This is the second of a two-part series on Gig Work. In our previous post, we answered the question, “What is the Gig Economy?” discussed common examples and the pros and cons of gig work. In this edition, we’ll get down to the business side of things.
As we discussed previously, the gig economy is based on flexible, temporary, or freelance jobs, often involving an online platform. Gig work can be a great way to supplement income, try out a business idea, or become self-employed.
As we consider the business of gig work, one question to ask yourself is: Are you looking for a side hustle or a career move? Maybe you had an unexpected car repair or have your daughter’s wedding on the horizon and need to pick up a little extra cash? If that’s the case, thinking about gig work as a side hustle makes sense. You could Uber or Door Dash for a few hours in the evenings or on the weekend to cover the expenses. Perhaps you’re feeling burned-out in your current job and you’re looking for a change? Millions of people enjoy hobbies that are also a source of income. Maybe you could turn yours into a business?
Although gig work offers flexibility, being successful and staying out of trouble with the Internal Revenue Service (IRS) requires that you understand the business side of things. Here are some examples of business models associated with gig work:
- Self-Employment: This model usually involves establishing a business structure. The business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits. The Small Business Administration offers lots of tips and tools for helping you determine what structure makes the most sense for your circumstances.
- Independent Contractor: As an independent contractor, you provide a specific service to a business as defined by a contract. For example, Uber drivers are independent contractors. There are some tax and legal advantages to this model as well as record keeping requirements since the company will track your earnings. However, it’s important to note that your earnings will be reported to the IRS and that you will be responsible for paying taxes based on the amount reported.
- Freelancer: We most often think of this model in the context of writers or painters. A freelance writer might submit articles to a magazine or website for publication. A painter may be commissioned to paint a mural in a child’s nursery. These one-off gigs can be perfect for individuals who like to take on projects then move on once they are completed. Freelance work can be challenging in terms of consistent income as well as determining pricing for various projects.
This is one reason why a business plan is so important, especially if you choose the Self-Employment or Freelance model. Using painting a mural as an example, the price isn’t just based on the time spent to paint and the cost of materials, it also needs to account for the equipment/tools being used and design time. A business plan maps out your vision and establishes processes and goals to help you be successful. The plan defines your market, establishes pricing, clarifies operational requirements, and more. The SBA offers a free Business Plan Template for the do-it-yourselfer. Sound intimidating? The Small Business Administration also offers free local business counseling to help you.
Recordkeeping is central to business success, as well as helping you prepare for tax time. In the simplest terms, you need to track income and expenses. You can use a simple paper ledger or a spreadsheet like Microsoft EXCEL. There also are software products that can take care of the basics and assist with invoicing and other tasks. According to The Balance the best free business software is Wave Accounting because it lets small businesses track income and expenses, send invoices, scan receipts, track sales taxes, and more, all for free. Quicken is another popular and low-cost option.
If you’re wondering how much you have to earn before you file taxes, the answer is that you must file a tax return if you have net earnings from self-employment of $400 or more from gig work, even if it's a side job, part-time work, or temporary work. The good news is the IRS offers an entire section on how to Manage Taxes for Your Gig Work.
In summary, there are lots of things to consider as it relates to gig work. Flexibility is certainly one of the greatest benefits. One of the most important takeaways is that it doesn’t have to be all or nothing. If you’re thinking of a career change, gig work can let you dip your toe in the water. Business structure, taxes, and recordkeeping are important considerations and may come with a bit of a learning curve. The good news is there are lots of free resources to help you be successful.