According to one recent study, workers who make up the “gig economy” contributed roughly 5.7% to the gross domestic product of the United States in 2021 alone. If you needed a single statistic to help underline what a significant shift this has become in the way that we all collectively think about employment, let it be that one.
Of course, eschewing the potential challenges of “traditional” employment brings with it new ones in the form of gig-based work. This is especially true when it comes to the financial side of the conversation, as going out on your own with a gig enterprise is an entirely different animal compared to getting a job with a more straightforward employer.
Based on that, if you truly want to help set your gig enterprise up for success, there are a number of important things you’ll want to keep in mind.
Harnessing the Gig Economy to Your Advantage: Breaking Things Down
By far, the most important thing to understand about your gig enterprise is that any income you generate will be taxable – the same as money coming in from a more traditional job.
When you file your taxes every year, you need to report ALL income on your tax returns unless it is specifically excluded by law. This is true regardless of whether you receive a Form 1099 in the mail.
One thing that may come as a shift to many people is the idea that the IRS also wants you to make quarterly estimated tax payments throughout the year. This is true for both income tax and self-employment tax that you are subject to. The latter includes Social Security and Medicare taxes, for the record.
This is always important, as if you wait to make any payments at all until you formally file your taxes in April, you are almost certainly going to get hit with a significant bill. You can take the burden off of this by making estimated payments on what you think you owe periodically throughout the year. You’ll still likely owe at the end of the year, but it will be far less than it otherwise would have.
Note that this requires you to estimate those payments based on what you think you’ll be earning during a particular calendar year. This can be difficult, as the gig economy is nothing if not uncertain. You could do exceptionally well during one month and see a dramatic slowdown in your income the next. Still, you should try to average everything together and pay whatever is necessary via those estimated payments.
To help things go as smoothly as possible, you’ll also want to keep adequate records and other financial documents throughout the year. This is critical, as it helps you keep an eye on the overall progress of your business. These records will help you not only learn more about your various sources of income but can also be invaluable towards keeping track of any deductions that are owed to you, and more.
While the law doesn’t require you to keep any special type of record, just a few examples of documents that you should compile throughout the year include but are not limited to things like:
- Receipts for expenses.
- Any 1099-MISC forms that you receive.
- Gross receipts that help show the true income you are receiving from your business.
- Canceled checks or other documents that show proof of payment for business-related purchases and expenses.
- Receipts pertaining to business-related travel, transportation, or gifts.
- Financial documents pertaining to any assets that you need for the business, like machinery or furniture for an office.
- Employment-related tax records.
Making an effort to properly keep all of these documents will not only give you a better picture of how you’re actually doing, but it will also make it far easier to make estimated payments and file your taxes as well.
Additional Considerations About Your Gig Enterprise
Beyond the financial side of the conversation, there are a number of things you need to consider about running your own business, too.
For most people, the major appeal of gig-based work is the flexibility. Not only are they their own boss, but they make their own hours and generate their own income, too. This can be great for many people – but you also need to understand that you’re in control of everything that happens.
If you want to take a day off to relax, that’s great – but understand that you won’t be making any money that day. If you get burned out, you don’t have paid vacation time to fall back on. There are far more options regarding how, where, and even why you’re making money with a gig enterprise than you would have with a traditional “9-to-5” job, but understand that there are more potential obstacles, too.
Likewise, you need to start thinking about a gig enterprise as more than just a “side hustle” if it is your primary source of income. You need to consider it a career in every sense of the term. That is to say, word of mouth will quickly begin to play a big role in your ability to attract new clients and income sources. Because of that, you need to pay attention to any online reviews that people are leaving you, for example. Not every job will be a complete success and sometimes you will encounter issues with a client or customer. Do what you can to resolve them to help preserve your reputation as much as possible. In a lot of ways, the strength of your reputation is the most valuable asset you have in this context so you need to do whatever is necessary to protect it.
Beyond that, make sure that you have a backup plan in place to help deal with the uncertain nature of certain types of work. If you’re getting the majority of your customers or clients from one platform, for example, what happens if that platform dries up? What happens if they experience their own issues and suddenly close up shop overnight?
Proactively answering questions like these can help you remain on your feet should anything negative happen that could potentially impact your income. Remember that even though you’re far more in control of a gig enterprise than you would be in traditional employment, there are still things that can and often will happen that you have no say in. Sometimes you’ll see these issues coming – other times they happen suddenly in ways you can’t predict. Having a backup plan in place will help mitigate risk from these situations as much as possible.
In the end, it’s beyond clear that the gig economy is one that brings with it benefits to a wide range of different people. Having said that, it can also be a complicated world to navigate – especially when it comes to things like taxes and other financial matters. Because of that, if you have any questions, it’s always important to consult the help of a seasoned financial professional. They’ll be able to put you on the right path, making sure that you’re able to enjoy all of the benefits of this process with as few of the potential downsides as possible.
If you’d like to find out more information about setting your gig enterprise up for the best chance of success, or if you’d just like to speak to someone about your own needs in a bit more detail, please don’t hesitate to contact us today.
P.S. Where do you see your company in the next 5 years? Let’s discuss how we can scale with you. Click to schedule your free one on one call with one of our partners today!