Hard work pays off … or does it?
The gig economy accounts for 30-40% of the U.S. workforce and is growing at a faster rate than traditional full-time jobs. Workers over 45 years old are also making up over half of the “on-demand” or shared-economy self-employed workforce.
While one of the benefits of self-employment is being your own boss, it also means that you are ultimately responsible for securing your own benefits and covering your taxes. For many people, tackling bookkeeping, taxes, and the stress of not knowing whether your income will cover your expenses can be a daunting side of self-employment. Here are some simple steps to help you gain confidence when it comes to the behind-the-scenes, bookkeeping part of your business.
1) Develop a budget
To determine how much self-employment income you need to make your venture succeed, start by developing a personal budget. Creating a personal budget can be as simple as figuring out how much money you have coming in each month, and then figuring out how much money you are paying out each month. There are numerous tools available to help you get started, such as this home budget calculator from AARP.
2) Employ an “assistant”
If you’re thinking, “ Employ an assistant? But this is a solo gig!” we understand. But the good news is that you don’t have to hire and pay an assistant to manage your bookkeeping or taxes. Online tools and resources exist that can assist with some of the tasks that come with being self-employed. For example, when it comes to budgeting, AARP Foundation Self-Saver can give you a better handle on managing your expenses. When you sign up for a free account and connect your bank account on the secure platform, Self-Saver detects when you earn self-employment income and accrue business expenses, which may reduce how much tax you will owe.
3) Set aside money for quarterly taxes
Instead of the old familiar W-2 from a single full-time job, if you’ re self-employed, you may find yourself juggling multiple 1099s and having to understand how to plan for, save for, and submit quarterly tax payments. Think of taxes as expenses in your household budget. Staying on top of taxes throughout the year is vitally important, especially since the IRS comes calling four times per year, not just once in April:
2019 Quarterly Tax Due Dates
Payment Period Due Date
January 1 – March 31 April 15
April 1 – May 31 June 15
June 1 – August 31 September 15
September 1 – December 31 January 15 of the following year.
Remember: Self-Saver is here to help you by automatically withholding an appropriate amount every time you get paid, and submitting your quarterly taxes for you. No need to stress about remembering upcoming quarterly tax deadlines!
4) Determine how much profit you need to make
Once you know how much income you need to cover your expenses, you can determine how much profit you will need to generate as a self-employed person to support yourself by multiplying that amount by at least 130%. For example: If you need to earn $30,000 a year, your self-employment venture needs to generate $39,000 ($30,000 + 30% or $9,000 = $39,000) in profits. How much work will it take for you to generate that income? Will it require you to work seven days a week or can you comfortably earn that amount in fewer days? Only you can determine how much you are willing to work. Think realistically if your business is financially viable to support you.
There’s a lot to juggle when working for yourself. Tools like AARP Foundation Self-Saver can take the stress out of planning and saving for taxes, and can also can help you make the important decisions about which “gigs” are working out or where a change, of course, might be a good idea.