The pandemic has forced many people into the gig economy, staying self-employed and jumping from job to job to pay the bills.
If you’re one of them, it’s important to know that working in the gig economy can differ greatly from working directly for an employer. These differences include how to deal with taxes and insurance. We’ll provide some expert advice on how to handle these issues that you’ll need to know to be prepared.
We’ll cover when to pay taxes, what forms you need, and what you can deduct. We’ll also discuss the insurance and outs of car insurance for independent contractors.
What is the gig economy?
Despite its popularity, many people are still wondering, what is the gig economy? The gig economy is a term for the growing number of people who work in short-term, project-based jobs.
These jobs can be found through online platforms such as Upwork and Fiverr or through traditional avenues such as newspapers and online job boards.
Despite the simplicity of the work, there are some complicated challenges that come with working in the gig economy.
Tips to Deal with Taxes & Insurance
Working in the gig economy can be a challenging but rewarding experience. But by following these tips, you can make sure that you handle your taxes and insurance obligations correctly and protect yourself from any potential problems.
1. Taxes, Taxes, Taxes
When you work in the gig economy, it’s important to keep track of your taxes. This is because you may be required to pay taxes on your income. The amount of tax you have to pay will depend on a number of factors, including your income level and the type of work you do.
There are a number of ways to keep track of your taxes. One option is to use a tax software program such as TurboTax or H&R Block. These programs can help you calculate how much tax you owe and file your return online.
Another option is to hire a tax accountant. An accountant can help you understand the rules that govern gig economy income and ensure that you are paying the correct amount.
2. Know Your Forms
You will likely need to fill out a number of different forms as a worker in the gig economy. The most important form is probably the IRS Form 1099-MISC. This form is used to report income from self-employment activities.
Other forms that you may need to fill out include the W-2 form (used to report wages and salaries) and the W-4 form (used to determine how much tax should be withheld from your pay). It’s important to consult with a tax accountant or software program in order to determine which forms you need to fill out.
3. Account for All Deductions
There are a couple of deductions that you may be able to claim while working in the gig economy. A few common deductions include:
- Business supplies: You can deduct the cost of any supplies that you purchase for your business activities.
- Home office expenses: You can deduct a portion of your home expenses if you use it as an office for your business activities.
- Professional fees: You can deduct the cost of any professional fees that you incur, such as accounting or legal fees.
- Vehicle expenses: You can deduct the cost of driving your car for business purposes, such as traveling to client meetings.
It’s important to note that there are many other deductions that may be available to gig economy workers. To find out more, consult with a tax accountant or software program.
4. Get Your Insurance Set Up
Working in the gig economy can be risky, especially if you don’t have the right insurance coverage in place. One type of insurance that is essential for gig economy workers is health insurance. If you don’t have health insurance, you could be faced with large medical bills if you become sick or injured.
Another type of insurance that gig economy workers should consider is liability insurance. This type of insurance can protect you from lawsuits if you are accused of causing damage to someone else’s property or injuring someone while on the job.
Lastly, car insurance can be crucial for independent contractors. This is because many car insurance policies will not cover accidents that occur while you are at work. To make sure you are properly protected, you should purchase a separate policy that covers you while you are working.
To find the right insurance coverage for your needs, consult with an insurance broker or agent.
5. The Importance of Keeping Good Records
Keeping an accurate and up-to-date record of your income as a gig economy worker is crucial to accurately paying taxes and paying yourself.
One way to keep track of your income and expenses is to keep good records. This means recording everything that you earn and spend. You can use a notebook or spreadsheet to track this information.
Another option is to use a financial software program such as Quicken or QuickBooks. These programs can help you track your income and expenses, as well as prepare tax returns.
Other Disadvantages of Working in the Gig Economy
Now that we’ve looked at some of the complications in dealing with taxes and insurance while working in the gig economy, let’s turn our attention to some of the other challenges that gig economy workers face.
First off, you may not have the same level of job security as you would if you were employed full-time. This is because your work is often project-based and can be affected by factors such as the whims of your client or the availability of work in your area.
You may also find it difficult to get access to certain benefits that are typically offered by employers, such as health insurance or a retirement savings plan. This is because many gig economy workers are considered to be independent contractors, which means that they are not eligible for these types of benefits.
Surviving the Gig Economy
Working in the gig economy can be a great way to earn extra income: We simply love side hustles. However, it’s important to be aware of the potential risks and challenges that come with this type of work.
By following these tips, you can help protect yourself from potential problems and survive in the gig economy.
Luke Williams writes and researches for the car insurance comparison site, CarInsuranceComparison.com. His passions include insurance and helping the self-employed manage their careers effectively.