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 the significant shift this has become in how we collectively think about employment, let it be that one.
Of course, eschewing the potential challenges of "traditional" employment brings new ones in the form of gig-based work. This is especially true regarding the financial side of the conversation, as going out on your own with a gig enterprise is entirely different from getting a job with a more straightforward employer.
Based on that, if you genuinely want to help set your gig enterprise up for success, there are several essential things you'll want to keep in mind.
Harnessing the Gig Economy to Your Advantage: Breaking Things Down
The most important thing to understand about your gig enterprise is that any income you generate will be taxable - the same as money from a more traditional job.
When you file your taxes yearly, you must 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 that the IRS also wants you to make quarterly estimated tax payments throughout the year. This is true for the income and self-employment taxes 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 until you formally file your taxes in April, you will almost certainly get hit with a significant bill. You can take the burden off 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 estimating those payments based on what you think you'll earn during a particular calendar year. This cannot be easy, as the gig economy is still being determined. You could do exceptionally well during one month and see a dramatic slowdown in your income the next. Still, it would help 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 learn more about your various sources of income and can also be invaluable towards keeping track of any deductions owed to you and more.
While the law doesn't require you to keep any particular 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 help show the income you receive from your business.
Canceled checks or other documents that show proof of payment for business-related purchases and expenses.
Receipts on business-related travel, transportation, or gifts.
Financial documents on any assets you need for the business, like machinery or furniture for an office.
Employment-related tax records.
Keeping all these documents properly will give you a better picture of your work and make it far easier to make estimated payments and file taxes.
Additional Considerations About Your Gig Enterprise
Beyond the financial side of the conversation, there are several things you need to consider about running your own business, too.
For most people, the primary appeal of gig-based work is flexibility. Not only are they their boss, but they make their hours and generate their 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 make 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. It would help if you considered it a career in every sense of the term. Word of mouth will quickly begin to play a significant 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. Only some jobs will be a complete success, and sometimes you will encounter issues with a client or customer. Please do what you can to resolve them to help preserve your reputation as much as possible. In many ways, the strength of your reputation is your most valuable asset in this context, so you need to do whatever is necessary to protect it.
Beyond that, make sure you have a backup plan to help deal with the uncertain nature of certain types of work. If you're getting most of your customers or clients from one platform, for example, what happens if that platform dries up? What happens if they experience their issues and suddenly close up shop overnight?
Proactively answering questions like these can help you remain on your feet should anything adverse happen that could 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. A backup plan will help mitigate risk from these situations as much as possible.
In the end, it's beyond clear that the gig economy brings with it benefits to a wide range of different people. That said, navigating it can also be complicated, especially regarding things like taxes and other financial matters. Because of that, if you have any questions, it's always essential to consult the help of a seasoned financial professional. They'll be able to put you on the right path, ensuring you can enjoy all of the benefits of this process with as few potential downsides as possible.
If you'd like to learn more about setting your gig enterprise up for the best chance of success, or if you'd like to speak to someone about your needs in more detail, please don't hesitate to contact us today.