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 and NerdWallet’s expert on small business. She started at NerdWallet in 2015 and worked for the next six years working as a financial writer and spokesperson before switching gears to write about financial decisions and challenges faced by owners of small businesses. Kelsey’s work has appeared throughout The New York Times, The Washington Post, Nasdaq and MarketWatch among others. She is also the author of a column about millennials and money in The Associated Press along with some other writers from NerdWallet. Kelsey has appeared as a guest on “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 as well as other publications. Before becoming a member of NerdWallet, Kelsey covered college (and how to pay for college) at U.S. News & World Report. The location of her work is Washington, D.C.
Jan 29, 2021
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Shutdowns, layoffs and salary cuts brought on by the recession have caused millions of Americans searching for new income sources. People who have recently shifted to gig work may be days away from a financial shock in the form of tax bills that aren’t expected and insurance coverage small print.
“These are two of the most important aspects that many new business owners don’t think about,” says Chris Russell who is a professional certified in financial planning who specializes in business owners and self-employed.
Don’t consider yourself as a small-business proprietor? Well, let’s start there.
To the IRS, you are an individual company
Sure, you’re operating food deliveries. However, that’s not enough to make your business a small one according to the IRS. That’s the only one that matters when it comes to taxation.
“Basically you’re considered to be to be an independent contractor” Says Garrett Watson who is a senior policy analyst for the Tax Foundation, a nonprofit organization. “You don’t need to do anything super complicated. It’s not necessary to incorporate or do things like that.”
However, you must pay taxes on any money you earn through gig work. This can be an unpleasant, and costly unexpected surprise for newly hired gig workers. As an employee, your income and tax on payroll are automatically deducted from your salary. 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’ll probably be owing a significant amount towards the IRS when you file your tax returns.”
A good rule of thumb: For every dollar you earn doing gig work, you should save 30% of it to use towards income and . In the future, you should prepare to estimate and pay those taxes every quarter to avoid paying a penalty by the IRS.
If you’re thinking “I did not make a lot. I’m not going to report it. How will the IRS be aware?” Don’t. It’ll know.
Maximize the value of your money
Keep track of all your expenses in a glance to see your trends and spot opportunities to reduce your expenses.
Expense tracking is your best friend
The gig work you do isn’t just money that you deposit in the bank. There are costs to consider as well. Keep track of those because you may be able to deduct some of them and reduce your tax bill that we mentioned in the past.
“Keep up-to-date and accurate records in order to benefit from the deductions you’re entitled to,” says Ryan Greiser who is a certified financial planner in Doylestown, Pennsylvania.
Apps like Stride, Hurdlr and MileIQ automatically track your mileage and expenditures, at no cost or for a small cost, to help you calculate tax. In the case of your particular situation, Greiser suggests QuickBooks may be worth looking into.
“It is a low-cost cost to calculate your quarterly tax bill, keep track of your mileage , and pay your quarterly taxes on the internet,” Greiser says.
You also want to investigate the nuances of what could and shouldn’t be deducted based on the portion of your gig job, Watson says, pointing to ride-hailing services as an instance.
If you drop a person off and then drive to get the next one, he says. Are you able to deduct the cost of gas used in between rides? (You can. )The is a great place to find answers to your questions.
Insurance can be a bit complicated
The IRS isn’t the only agency that needs to know about your new stream of income. Your insurance provider needs to be aware, too. In the event of not disclosing your work, it could cause you to be removed off your policy in certain cases. Beyond that your insurance agent will guide you through the details of your gig work are protected.
Transporting food or people? You need to know whether your car insurance policy will cover accidents while working (It probably will not.). Rideshare or commercial auto insurance could help fill in the gaps.
While the platform you work on might cover you with commercial policies, it only kicks in under specific circumstances. It’s crucial to be aware of the details of that coverage.
Uber and Lyft provide commercial coverage to drivers, however it is applicable only if you have passengers in the car or you are in the process of arranging to pick up a rider after taking a ride. DoorDash provides liability coverage only and only when food is in your car. Grubhub and Instacart do not offer commercial coverage for delivery drivers via their platforms.
The piece is written by NerdWallet and first released by The Associated Press.
About the writer: 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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