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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 | Small business, personal finance Kelsey Sheehy is a senior writer and NerdWallet authority on small-business. She joined NerdWallet in the year 2015 and worked for the next six years working as a financial journalist and spokesperson , before switching to focus on the business decisions and issues faced by owners of small businesses. 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 about the millennial generation and money for The Associated Press along with several other writers from NerdWallet. Kelsey has appeared 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 her becoming a member of NerdWallet, Kelsey covered college (and how to pay for it) for U.S. News & World Report. She is located in Washington, D.C.

Jan 29 2021

Edited by Kirsten VerHaar, Senior Assisting Editor eBay and Yahoo! Kirsten VerHaar edits for personal finance. She holds an English literature degree from the University of Colorado Boulder. In previous positions as a lead editor at eBay and was in charge of a team of writers who created coverage for the site’s global content team. She also wrote for Yahoo. After she joined NerdWallet in 2015, she has written about topics as wide-ranging as vacuums (yes they really exist!), budgeting and Black Friday.

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Shutdowns, layoffs and salary cuts brought on by the have left millions of Americans seeking alternative sources of income. Those who’ve recently turned to gig work could be just a few weeks away from an unexpected financial surprise in the shape of unexpected tax bills or insurance coverage small print.

“These are two of the most important items that most new business owners overlook,” says Chris Russell who is a Certified Financial Planner who has a specialization in business owners and the self-employed.

Are you not an owner of a small business? Well, let’s start there.

To the IRS, you are a small company

You’re running food deliveries. But that simple act makes your business a small one according to the IRS. This is the only thing that counts when it comes to taxation.

“Basically you’re considered to be an independent contractor,” states Garrett Watson an analyst in senior policy at the Tax Foundation, a nonprofit organization. “You don’t have to create anything complex. It’s not necessary to integrate or do something similar to this.”

But you do need to pay tax on any income you earn through gig work. This fact is often an unpleasant, and costly, surprise for new gig workers. As an employee, your income and tax withholding are automatically taken from your salary. However, this is not the case with employees who work as gigs Russell says.

“No taxes are deducted from the profits you earn as a business owner” Russell says. “Meaning that you’ll probably be owing a significant amount to the IRS in the event that you submit your tax returns.”

A best practice is to: For every dollar you earn through gig work, set aside 30% of it to use towards your earnings and . In the future, you should prepare to estimate your earnings and pay taxes every quarter to avoid a penalty from the IRS.

And if you’re thinking “I didn’t earn much. I’m not going to report it. How can the IRS be aware?” Don’t. It’ll know.

Get the most value for your money

Keep track of all your expenses in a glance to see your spending patterns and spot opportunities to reduce your expenses.

The expense tracking app is your most trusted friend

The gig work you do isn’t just money in the bank. There are expenses to be incurred, too. Make a note of these expenses because you may be able to deduct some of them and lower your tax bill we talked about just a moment ago.

“Keep up-to-date and accurate records to take advantage of all deductions that you are eligible to take,” says Ryan Greiser an expert certified financial planner from Doylestown, Pennsylvania.

Apps like Stride, Hurdlr and MileIQ automate the tracking of your mileage and expenses, for free or a minimal cost to help you calculate tax. Based on your specific situation, Greiser suggests QuickBooks might be worth exploring.

“It is a modest investment to , estimate your quarterly taxes, monitor your mileage and pay your quarterly taxes on the internet,” Greiser says.

It is also important to research the nuances of what could and shouldn’t be deducted based on the portion of your gig job, Watson says, pointing at 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 the gas you use between rides? (You can. )The is a good resource to get answers to your concerns.

Insurance can be a bit complicated

The IRS isn’t the only one who needs to be aware of your new stream of income. Insurance agents must be aware, too. The failure to disclose your work can get you dropped from your policy in some cases. In addition, your insurance agent can guide you through the details of your gig are covered.

Are you transporting people or food? It is important to determine whether your car insurance policy will cover accidents while you’re on the job (It probably won’t.). Commercial or rideshare insurance can help fill in the gap.

The platform you’re using on may provide you with a commercial policy but it’s only applicable under specific circumstances. It is important to understand the specifics of the protection.

Uber and Lyft provide commercial coverage to drivers, however it is applicable only when you have passengers in your car or you are in the process of arranging to collect a passenger after accepting the offer of a ride. DoorDash offers liability insurance only and only when food is inside your car. Grubhub and Instacart don’t provide any commercial coverage for delivery drivers via their platforms.

The article is written by NerdWallet and was first printed in The Associated Press.

About the writer: Kelsey Sheehy is a personal finance writer at NerdWallet. Her writing has been featured in The New York Times, USA Today, CBS News and The Associated Press.

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