafe1/png/1603032849/600x600/fit_q87/6c4da4b48db9b96c42854a5839b480d96dabb684/nescafe1.jpg)Tracking expenses is your best partner
It's not just about money that you deposit in the bank. You are incurring expenses as well. Make a note of these expenses because you may be able to deduct some of them and reduce the tax bill we discussed in the past.
"Keep up-to-date and accurate records in order to benefit from any deductions you are entitled to," says Ryan Greiser, a certified financial planner in Doylestown, Pennsylvania.
Apps like Stride, Hurdlr and MileIQ will automatically track your miles and expenses for free or for a small cost, to assist you in calculating taxes. Based on your specific circumstances, Greiser suggests QuickBooks could be worth a look.
"It is a small expense to estimate your quarterly taxes, monitor the mileage you drive and pay your quarterly taxes online," Greiser says.
It is also important to research the nuances of what can and cannot be deducted based on your specific gig work, Watson states, pointing to the ride-hailing industry as an instance.
Imagine you drop a rider off and drive across town to find your next ride He says. Is it possible to deduct the price of gas used in between rides? (You can. )The is a good place for you to get answers to your concerns.
Insurance can be a bit complicated
The IRS isn't the only one 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 from your policy in some instances. Beyond that your insurance agent will guide you through the details of your gig work are covered.
Moving people or food? It's important to find out the extent to which your auto insurance policy covers accidents when you're working. (It likely won't.). Commercial or rideshare insurance can be able to fill the gap.
Although the platform you're working on might provide you with commercial policies however, it is only activated only in certain circumstances. It's important to know the details of that protection.
Uber and Lyft provide commercial coverage for drivers, but this coverage is available only if there are passengers in the car or you are on your way to pick up the passenger who has accepted the ride. DoorDash provides liability coverage only and just when food is in the car. Grubhub and Instacart don't provide any commercial insurance for delivery drivers using their platforms.
The post was written by NerdWallet and first released by The Associated Press.
About the author: Kelsey Sheehy is a personal finance writer at NerdWallet. Her writing has been covered on The New York Times, USA Today, CBS News and The Associated Press.
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