Have you made the move to earn part or all of your income from freelancing in the gig, or sharing, economy? Millions of people take advantage of the earning potential of sharing platforms every year. In 2017, 57.3 million or 36% of the current U.S. workforce said they freelance, according to the Upwork Freelancing in America 2017 Survey. The number appears to be growing as millennials and others either choose not to or aren’t given opportunities to take on salaried, full-time employment.
Most of us have heard of Uber, Lyft, Craigslist, and Airbnb — all sharing platforms that facilitate transactions between users to share goods and services.
However, the number of sharing and freelance economy platforms has exploded. You may be able to find a platform to share almost anything. Some of the more creative websites include:
Use your vehicle to transport new goods on-demand within select larger cities.
Drivers with extra room in vehicles connect with people who want large items delivered to a destination on the driver’s route.
- Task Rabbit
Connects fully vetted taskers with those who need home tasks performed, such as yard work, moving, and furniture assembly.
Connects artists and craftspeople with buyers to purchase their handmade wares.
Let’s look at some of the advantages and challenges that can come with becoming your own boss, human resources department, payroll, and benefits provider.
Because most freelancers depend on more than one type of work, skillsets can be diverse. For example, a freelance photographer may drive for Lyft between photo contracts. Or, prior to the holiday season, someone may create artistic decorations to sell on Etsy. But, during off months she may rent out her extra room on Airbnb. Not only does this variation benefit your mental health by giving you a break, it offers independence from a single income source. Many salaried employees who are laid off during economic downturns find themselves panicked by the sudden income loss. On the other hand, freelancers most likely have several clients who can continue to provide income. You may want to consider ways to diversify your offerings to cover the loss of one client, and create a more consistent overall income.
As a freelancer, your time is your own. For many this works well since you may want to be able to care for families or just do the work when your most productive — this may be at 4 a.m. For some, this may not be a good fit. If you aren’t particularly good at motivating yourself, freelancing may be out. Keep this in mind as you consider the most appropriate freelance gigs as well as long-term career and financial goals.
Freelancers also have workplace flexibility. Depending on what your skill or gig is, you can work from almost anywhere in the U.S. For example, if you do contract coding or writing, you can work directly from the beach or a cabin in the woods, as long as you have a laptop and internet connection.
Another upside to freelancing is continuing your education, perhaps in diverse fields of work. According to the Upwork Survey, 55% of freelancers said they participated in skill-related training in the past six months, compared to 30% of non-freelance employees. If you choose to retool or hone your skills, you’ll likely have more options to choose from in the future. You may want to invest in ongoing training for topics that could further your earning potential. And these trainings may be tax deductible.
Of course, every decision comes with upsides as well as downsides. In the case of freelancing, one of the biggest challenges is managing taxes. Even if you’re not planning to earn much from platform sharing, it’s important to keep records of income and expenses for the IRS. Making extra income is great for you – and the IRS too! Some platforms, like Etsy, will report income to the IRS, so you may want to report as well. When you reach that happy day when you start to earn money using a sharing platform, you may want to put aside a percentage of each check into savings so you can use it to pay taxes later.
Essentially with most sharing and freelance platforms, users are considered self-employed. So, when you earn a net income of more than $400, the IRS requires you report earnings and file quarterly estimated income taxes. “Taxpayers involved in the sharing economy who are employees at another job can often avoid making estimated tax payments by having more tax withheld from their paychecks,” according to the IRS Sharing Economy Tax Center.
Other income– and tax-related questions may arise. Do you need special business licenses? What are the regulations related to your business. If you drive for Lyft, can you write off auto maintenance? (Yes, learn more about what is deductible when driving for a car share.) These are all important questions to start asking. To learn even more, you may want to talk to a tax professional and head to the IRS Sharing Economy Tax Center.
Part of running your own business means invoicing and collecting income for goods and services. Fortunately, most of the new freelance and sharing platforms help you with this part of the business by requiring a credit card from the customer up front. Collecting payment can be as easy as completing the task, whether it’s a ride, room check-in, errand, or package delivery. The customer, provider, or both parties usually pay a small fee for this automatic payment service. For service providers in the freelance economy, this fee is well worth it since it eliminates the need to track down payments. For freelancers who don’t use these platforms, you may want to read about making sure you get paid.
Not every freelancer will have a steady stream of work. Of course diversifying your offerings may help bridge these inconsistencies. But the truth is, you may need to set aside some money to tide yourself over during “unplanned vacations.” Having an intentional tide-me-over fund is better than borrowing from retirement investments, which can lead to not paying back that account. Some retirement accounts may be subject to taxes penalty fees as well.
If you’re considering leaving a salaried position with health insurance benefits, you may want to research your best insurance options. A good place to start is the self-employed section of the Affordable Healthcare Act website. Some freelance platforms like Uber have teamed up with insurance companies to offer contract workers health insurance for a cost. Other freelance applications may offer similar arrangements. Needless to say, don’t forget about insurance.
If sharing and freelancing seem to be your thing, research is a good place to start before taking the plunge. You may also want to make a point to be aware of changing tax policies, requirements, and guidelines. Perhaps you can talk with others involved with a platform before joining it. You may also want to start slowly and ramp up as you feel more comfortable and find your unique gig personality. If you’re ready to go it alone, you may want to look for ways to stay on track with financial goals, health insurance, and taxes.
Things to Consider:
- Join the millions moving to a freelance economy and enjoy flexibility and independence from a single income.
- Is your Uber driving gig earning you enough to pay taxes?
- If you’re ready to join the freelance economy, you may need to buy health insurance.
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