Companies like ride-hailing app Lyft, errands-helper TaskRabbit and the digital crafts market Etsy have boomed in recent years as the gig economy has taken off. Advances in technology, specifically mobile technology like mobile banking, advanced GPS capabilities and better video conferencing abilities have unlocked the potential for a vast self-employed market. In tandem with this growth, accounting software providers and sagacious app developers have tried to address these workers’ inevitable accounting needs with simple, easy-to-use money tracking tools. However, the solutions may not be up to the task of helping non-accountants make the most out of their income.
A recent survey from ReportLinker found that while 74 percent of the U.S. working population have full-time, traditional employment, one in ten employees have now joined the gig economy as independent contractors of some kind. A third of survey respondents said they would consider joining this new workforce, and two-thirds said they would consider the option within the next three years. With this intense growth of self-employed individuals comes a rising need for them to manage their financial lives independently – and a Lyft driver or a TaskRabbiter does not necessarily have the skill to do so.
“In all honesty, so-called gig economy workers are no different from being a consultant, a type of profession that has been around for a long time,” Chandra Bhansali, founder and CEO of cloud-based accounting technology company AccountantsWorld, told me. “Consultants still have to take care of the basic task of making sure they meet all federal, state and local tax regulations, and that is a very important aspect of why they need to talk to an accountant.”
There is plenty of accounting software out there that is ostensibly ready for use by small-business owners who don’t have an accounting background, as well as contract workers. For instance, QuickBooks Self-Employed is a simple version of the well-known accounting software geared towards freelance workers, solopreneurs and other gig-type workers. Since its launch, QuickBooks Self-Employed has partnered with several companies operating in the gig economy space, including Lyft, TaskRabbit and Etsy, allowing their contractors to perform basic accounting with the pared-down version of QB’s more powerful accounting software. As of Intuit’s last quarterly earnings statement in November 2016, QB Self-Employed had 110,000 subscribers. For context, Intuit research estimates that 3.9 million Americans are working in the on-demand economy, and that by 2020 that number will rise to 7.7 million.
But how far can a non-accountant take their solo business with a tool like QB Self-Employed? Not very, Bhansali thinks.
“Many of these gig economy workers have no idea what tax season has in store for them,” he said. “The nuances involved with filing taxes on freelance work can be overwhelming for even the most experienced independent workers, let alone the large number of new workers who must now report on new incomes, and report it correctly. So, where should these taxpayers turn for advice and guidance through filing season? Only an accountant will be fully versed on all of the loopholes and pitfalls that can quietly catch people in big problems with the IRS.”
There is another side to the software story that QuickBooks can tell. QuickBooks has the power of Intuit behind it, which was founded more than three decades ago and in 2015 pulled in revenues of $4.2 billion. The company has a robust support team behind every product it releases, and therein lies a significant part of its value to consumers. However, other companies that have tried to address the accounting needs of independent workers have not been as successful. Take the Bonsai Tax app, which was intended to address the tax problem Bhansali notes. It was created by a CPA, and it linked a 1099 worker’s bank account to the app. A user would swipe left on an expense to signify that it was personal, and right for business. The company shut down in four months, with the founder citing lack of adequate knowledge among the user base to correctly classify expenses.
“Record-keeping is important,” Bhansali said. “So you’re self-employed, and say you’re going to file, say, a Schedule C. What are the business-related deductions you can make? An accountant will be helpful in determining deductions you’re entitled to, and what kind of record-keeping you have to do to deduct those expenses. Tech tools like QuickBooks Self-Employed are definitely useful. But I don’t think they’re sufficient. They will help you do a good amount of work yourself, but they are not a substitute for advice from a professional.”
Bhansali correctly noted that the gig economy is not a new phenomenon. 1099 workers are consultants, nothing more, nothing less – and the boom in this type of worker is providing opportunity for accountants, who also work very well in a consultancy capacity, to find new clients. They have a key role to play in the rise of the contract worker.