Financial Figures

from Valley Business FRONT, Issue 164, May 2022

Floyd County’s Soup Lady

Adjusting to the gig economy

A recent report claimed eight out of ten people were doing side businesses. Given how much job security has changed, that’s not a surprise. Many small businesses who were just getting by with 2-3 staffers have closed permanently after temporary pandemic mandates stopped commerce. This is a sad reality that affects the business owners and everyone they employ.

As a result of closures and work-from-home shifts, many are now doing 1099 income reporting instead prior W-2s. When you no longer have an employer contributing to your income taxes, Social Security, Medicare, and unemployment, it’s important to shift focus.

1099 workers need to track things: If you’re now a contract worker or have started a side business, it’s now also your job to track income and expenses. That’s in addition to what you might be doing for your employer or clients. Knowing what to track can reduce your income tax bill substantially. Keep records of everything you use for the business, whether it’s 100% related, or split with personal needs. Your tax preparer can let you know what’s deductible, but it’s better to track any possible expense until you know. Asking your tax preparer what you can claim, in what proportions, puts the risk on them. That’s what you pay them for, at least in part.

Mileage, liability insurance, cyber insurance, home office, utilities, software subscriptions, and classes & training should all be things you consider as the cost of doing business. The IRS expects you to claim these things.

Professional liability and cyber insurance don’t cost that much and can be a relief to have when things go wrong. This is particularly important if you work in an industry where protecting client information is critical. You don’t always have control of what others do, so it pays to protect yourself even if you’re careful.

When you work from home, you’re entitled to write off a percentage of your utilities. In most cases, you can depreciate a portion of your home too.

Saving money in the gig economy starts with knowing your numbers. Keeping track of what you’re spending on your business can reduce your tax bill by a lot. You can’t track your calories at the end of the year. It’s a daily process. The sooner you recognize you’re now a business owner too, the better equipped you’ll be to realize maximum profit. Part of that process means monthly and quarterly reviews.