Often freelancers take on multiple gigs for various reasons, including to fill income gaps. It’s not uncommon for many freelancers to work seven days a week. While filling the week with multiple gigs obviously provides additional revenue, freelancers should also consider the tax implications and time constraints that determine the real value of those various jobs.
It’s all about taxes
Getting paid for side gigs means money flowing into your bank account, whether that’s driving your car for Uber or Lyft, running errands for a service, renting out a room, or working as a freelance writer. It’s a great feeling, right?
Before you answer, consider how much of that revenue will eventually need to be paid for federal and state taxes. Remember, you won’t get a W-2 form for these gigs; instead you’ll receive a 1099 form that shows total income paid with no taxes deducted.
A constant influx of income often means freelancers must pay estimated tax throughout the year. Those payments are made in April, June, and September of the present tax year, and then at the start of the upcoming year. If you don’t make those quarterly tax payments when you expect to owe at least $1,000 in tax on your return, then there may be penalties.
On top of making these tax estimates, there are two types of taxes freelancers pay — income tax and self-employment tax. It’s a lot to remember and can mean paying out a large chunk of that bank balance.
However, you can stay on top of these tax implications with some research and the right tools. For example:
- Learn more about tax implications directly from the source by visiting the Internal Revenue Service’s Sharing Economy Tax Center.
- Use an online self-employment tax calculator to get a general idea of what you may owe.
- Schedule a meeting with a tax professional to discuss income and potential deductions related to these gigs.
- Maintain good records of all business-related receipts, mileage, car maintenance (such as oil changes), insurance premiums, advertising expenses, and cell phone fees.
Time versus money
Also, it’s important to think about how each gig impacts your overall financial picture. For example, you may initially think that taking on more side gigs means a lot more money. However, when you consider all the hours required by that gig, you may wind up being extraordinarily busy but not making a fair hourly rate, or the equivalent. You might actually make more with fewer gigs, as long as they’re high paying ones.
Calculate the equivalent hourly rate by dividing the total fee you’ll earn by the hours the work will require. You may be surprised that some gigs actually pay less than minimum wage. This is especially true if you include time spent talking to the client (via phone or instant messaging), travel time and taxes.
In short, taking on more side gigs isn’t always the best strategy. Instead, you can use that time to reformulate what you offer so you can charge more, or simply secure gigs with higher rates. In return, you may work fewer hours, make the same or more money, and effectively manage your tax basis by tracking fewer jobs.
Remember, what makes freelancing great is controlling when and how you work and how much you make while having more time to enjoy life. If your gigs aren’t providing what you need, then it may be time to change the picture.
John Boitnott has been writing for TV, print, radio and internet companies for 25 years. He’s written for BusinessInsider, Fortune, NBC, Fast Company, Inc., Entrepreneur and Venturebeat, among others.
Feature Illustration: Laura Caseley For The Money Manual