It is no secret that we live in a gig economy where folks have multiple streams of income. In fact, Forbes estimates that 43% of the workforce will be made up of freelancers by 2020.
When we think about the gig economy, many of us think about AirBnB, Lyft and Uber. These three enable you to use something you own, your home or car, and monetize it. You work as little or as much as you want. At the end of the year, you get a 1099 report which includes information on how much you earned. You use this report to file your taxes. But the world of freelancing is really so much more. Everything from dog walking, to resume writing to tutoring, house cleaning, nannying, private driver, expert witness, blogging, researcher, coaching and the list goes on. All you really need is the time to make it all work, the effort required to juggle and the decision to declare the income.
Someone starts out as a dog sitter or dog walker in a community. The person is reliable, responsible and competent. Most important, they love dogs. They may have a “day job” that runs from 9-5 with the dog walking on the side. Often, one satisfied customer leads to another and before you know it, you are taking care of someone’s else’s pet in their home three weekends out of every four as well as in your own home. The extra cash is a good thing to be sure. You can use that cash to establish an emergency fund, pay down debt or fund an IRA.
The cash that you earn is supposed to go on Schedule C of your tax return. Filing a Schedule C also lets you deduct certain expenses associated with generating that income. Maybe you had to drive some distance to get to your client’s home. That distance times $0.53/mile can be an expense of your business. Maybe you decide that you want to do some advertising; maybe you need to hire a CPA to prepare your taxes. These can be tax deductible expenses.
Have you considered your risks? Should you have your client sign a legal document stipulating the services you intend to provide and your fee? Should you have them sign something to hold you harmless in the event that something happens to their home or their dog while on the job? Should you have them sign something to make them responsible for damage done in your home by their dog?
The point is that when your extra cash becomes a regular part of your income, it is time to treat it with the respect it deserves. An hour with an attorney, CPA and insurance provider may help protect you from the unforeseen and help you make the most of what you earn. Ask your Abacus advisor to help you find these individuals put the incremental cash to work.