Today, millions of Americans participate in the gig economy. Instead of traditional 9 to 5 job roles, many are now setting their own hours and determining how much or how little they want to work. Jobs in the gig economy take many forms and can look drastically different from worker to worker. However, all share the same thing in common: they are all responsible for their own retirement planning.
Just because you don’t have an employer to set up your retirement account and match your contributions doesn’t mean you can’t access the same tax benefits that traditional workers do. In fact, you have many options. As an independent contractor you can open a traditional or Roth IRA, as well as a traditional or Roth solo 401(k). Judicious use of these accounts gives you the opportunity to save as much as full-time employees, giving you access to tax-advantaged savings that grow over the long term.
When you work for yourself, you don’t have an employer taking taxes out of your paycheck or paying part of your employment taxes. Here are some tips for filing taxes as a gig worker:
- Pay estimated taxes quarterly. If you anticipate owing more than $1,000 in taxes, the IRS expects that you’ll pay your taxes throughout the year. If you don’t pay your quarterly taxes, expect to be charged for late payments.
- Set aside tax money regularly. If you want to avoid scrambling to cover your tax bill at the end of the year, open a bank account where you can deposit a portion of every check that comes in. Consider saving a little more than this year’s self-employment tax rate for 15.3%. Any extra you save can be put toward next year’s taxes.
- Take advantage of deductions. If you work for yourself, there are likely many expenses that you can deduct to lower your tax liability. However, it is important to consider the long-term ramifications of large deductions. Social Security benefits are calculated based on your 35 highest-earning years. So, the more you deduct now, the lower your money benefits may be later.
Gig workers generally set their own schedules, which can be an advantage when it comes time to retire. Rather than taking an all-or-nothing approach to retirement, consider a retirement style that allows you to take on work occasionally.