One winter, back when I was in college, I had a brainstorm for how to make some extra dough. I shared it with a few pals, they sort of agreed that it might work, and so I jumped in. The next Friday, I bought 50 hooded ponchos and set up shop on the Venice beach boardwalk. It was a chilly, foggy morning, and before I knew it, I sold out. I did it again the next week, less successfully, but still made a small profit.
By the third week, all the effort required to make a few hundred bucks took the luster off of the whole deal, and I called it quits. I thought that was that, until a couple of months later when it was time to think about taxes. Little did I know or realize it, but I had become self-employed. And I owed taxes on my profit!
These days, the idea of having a side gig is far more prevalent, and the many different ways available to supplement an income have exploded. There are many reasons for this, but four in particular stand out:
- Technology is making self-employment much easier. Remote working tools like Dropbox, Office365, and the like allow people to easily work remotely, and that in turn allows people to work when, where, and how they want. Over at my site, TheSelfEmployed, we discuss this phenomenon a lot. One surprising way people have turned these tools into a career: more and more people are doing customer service work from home!
- The “Not-So-Great Recession” changed things a lot. Not only did corporations turn to freelancers more, but people who used to work for those big businesses discovered that being self-employed allowed them to not only have greater freedom and flexibility, but that, just maybe, they didn’t need to depend on that crummy job and boss any longer. Freedom!
- Attitudes have changed. Especially with the millennial generation. They don’t expect, or want, to be tied down to a job or desk. They want options! Many younger professionals are choosing to do work like graphic design, copywriting and software development as contractors, instead of working for one company.
- The sharing economy means there are more options available for self-employment. Let’s drill down into that last idea a bit more. One result of starting to drive for Uber or Lyft, for example, is that you become self-employed. When you rent out your spare bedroom on Airbnb, you become self-employed. And when you start to do tasks for people by working for TaskRabbit or delivering food for GrubHub or DoorDash, yep, you guessed it: you become self-employed.
And it’s not something as innocuous as driving for Uber that can make you self-employed. Consider all of the things you may do that qualify under that category:
- Selling on Ebay
- Being part of an affiliate marketing program or having Adwords on your website
- House-sitting, dog-walking, being a nanny, etc.
- Being a personal trainer
There are all sorts of great things that come with self-employment (money, flexibility, independence), but, as opposed to being an employee, you have a whole new set of tax considerations to deal with.
Just like when I sold ugly hooded sweatshirts, you too are responsible for paying tax on the profit you make as a self-employed individual. Remember, any time you earn more than $600 for someone as a contract worker, that business is required to issue you Form 1099, listing the amount you made in the previous year. They also must send a copy of that to Uncle Sam. Even if you don’t get a 1099, you still need to report that income, so best to keep track of your “business of one”.
You get the point. The good news is that these days there are more ways than ever to be self-employed. But, it’s important to stay organized and keep track of all your gigs to make it easy to report when you file your taxes. More good news is that there are new software programs that can make tracking expenses and income easy, which in turn makes filing your taxes a more effortless experience.
You can follow Steve on Twitter at @SteveStrauss.