Looking for your next side hustle? Look no further than the “gig” or sharing economy, but don’t forget about the financial impact you need to be aware of.
Types of Gig Economies:
- Have a car? You can drive for a ride-sharing service such as Uber or Lyft, pickup and deliver takeout orders from restaurants using service providers like Uber Eats or DoorDash, and/or contract grocery shopper and deliverer through Instacart or TaskRabbit.
- Have experience in coding? You could become a freelance software coder.
- Have experience in drywalling? You could be a drywall plasterer for a specific house project.
- Sub in for a teacher or childcare worker while they are sick? This is another “gig” you could preform.
- Always wanted to be a professor? You can be an adjunct part-time professor at a community college.
Types of Sharing Economies:
- Have a car? You can post your unused vehicle on car-sharing companies like Zipcar to loan out your car for a certain number of hours or daily.
- Have an extra room in your house or an unoccupied house? You can rent out a room in your house or the whole house via Airbnb or VRBO.
- Have some clothes you would like to rent out or sale? You can use closet-sharing companies like Tulerie.
- Want to freelance? Get matched up with available work assignments via Upwork.
- Don’t want your own store front? Try co-working or shared office space via WeWork.
What You Need To Know Come Tax Time If You Provide One of These Services
- Paying Estimated Taxes – If you offer a service for a company as an independent contactor, you will likely be provided with “Form 1099-NEC”. NEC stands for “Non-Employee Compensation”. So if you are a driver of Uber, for example, you are expected to pay estimated taxes throughout the year. Uber does not withhold taxes.
- Car expenses, standard mileage rate or actual expenses? The first year you start your business, you have the option of either deducting the numbers of miles you drove, multiplied by the standard mileage rate (the standard mileage rate is $0.655 for 2023), or, by deducting the actual expenses for the vehicle. If you decide to go with the actual expenses in your first year, you have to stay with that method for that vehicle. If you decide to go with the standard mileage rate for the first year, you can toggle back and forth between the years, deciding which option will allow for the highest deduction for you. However, if you decide on the standard mileage rate for a leased vehicle, you have to stick with that method.
- If you decide to deduct the actual expenses for the vehicle for that year, you can deduct the following:
- garage rent
- interest on vehicle loan
- lease payments
- registration fees
- repairs and tires
- Keep a long book – Whether using actual expenses or the standard mileage rate, you need to keep a logbook or electronic app that lists the date, reason for the business trip, start and end points of the trip, and the number of miles driven for that date. I use MileIQ.
- How to calculate a profit or less – A net profit or loss for the year can be calculated by subtracting the deductible expenses from his or her reportable income and is reported on the Schedule C.
- Self-Employment Tax – If there is a net profit of $400 or above, you must also pay self-employment tax. Self-employment tax includes a Medicare tax of 2.9% and a Social Security tax of 12.4% (Social Security tax is limited to the net earnings of $147,000), all based on the self-employed net earnings. Schedule SE (Form 1040) is used to calculate Self-Employment Tax.
- Rental income – Rental income is generally reported on Schedule E (Form 1040). And Supplemental Income and Loss from rental income is not subject to self-employment tax. Yay!