Saturday May 22, 2010 08:26

GIGONOMICS: The Dark Side of Gigging

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by Jodi McLean

Thinking of leaving your full-time job to become a Gigger, like me?  (Click here for my first post on my SHE Gigonomics series.)  It might sound fun and venturesome, but here are a few things to consider and to be aware of.  I am learning the fine-print as I go, so I will share what I learn with you to help you avoid surprises with new tax rules and unique expenses of Gigging. 

I noticed that some of my employers aren’t deducting taxes or social security, so I called my accountant to see what percent of each paycheck I should set aside for the Tax Man…20%?  He told me 35%!!!   That’s a serious bite!  So, I need to find creative and legal ways to log tax deductions.  And there are a LOT of them!  Keep reading, don’t get discouraged.

The below tips are taken from the following helpful website.  Be sure to read it in detail and think about how the tips apply to your situation:

 http://www.allbusiness.com/personal-finance/individual-taxes/2481-1.html

1.  Keep Very Good Records.  I have started an excel sheet and I’m logging every mile that I put on my car for work-related purposes:  Mileage to-and-from each gig.  Mileage to-and-from each interview.  Mileage to the store for work supplies, for work clothes/shoes, for lunch while on the job, etc.  I’m also logging every expense in a separate column and keeping receipts in a file by date.  **A good tip I learned early on from Gigger/SHEva Lori (see SHE Cast):  create a template Invoice and make an invoice for each gig, even if the company doesn’t ask for one:  dates, hours work, hourly wage, etc.  Lori keeps a file for paid invoices and a file for out-standing invoices to keep her organized.  THANK YOU LORI, this has been so helpful!

2.  Office Space:  My main office is my corner of the family room with my computer and file system.  I can deduct a percentage of my mortgage for my office!  I can also deduct my cell phone bill, my internet service, a portion of my utilites, etc.  

3.  Log Business Expenses:  See point #1.  Think wear & tear on your car, anything and everything you need to purchase or maintain in order to effectively do each job; including proper shoes, bug spray and sun screen if you work outside, etc.  I can probably deduct my cable bill since I work on TV commercials and need to see the finished result!  I’ll add it to my excel sheet and let my accountant think about that one.  Also medical expenses since I now have to pay my own individual health care costs and insurance, as my one-and-only employee.

4.  Deduct Child Care Costs:  Doesn’t necessarily pertain to me, unless I put my dogs in doggie day care.  I wonder if that would fly?  It might…

5.  Set up a Retirement Plan:  Why think about this when you are just trying to make ends meet in the beginning?  Because it is tax-deferred savings account!!  Eventually, when your income is steady, you will definitely want to start planning for your retirement anyway.  I’m lucky – my Dad is in this business and is helping me to find the right way to plan for my retirement and help shelter my Gigging income.

6.  Employ Family Members:  You can deduct their medical expenses, too!

7.  Defer your Income, if Necessary:  I don’t see this applying to me anytime soon, as I don’t see my Gigging putting me into a higher tax bracket.  Not in 2010 anyway…but read more about that in the above link if you think it might pertain to you.  (And HOORAY FOR YOU if it does!  I can’t wait to get to the new tax bracket!)

8.  Get Money Back from FICA.  Did you know as a self-employed person you pay TWICE for social security?  You are now the employer and the employee, so you have to pay for BOTH!  But, you can deduct half from your 1040 form.  It’s nice to know this up front – my accountant failed to tell me that in the beginning and I had to read it on this website.  I will have to have a talk with him.

9.  Increase Expenses, if Necessary.  Again, this is for when your income is so massive that you have to make it look less-so, so you get to go out and buy a bunch of stuff at the end of the year.  That will be fun!  I choose to make that a long-term goal of Gigging.

10.  Get the Right Help:  I’ve been with the same accountant for years, and he is a friend of mine.  After considering tip #8, I may have to find an accountant specialized in self-employment.  I love to give business to friends, but I gotta look out for my best interest first.

Hope this helps!  I found this other helpful website while I was doing further research on point #5, so there really are a lot of resources out there for us.  Just be willing to do some studying – it will pay off on April 15!

http://articles.moneycentral.msn.com/Taxes/TaxShelters/TheUltimateTaxShelterYourOwnBusiness.aspx

-Jodi

PS:  Here are links to the SHE Gigonomics Series thus far.  It’s no “Twilight” Series, but you might enjoy it…

GIGONOMICS:  Be a Gigger Like Me!

Gigonomics: Get Giggy With It!  (Video Post)

Guest Post:  Gigger William Shapton

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