In the U.S., accounting services provide extensive solutions to businesses and companies and help them in managing the financial aspects of running a small business or being a gig worker. The accounting services allow them to ensure compliance with the regulations, maximizing their income and planning for the future. Thus it is important to consider adequate accounting and bookkeeping services towards the small business as in the gig economy.
Understanding of Small Businesses in the Gig Economy
Small businesses in the gig economy are an important part of the economic landscape in the U.S. The small businesses in the gig economy are flexible, independent and characterized by innovation.
The freelancers and independent contractors who offer services directly to the clients on a contractual basis are some such small businesses. They include programmers, designers, consultants, writers and others who work independently rather than becoming employees. The below-mentioned are considered examples of small businesses towards the gig economy:
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Creative services like graphic designing, photography, writing, etc.
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Ride-sharing and delivery services.
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Online retailers
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Coaching and consulting jobs
The side hustlers and micro-businesses are also a part of part-time businesses run by those individuals who may have full-time jobs as well like bloggers, online sellers, tutors, ride-sharing services, pet care, etc. The below mentioned are certain challenges faced in gig economy by small businesses:
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Stability in incomes
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Legal and regulatory compliance
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Lack of various benefits
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Rising competition in the market
Characteristics of Small Businesses in the Gig Economy
The below mentioned are certain characteristics of the business in the gig economy:
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Flexible: The businesses in the gig economy have flexible locations and work hours which makes it easier for those who want to balance their work with other responsibilities.
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Variable Income: An individual often requires minimum capital investment for starting a gig company which might be an internet connection, a laptop or a vehicle. Also, this might be all that an individual requires to start earning from the business.
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Low Barriers to Entry: The income of gig companies keeps on fluctuating and widely depends on the demands, market conditions and seasonality which requires careful financial management and planning.
Beneficial Accounting for Small Businesses in the Gig Economy
In the gig economy, accounting services are proven beneficial for accounting services due to various services offered by them like freelancing, flexibility and contract work. The accounting can be beneficial for small businesses in the following ways:
Tax Compliance
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State and Federal Taxes: The U.S. tax system requires the reporting of incomes from various sources by the gig workers. Thus, the accountant ensures that both federal and state taxes are reported with accuracy which reduces the risk of penalties and audits.
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Estimation of Tax Payments: The accountants can help businesses calculate and make quarterly estimations of tax payments and avoid larger bills at the end of the year.
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Tax of Self-employment: Gig workers must pay self-employment taxes that include Social Medicare and Security. The accountants help in calculating and managing these payments and ensure that the businesses meet the IRS deadlines.
Maximizing The Deductions
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Identification of Deductions: Various deductions are offered to small businesses and gig workers like phone bills, internet, office expenses, vehicle expenses and travel. These are offered to them by the U.S. tax laws. To minimize the tax liability, the accountants ensure that the businesses and companies can take full advantage of these deductions.
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Keeping Records for Deductions: It is essential to maintain records for claiming deductions later on. Thus, systems are set up by accountants to track and store receipts and ensure the necessary documentation in case of audits.
Compliance With The Local Regulations
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Collection of sales tax depending on the services offered by a company or business, they are required to collect sales tax in certain states. The accountants help them understand where the sales tax is applied and how it can be remitted correctly.
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Accountants ensure the compliance of the business with permitting requirements and local licensing and help them avoid fines or legal issues.
Guidance Regarding Business Structure
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Choosing the Appropriate Business Structure: The various business structures like an LLC, sole proprietorship or an S-corporation can have significant implications in the U.S. Thus, the accountants provide advice to the business and help them in choosing the best structure for a business depending on the liability concerns, income level and future business plans.
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Formation of Entities: The accountants assist the business during the process of formation, handle paperwork and ensure that the setup of the business entity is done correctly with the state and IRS authorities.
Financial Planning And Budgeting
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Management of Cash Flow: It becomes critical to manage cash flow for gig workers. Therefore, the accountants keep track of income and expenses and ensure that the company has enough liquidity in order to sustain the business.
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Budgeting: The accountants offer various services to the businesses and help them in creating budgets that align with the fluctuations of the business’s income which is common in the gig economy. They help them in planning for slow periods and ensure that they cover the essential expenses.
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Retirement Planning:The gig workers are required to plan for their own retirement, unlike the traditional employees. The accountants help them in setting up and managing retirement accounts like Solo 401(k)s, SEP IRAs or Roth IRAs.
Financial Reporting And Bookkeeping
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Bookkeeping:The accountants maintain the day-to-day financial records of the businesses and ensure that all of their records are recorded accurately and categorized accurately.
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Financial Statements: The profit and loss statements, cash flow statements and balance sheets are prepared by the accountants and provide insights into the financial health of the business.
Integration of Technology
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The businesses obtain recommendations from the accountants who help them in setting up accounting software like QuickBooks or Xero. The accounting software simplifies the process of tracking expenses, income and tax obligations.
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Those gig workers using platforms like Venmo, PayPal or direct invoicing, the accountants are able to integrate them with the accounting software used by the workers and streamline the process of income tracking.
Audit Support
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A business must have an accountant who was ever audited by the IRS.
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The accountants can represent the business, help in communicating with the IRS on behalf of the business and help them in resolving issues that arise.
Peace of Mind And Time Management
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Avoiding Mistakes: In order to avoid common financial pitfalls, the businesses are helped by accountants to avoid them which can cost huge amounts of money or lead to legal trouble. Thus, it gives peace of mind to the businesses and ensures that their finances are in good hands.
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Focusing on Core Business: Outsourcing the financial management of a company to an accountant helps them in focusing on what they do the best like running a small business, freelancing or consulting without getting mixed up with the financial details.
Conclusion
The small businesses in gig economies are diversified and range from microbusinesses and individual freelancers that operate through online platforms. They are flexible and provide opportunities for growth to entrepreneurs but face various challenges that require strategic planning and careful management. Hence we can say that accounting services are very crucial towards small businesses in the gig economy.
