Seems like you’ve joined the gig economy and now you’ve started receiving messages from Uber, DoorDash, and Fiverr right on your smartphone. Great job, man! Anyway, this is what you need to know in order to manage your finances effectively.
So, you’ve become a small business person. Your earnings will be considered earnings of a sole proprietorship and thus will require taxes, accounting, and lots of spreadsheet work.
The first thing you must always do is to never confuse your earnings. It is very tempting to just let all the money go to one checking account. But you really need to open another bank account at such reliable financial institutions as Chase or Ally. This way you’ll deal with the tax issue easier. Besides, the most important thing about having another account is that you won’t pay taxes to the ticket seller anymore.
You will need to start paying your taxes yourself. Someone won’t hold federal and state taxes from your paycheck anymore. Moreover, you will have to pay self-employment taxes to provide yourself with coverage in case of the need for Social Security and Medicare. These taxes are quite large, around 15.3%.
The best thing you should do is put aside 30% of every single payment you received. Then move this money to a high-yield savings account and do not use it until April.
If you work as an Instacart driver, for example, then you will need to calculate your mileage. For 2024 the standard rate for this deduction equals to 67 cents per mile. There is a great variety of apps to help you with it, including Everlance and Stride. Do not mess things up.
Remember to keep receipts of all supplies. Did you buy a pizza bag or a new laptop to code? Deduct all these expenses from your income as these expenses reduce your income.
Think about making estimated payments quarterly. If you owe the IRS more than $1,000 in unpaid taxes at the end of the year, you will be penalized. This payment can be made through IRS Direct Pay. This is a pain, yet it is necessary.