The Life of a Gigster Has It’s Own Set of Challenges
The gig economy has spawned entire new opportunities for individuals willing to forego the comfort and stability of a paycheck for the freedom and control of being self-employed. The challenge with this transition for many gigsters is twofold: when you give up your paycheck, it’s not just your paycheck you’re giving up. You’re also giving up medical and dental insurance, 401K Plans with a company match, a flexible spending account, and other benefits that come with being employed by a larger firm. The second challenge is that while working for a larger company, your role was well-defined, and stepping out of that role on occasion was completely up to you. When you become self-employed, you face the increased complexity of ‘managing your own business’ even if your business is just YOU. What you thought was your role is oftentimes wishful thinking – as you find yourself doing many of the tasks done by others in a larger company. Unless you launch your business with a team of employees, there is a good chance you will be forced to step out of the ideal role you envisioned for yourself. After all, when something needs to get done – you’re the one that needs to do it.
One of the activities that is taken for granted when you’re an employee is the ease in which you file your taxes. Most employees get a W-2 from their employer and can file their taxes relatively easily. The only thing you had to do when you first started your job is file a W-4 form stating the number of withholding exemptions you wanted. As a gigster, you will now receive at least one 1099 and possibly more – depending on how many clients you have – and will be expected to make quarterly estimated tax payments. That’s right, your clients aren’t going to withhold your taxes so it’s now your responsibility to do so.
Furthermore, any tax benefits you were getting from retirement plan contributions or flex accounts are gone. You can set up a retirement plan as a self-employed person, but that means you now have to play the role of Human Resources as well.
Then there is the challenge of keeping track of your revenues and expenses. If all you do is drive people around for Uber or Lyft, and the only expenses you have are car expenses and gasoline, your bookkeeping is simple enough. But other gigsters have several revenue streams and a variety of expenses, some of which may not be deductible. Keeping track of all of this while trying to grow your business is why many people opt for a cushy job with a steady paycheck.
And let’s rewind even further – Have you set up a corporation or LLC for your gig business? You might be better off as a sole proprietor than an LLC but don’t assume that the former is better just because you are a sole-practitioner. There are liability and tax implications that could prove otherwise. You certainly don’t want to put your personal assets at risk while running your business.
The important thing is to be prepared and organized. Be prepared to spend some time learning about and setting up processes and procedures that will help you become successful. These may include:
- Choice of business entity – there are costs and benefits to each type of business entity and you should familiarize yourself with each within the context of your current or intended business venture.
- Recordkeeping and Bookkeeping – make sure you keep personal and business expenses separate. While there might be a deductible expense for an otherwise personal item (like using your dining room as an office), keeping track of them is critical.
- Estimated tax payments – not making estimated tax payments could lead to penalties incurred by the IRS, and if you think you already pay enough in taxes, you don’t want to see how much they slap you with in penalties.
- Retirement plans – there are plenty of options for entrepreneurs and small business owners. The type of plan you choose and how much you can contribute to each depends on a variety of factors. You may not need to worry about this initially but once the cash starts coming in, you want to make sure you’re maximizing your retirement contributions and minimizing your tax liabilities.
- Use online platforms like Upwork to help you with administrative tasks that don’t add value and are forcing you to spend less time on growing your business.
- And find service providers that you can use to help with the day to day challenges that aren’t part of your core offering or can help you maximize your resources. After all, your resources will be limited at first.
The gig economy has been a great evolution in how people make a living, just make sure if you’re going that route that you take full advantage of it.