What is truly considered 'expense' in financial terms?
'Expense' by definition is the operational cost incurred to maintain any ongoing process. This, in simple terms, means that the operational cost of maintaining your lifestyle including groceries, clothing, rent and other personal necessities is called personal expense.
On the other hand the cost you incur to operate your rideshare or delivery 'business' as an independent contractor including fuel, vehicle maintenance, toll charges, parking tickets and so on is listed under business expense.
Therefore any amount of money you spend on your livelihood can be tracked as expenses for future calculations pertaining to tax or even long term expense forecast for setting financial goals.
Why is it 'a big deal' to separate business expenses from personal expenses?
We have a simple example, if you had a jar with both 5 and 10 cent coins and you would need to pay off 5 cents every week to save the 10 cents, what would you like to find out? Exactly! You'd like to know if you have more of 5 cents or more of 10 cents!
This is the same reason why you need to find out the difference between how much you have spent for yourself and how much you need to pay off to operate your gig work. If the expense incurred on during your rideshare or delivery work exceeds your personal expenses then there's definitely something not right with the financial planning.
Here's a list of things which are essential for financial planning and require separating business expenses from personal expenses:
Almost all business costs which you incur on a daily basis, including contractual expenses such as registrations or renewal, account for a 'tax discount' or exemption on the total percentage of income tax that you pay annually.
Claiming this is essential for your financial wellbeing and savings when filing tax. Just keep a record of your business expenses and you're good to go!
Here's how it's done
We found out the 5 easiest and most efficient solutions to separate your business expenses from your personal expenses:
- Request a different debit or credit card for your business - it is possible to request your bank to issue multiple debit or credit cards, you can easily apply for one just to charge your professional expenses on.
- Open a business checking account - if you have been rideshare or delivery driving for quite some time now and saved some money already you can actually open a different business account to track both your income and expense!
- Fix your salary - even if you are working with the gig platforms as an independent contractor without any contractual salary amount you can decide an income range for yourself, obviously a fraction of your total income, so that the left over amount is fixed for your business expenditure.
- Separate your business receipts and keep them ready - claim the tax deduction and save up to 10% on annual taxes!
- Keep a track of the personal items you are using to cover for a business emergency, take some time to add them up under business expenses.
To make things easier you may also avail the help of smart finance apps such as PocketBook, Frollo, GoodBudget.
Common mistakes to avoid
When you are calculating manually it might get difficult in terms of accuracy, timeline and organization, before you start on the hard work here are some things you should keep in mind:
- The problem of 'double counting', it is an accounting jargon used often in calculating 'credit and debit'. In simpler terms, you would want to avoid adding the same expense twice.
- Don't only separate the deductible business expenses, it might seem like a short cut to skip steps and only take into account the expenses on which you will receive tax return but trust us, this will lead to various inaccuracies.
- Don't ignore if there is an expense policy implemented by the places you purchase your business items from. Be thorough with the policies of your separate business bank account as well.
- If you are using a separate business credit card remember to follow through its expense limit and other conditions of usage.
- Do not skip on indirect costs, for example when taking a day off you are indirectly incurring the cost of an entire day's average income.
Save up to $1000 on taxes every year!
Separating your business expense and tracking it with recorded proof such as receipts may seem like a hefty job without any certain reward. When you use the MyGigsters app to auto-track your income and expense the load drops to 0!
All you have to do is download it, set up an account and watch your finance worries go! The app gives you a one stop solution for storing all your business receipts, recording your business expense separately and auto-generating a tax report based on tracked financial information!
Don't wait to save on tax! Join our amazing community of gig workers who actively use the app to earn and save in a smart way.
