10 things you must do right now if you are a full-time W-2 employee who has shifted to independent contracting or gig working

Author: Nicole Darby

Transitioning from a W-2 employee to an independent contractor or a gig worker brings significant changes. Here’s a breakdown of 10 essential actions to take immediately.

1. Understand Your Tax Obligations:

• Self-Employment Tax:

o You'll now be responsible for paying both the employer and employee portions of Social Security and Medicare taxes.

• Estimated Quarterly Taxes:

o Start calculating and paying estimated quarterly taxes to avoid penalties. Consult the IRS website or a tax professional for guidance.

• 1099 Forms:

o Familiarize yourself with 1099-NEC forms, which report non-employee compensation.

2. Set Up a System for Tracking Income and Expenses:

• Separate Business and Personal Finances:

o Open a separate business bank account and credit card.

• Expense Tracking:

o Implement a system (software, spreadsheets) to meticulously track all business-related expenses for tax deductions.

3. Secure Health Insurance:

• Explore Options:

o Investigate individual health insurance plans through the Health Insurance Marketplace or private insurers.

• Consider Other Coverage:

o If a spouse or partner has coverage, consider if you can be added to their plan.

4. Plan for Retirement:

• Retirement Accounts:

o Open a SEP IRA or solo 401(k) to save for retirement.

• Consistent Contributions:

o Make regular contributions to your retirement accounts.

5. Create a Budget and Financial Plan:

• Income Fluctuations:

o Account for potential income fluctuations and create a budget that reflects this.

• Emergency Fund:

o Build a substantial emergency fund to cover unexpected expenses.

6. Review and Update Contracts:

• Clear Agreements:

o Ensure all contracts with clients are clear and comprehensive, outlining payment terms, deliverables, and responsibilities.

7. Establish a Professional Workspace:

• Dedicated Space:

o Create a dedicated workspace, whether at home or in a co-working space, to enhance productivity.

• Necessary Equipment:

o Ensure you have all the tools and equipment that you will need to perform your job.

8. Obtain Necessary Business Insurance:

• Liability Insurance:

o Consider liability insurance to protect yourself from potential lawsuits.

• Professional Liability Insurance:

o Depending on your profession you may need professional liability insurance, also known as errors and omissions insurance.

9. Network and Market Your Services:

• Build Relationships:

o Network with potential clients and industry professionals.

• Online Presence:

o Establish a strong online presence through a professional website and social media.

10. Stay Informed and Seek Professional Guidance:

• Tax Laws:

o Stay up-to-date on tax laws and regulations that affect independent contractors.

• Professional Advice:

o Consult with a tax professional, financial advisor, or attorney as needed.

By taking these steps, you can navigate the transition to independent contracting with greater confidence and financial security.