Earnings vs. Expenses: Don't Forget to Calculate Your Net Income as a Gig Worker

Earnings vs. Expenses: Don't Forget to Calculate Your Net Income as a Gig Worker

With the advancement of technology and internet communication over the past few decades, gig work has emerged as one of the most accessible ways to make a living. Unlike traditional employment, gig work comes with high levels of independence and flexibility, career paths that many people are now choosing for. However, with independence from traditional work comes variability in income. To understand your net income as a gig worker, you’ll have to account for the differences between expenses incurred and money earned. Let’s get into how one ought to calculate net income to be aware of their finances.

Step 1: Know how much you earn

The very first step in determining your net income is knowing exactly how much you're making, including income from every gig account that you may own. Yes, whether you are renting a property through Airbnb, driving for Uber, delivering food with DoorDash, or freelancing through Upwork, everything counts. Here’s how you can do it:

• Gather All Income Reports: Most of the job apps/websites had reports prepared outlining earnings per week or month. Make sure to download them regularly and accurately organize them.
• Account for Tips and Other Bonuses: Do not forget about cash tips you may have received or any other platform provided bonuses.
• Diversify Income Streams: If you work for multiple platforms, combine your earnings to get a full picture of your income.

Step 2: Identify all your expenses

Because of the nature of gig work, there are a plethora of expenses that can make a serious dent in your net income. Knowing them is essential in computing one’s net income. Popular costs include:

• Costs Relating to your car: If driving is your gig, things such as fuel, servicing, insurance, and even wear and tear can become costly.
• Purchasing Equipment: Computers, relevant software, or other tradesman tools may need to be purchased by freelancers.
• Taxes: An Independent contractor has to pay his or her self-employment taxes, and as a gig worker, you have to cover both portions of Social Security and Medicare (15.3%) as well.
• Supplies: If you’re within an office, you may have the internet, stationery, and even power to be considered as business expenses.
• Fees: Certain gig economy platforms may have service fees, or simply take a cut from your income.

Step 3: Use tools to simplify tracking

Expenses and earnings tracking can be so tedious, and trying to do it themselves will be a hassle for many people. Thankfully, sprinting technology helps to ease this:

• Applications for expense management: With apps such as QuickBooks, Everlance, and Stride all in one, to manage expenses and income sales as well as mileage.
• Online banking receipts: To easily track expenses related to business, a specific bank account or credit card could be provided.
• Worksheets: In case one prefers not to use spreadsheets, a simple Excel document can do the job of tracking expenses as well as earnings.

Step 4: Calculate your net income

Once you have a clear understanding of your earnings and expenses, calculating your net income is straightforward:

For example:

• Earnings: $3,000 (from driving and delivering)
• Expenses:
  • Gas: $400
  • Maintenance: $150
  • Insurance: $100
  • Self-Employment Taxes: $459
  • Miscellaneous: $50

Step 5: Use your deductions to their maximum potential

To increase net income, various methods can be used, one of which is through deductions. Some of the more common deductions that gig workers can use are:

• Mileage: Make calculations based on how far you have driven. You can either use actual vehicle expenses or deduct the standard mileage rate of 0.625 USD per mile driven in 2022.
• Home Office: If a separate area within your home has been designated as your office, then a proportionate amount of your rent or mortgage can be claimed as a deductible expense like the internet or utility costs.
• Tools and Equipment: Everything that is used for work can be claimed as a deduction, for example, a new laptop or subscriptions to software.
• Education and Training: The courses or certifications needed for improving a person's skills for their gig work can be claimed as a deductible expense.
• Cell Phone Bills: A portion of the phone bill can be deducted if the phone is used to make work-related calls.

Step 6: Start making plans for taxes

Gig workers differ from normal employees in that they do not have taxes deducted from their earnings at source. Instead, they need to:

• Estimate Quarterly Taxes: Calculate and pay taxes that are estimated to be owed using Form 1040-ES every quarter.
• Save For Tax Season: Set aside 20-30% of income each month to cover tax requirements in the month of April.
• Use Professional Help: Platforms such as WBB Gig Taxes help with the preparation of taxes by ensuring that correct amounts and deductions are entered.

Step 7: Evaluate Your Profitability

After arriving at the net income value, check if the gig work is worth it from a financial perspective. There are some questions to consider:

• Am I Getting Enough Money? If your net income is less than your financial goals and monthly living costs.
• Are My Expenses So High? Try to identify things that can be cut down on, such as having to follow routes for gas.
• Can I Include More? Try to increase earnings through other gig work or passive income opportunities.