One winter, back when I was an undergraduate at UCLA, I had a brainstorm for how to make some extra dough. I shared it with a few pals, they sort of agreed that it might work, and so I jumped in.
The next Friday I drove three hours south to Tijuana and bought 50 hooded Mexican ponchos. I drove back to L.A. and the next day set up shop on the Venice beach boardwalk. It was a chilly, foggy morning, and before I knew it I sold out. I did it again the next week, less successfully, but still made a small profit.
By the third week, the thought of an eight-hour roundtrip drive to make a few hundred bucks kind of took the luster off of the whole deal and I called it quits. I thought that was that, until I met with my dad’s accountant a couple of months later to talk about taxes. I casually mentioned my get rich slow scheme and that was when he informed me that I owed taxes on my profit.
Little did I know it or realize it, but I had become self-employed.
These days of course, the idea of having a side gig is far more prevalent than ever, and the many different ways available to supplement an income have exploded. There are many reasons for this, but four in particular stand out:
- First, technology is making self-employment much easier. Remote working tools like Dropbox, Office365, and the like allow people to easily work remotely, and that in turn allows people to work when, where, and how they want.
- Attitudes have changed, especially with the millennial generation. They don’t expect, or want, to be tied down to a job or desk.
- What I call the Not-So-Great Recession changed things a lot. Not only did corporations turn to freelancers more back then, but people who used to work for those big businesses discovered that being self-employed allowed them to not only have greater freedom and flexibility, but that, just maybe, they didn’t need to depend on that crummy job and jerk boss any longer. Freedom!
- Finally, the sharing economy means there are more options available for self-employment.
Let’s drill down into that last idea a bit more. One result of starting to drive for Uber or Lyft for example is that you become self-employed. When you rent out your spare bedroom on Airbnb, you become self-employed. And when you start to do tasks for people by working for TaskRabbit or delivering food for GrubHub or DoorDash, yep, you become self-employed.
And it’s not something as innocuous as driving for Uber that can trip you up. Consider all of the things you may do that qualify as self-employment:
- Selling on Ebay
- Being part of an affiliate marketing program
- Having Adwords on your website
- House-sitting, dog-walking, being a nanny, etc.
- Being a personal trainer
There are all sorts of great things that come with self-employment (money, flexibility, independence), but the downside is that, as opposed to being an employee, you have a whole new set of tax issues to consider and deal with.
Just like when I sold ugly hooded sweatshirts, you too are responsible for paying tax on the profit you make as a self-employed individual. Remember, any time you earn more than $600 for someone as a contract worker, that business is requited to issue you 1099, listing the amount you made in the previous year. They also must send a copy of that to Uncle Sam.
You get the point. The good news is that these days there are more ways than ever to be self-employed. The bad news is, it’s easy to get tripped up with your taxes if you don’t stay organized and keep track of all your gigs.
