There are many different types of business ventures run by self-employed individuals. Self-employed individuals or entrepreneurs have a gamut of different opportunities in the business environment to run a business. Self-employed can choose from the franchising world, work as an independent contractor or work in the gig economy spectrum. Everyone working as a self-employed individual within each of these different areas will need to overcome the financial and tax challenges. Be optimistic in your approach to overcome these challenges.
Franchising Opportunity.
A franchise contract is a legal document between the franchisor (The parent company) and the franchisee (you) to join their organization to promote and sell their products and services. The franchisor agrees to allow the franchisee to use the name, logo, products, brand, and services by using the methods of the franchisor’s business model. The franchisee agrees to pay the franchisor certain fees, which include the initial franchise fee, royalty fees, and marketing fees while following the rules of the franchisor business model.
What can you expect from the Franchisor?
Listed below are many of the important items that a franchisee can expect from a franchisor.
Listed below are some of the obligations required by the Franchisee.
Both the franchisor and franchisee have certain obligation to follow in the relationship. These obligations are dictated and detailed in the franchise agreement. The rules outlined in the franchise document are necessary to help maintain consistency, uniformity and quality levels throughout the network.
Gig Economy Workers.
Independent Contractors, diversified workers, moonlighters, freelancers, and temporary workers are all groups that make up the gig economy. The gig economy is a sector of the workforce in which people do not have long-term employment. Those in the gig economy are contingent workers—freelancers, consultants, tradespeople—who cannot necessarily count on their next gig.
Our economy is witnessing a dramatic increase in the number of independent contractors, freelancers, and temporary workers are continuously seeking to escape the rigid demands of the normal corporate environment. The digital disruption and booming start-up culture have propelled the evolution of the gig economy. The new definition of the future of work or the gig economy is driven by the excess of opportunities with flexible work hours without any time barriers on the workers.
In the US, it is predicted that by 2023, 50% of the workforce will be independent contractors, diversified workers, moonlighters, freelancers and temporary workers.
Gig Economy has started a wave that has efficiently empowered both recruiters and employees. The rapid growth in the development of gig markets and increased dependency on a fluid workforce is disrupting the traditional hiring module for corporations and making outsourcing and consulting more viable. Be it a small medium enterprise or a multinational organization; both are drifting towards this model which enhances their productivity and time management skills.
The answers to these questions will be explained in detail.
These individuals face important financial and tax challenges. Because income from freelancing, consulting, or other contingent work is not necessarily steady, it is vital for a gig worker to be proactive in managing money. This includes establishing a savings program to create a financial cushion when things are slow. It also requires careful budgeting so that funds are not spent in an uncontrolled manner when they come in, but are instead applied for various necessary day to day purposes.
Concepts of savings and budgeting may be foreign to many individuals. As employees, they may have lived paycheck-to-paycheck knowing that their taxes were covered through withholding and their personal concerns here handled by their employers.
With the gig economy the responsibility has shifted from the employer to the employee or independent contractor. It is critical that workers must take personal responsibility for these matters.
What you need to know about Tax Planning for the Gig Economy workers.
As a gig economy worker, which is the same as a self-employed individual, you will be impacted by taxes. The tax system is complicated to say the least. The best solution to help relieve the pressure from the tax problems is a concept called Tax Planning. Tax Planning is a key component to help you navigate the business world.
The gig economy is a large component of the workforce, and you must learn about and plan for the impact the current tax laws have on your situation.
There are a variety of types of different taxes that you will need to pay as a gig economy worker. In the majority of cases, the gig economy worker is considered self-employed and subject to the self-employed tax. Self-employed workers are considered small business owner. Self-employment taxes are covered in detail in later chapter.
Providing guidance to individuals who are working in the gig economy is an important service. As an independent contractor in the gig economy will need to search for a trusted advisor well versed in the small business tax planning approach to help individuals address all of their financial and tax concerns.
Paying self-employment tax.
Gig workers are also subject to self-employment tax, which comprises Social Security and Medicare taxes. As self-employed individuals, they pay both the employer and employee share of these taxes, with one-half deductible as an adjustment to gross income.
Gig workers must be prepared to show that they’re engaging in an activity with a reasonable intention of making a profit, and not for personal pleasure or recreation.
Self-employment taxes are covered in depth in Chapter 9.
Paying the additional Medicare tax.
Income from gigs is potentially subject to the 0.9% Medicare tax. It is not part of the self-employment tax, and it is not deductible. It should be factored into estimated taxes.
Paying Taxes.
Gig workers must report their income and pay taxes on it; this includes both income tax and self-employment tax to cover Social Security and Medicare taxes. Unfortunately, many gig workers who previously were used to being W-2 employees with wage withholding are unfamiliar with their tax responsibilities.
There are two main taxes self-employed individuals must pay. The two main taxes are self-employment taxes and Income taxes. As we continue our journey through this book, we will discuss different tax strategies to eliminate self-employment taxes and a variety of ways to reduce you income taxes.
All business owners will need to report income from the business activities.
There are two different methods on how revenue is reported. The different method is Form 1099MISC or invoicing.
Here is an example for Form 1099MISC. Let say you are a consultant. When you perform a long-lasting assignment for a company that you did the work for will create and mail you a 1099MISC form by January of the following year. If you worked for multiple employers, then you will receive a 1099MISC from each of the employers.
Now let’s talk about an individual in the gig economy. This person will perform different assignments, tasks on a more frequents basis. Since gig economy workers are considered an independent contractor and they are self-employed. If they are self-employment then they to apply standard accounting practices to track their revenue. In this case the individual completing the task will supply an invoice to the person that hire them for the task. The person will then pay the invoice and there will be tracking of the invoice and payment made for the invoice.
If the gig economy worker accepts credit card or third-party transitions that provider will issue a 1099-K form. This 1099-K form will list the amount of sales processed through the credit card company.
Please remember that all of the 1099MISC and the 1099-K forms are sent to the IRS by the providers and credit card companies.
Other Small Business Owners.
In several cases when an individual starts a business it may fall into a one of many different categories. They may decide to open a franchise operation. They may want to become an independent contractor and work in the gig economy.
Or it might mean that it will fall into another category. The category that is not franchising or in the gig economy. That does not mean that the rules are different for each of the categories. It just means that there are many different options and opportunities for starting a business.
All businesses still have to abide by the rules outlined by the IRS for business operates. As we continue our journey through the content of this book that you will learn more about the different business structures that are available for business owners. The business structure will in turn may have different tax rules and requirements. There are different advantages and disadvantage for the different business structures.
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