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You are reminded that
- I do not give out legal, tax or accounting advice and you are strongly advised to seek professional assistance in these areas.
- I am not an affiliate for any of these writers, products or services and this article is not a review.
- Bear in mind, too that the goal posts are shifting all the time and you would be strongly advised to consult a legal, tax, or accouting professional to help you through potential minefields.
With that said, let’s dive in.
The “gig economy” (another word/phrase of the year)
You would have heard about the “gig economy” and its rise during this pandemic.
Apart from the Wikipedia definition that differentiates between freelancing and the independent contractor…
…there is an article on Investopedia about the “gig economy” which differentiates between the three types of self employment.
You are advised to learn these terms:
- self-employed
- independent contractor, and
- freelancer
Each type carries tax and legal implications and you are strongly advised to get a professional to help you navigate the risks.
Check out the laws and regulations of your state, province or municipality too.
The article also defines
- what the gig economy is,
- the factors included and
- downsides.
How does the Internal Revenue Service see these distinctions?
The Internal Revenue Service (IRS) has provided a very useful guide to the differences between an independent contractor and an employee.
Independent Contractor (Self-Employed) or Employee?
Whichever route you decide on, if you are still working a regular job, you could do your side hustle alongside that.
The importance of systems to help you scale
It is also important that you take the time to build a system that is going to help you scale your business.
If you have not yet seen Robert Kiyosaki’s explanation of the B-I Triangle®, take a look at the summary. I use it as a refresher:
Look before you leap
Some stuff you MUST bear in mind, particularly during this public health crisis. And post-COVID.
A New Gig Economy Tax Center
Did you know that the Internal Revenue Service (IRS) launched a new Gig Economy Tax Center this year?
A webinar recorded in February 2020 is included on the site.
Do you need to set up a Limited Liability Company (LLC)?
Are there any legal and tax implications of outsourcing when you begin to scale up your business?
The ongoing employee vs independent contractor debate is discussed by LuSundra Everett of Everett Tax Solutions.
She has a channel on YouTube™ and her nickname is “The Home Biz Tax Lady”.
Scary stuff, huh?
Yet absolutely necessary to take into consideration, given the recent ruling in California.
Vox Cheered California’s Gig Economy Law, Then Fired Freelance Workers.
Because other states are likely to follow…
It looks like the US is catching up.
In the UK, some companies will not hire you unless you are an independent contractor owning a registered limited liability company (LLC, LTD, etc).
As if this wasn’t enough…
IRS to Increase Small Business Audits by 50 Percent in 2021
While I was preparing this article today, yet another video was recorded and posted online by the Home Biz Tax Lady where she discusses the latest plans of the IRS to increase audits of small businesses in 2021 by 50%.
This audit includes gig workers. A key emphasis is going to be on compliance.
Documents, documents, documents
Tom Wheelwright talks about the importance of accurate and complete record-keeping in his podcast.
The Number One Mistake Entrepreneurs and Investors Make.
In light of current events, I am also including the following video from Tom Wheelwright’s podcast for good measure:
The emphasis in this article, then, has been on how the law is constantly shifting and what you need to look out for next year.
Yes, it seems that they are out to get independent contractors. On the other hand, this just might be a good thing.
For one thing, we will be forced to keep good records.
Look before you leap?
The final article in this series will come out tomorrow afternoon when we will look at digital freelancing and some sites you can sign up to.
Additional resources:
Ms. Everett’s consult page can be found at www.homebiztaxchat.com
Start Your Own Corporation: Why The Rich Own Their Companies And Everyone Else Works For Them by Garrett Sutton, Esq. Published By RDA Press LLC, 2018.
The free course Freelance Bootcamp, from Lurn™, features a case study with Andy Brackpool, of The Copy Butler.
The case study includes three key things you need to succeed as a freelancer.
Lurn.com also offers a free course by Andrew Lantz on how to incorporate your business. It is very clear and easy to follow, and provides pros and cons for each business structure.
Sources:
Independent Contractor (Self-Employed) or Employee?
Located at Internal Revenue Service. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee [Accessed December, 7, 2020]
Understanding The Gig Economy. Located at IRS Videos (online).
https://www.irsvideos.gov/Individual/PayingTaxes/UnderstandingTheGigEconomy [Accessed December 7, 2020]
The Number One Mistake Entrepreneurs and Investors Make. Located at Wealth Ability (online) https://wealthability.com/podcast/episode-28-the-1-mistake-entrepreneurs-investors-make/ [Accessed December 7, 2020]
The following sources were originally cited in a newsletter from Dr. Patrick Gentempo of Revealed Films (from the Money Revealed 2020 series):-
Gig Economy, from Guide to Successful Employment. Located at Investopedia (online) https://www.investopedia.com/terms/g/gig-economy.asp [Accessed December 7, 2020]
Vox Cheered California’s Gig Economy Law, Then Fired Freelance Workers. Located at ccn.com (online). https://www.ccn.com/vox-cheered-californias-gig-economy-law-then-fired-freelance-workers/ [Accessed December 7, 2020]
This site contains affiliate links to products sold by selected self improvement partners. We may receive a commission for purchases made through these links.