According to the August 2016 data “Self - employment In The United States” published by Bureau of Labor Statistics, nearly 15 million people were self-employed, or about 10% of all U.S. workers. Self-employed, includes those who had incorporated their businesses and those who had not. A “broader” category of “freelancers” indicates there are 40-42 million such people in US.
The IRS’ “2016 Instructions for Form 1099-Misc” lists the criteria for reporting 1099 income. Hidden in those criteria are the new revenue opportunities for accountants! Accountants can connect the dots that cause shifts in the economic environment to grab the resulting opportunities.
1. 1099 Workers and Accountants
Many of these 1099 workers may not even recognize their tax liabilities. It is only when they meet their tax preparer, they will get to know they need to classify their income from 1099 sources. Just like the proverbial “shoe box of receipts and statements” small business owners bring to their accountants right during the busy tax season.
Accountants can avoid such last-minute situations with some proactive work. It will be prudent for accountants to ask their existing individual tax clients if they had the types of incomes that could qualify for 1099 Tax reporting.
2. Businesses that Deploy 1099 Workers and Accountants
With the platform-economy (e.g. Uber, Lyft) usage exploding to mammoth proportions, it is not clear if those who earn income from these platforms get any tax guidance. There could be several such smaller platforms people use to find gigs. The existing business clients of accountants may be using 1099 workers for various tasks.
When accountants do the bookkeeping and accounting of their business clients, if they observe such payments that qualify for 1099 tax form, it gives three opportunities to accountants:
a). To provide consulting to the business owners on tax implications and compliance needs.
b). To reach out to those 1099 workers to explore possibilities for tax preparation services for such workers. A referral from the business owner makes your job easier!
c). In most cases, the 1099 worker will also be working with other businesses. Once you reach any 1099 worker with tax compliance service, you can get leads, and referrals to other business owners. And then the cycle can repeat!
3. Look Out for Stealth Touch Points
Did you use an Uber car last month? Did you hire an independent contractor to mow the lawn? Did you get a plumbing job done from an individual service provider? It is likely that some of the routine, repetitive, household or sundry jobs are now done by self-employed persons rather than some contractor company employees. What about similar experiences your firm’s staff goes through? Do they use similar services?
Do you have a brief, crisp and clear – dos and don’ts – info-brochure to give away to these individuals when you interact with them?
There are several stealth touch points you and your firm’s staff must be going through every day. Leverage those opportunities to educate such 1099 workers. Tell them about income and expense categorizations, self-employment taxes, expenses, deductions, home office deductions, work-use devices deductions, transportation expenses deductions, health insurance deductions and IRAs.
4. Your Pricing
Studies indicate that the shared economy workers are likely to have lower income levels than those in regular jobs. Their spending capacity may therefore be comparatively lower. Do you expect them to pay higher tax consulting fees or even tax prep fees?
To optimize your costs, it might be a good idea to standardize your package and process of providing service to these 1099 workers. But treating them as the so called “commodity buyers” can be a mistake. What if they can provide you referrals to five to 10 businesses? What if they can offer you their time and services in barter? What if they can pay you referral fees? Remember, they are entrepreneurs. Their business makes them deal with many people. Their network is perfectly poised to buy accounting and tax services from you. Consider all such factors into your pricing.
5. Market Shift Requires Paradigm Shift
"The entrepreneur always searches for change, responds to it, and exploits it as an opportunity." – Peter Drucker
Whenever there are market shifts – in demographics, in regulatory environment, in generational behavior pattern or technological, they always create new needs and gaps that need to be filled. Market changes can have huge implications. For example, reports indicate the global demand for regulatory, compliance and governance software is expected to reach $118.7 billion by 2020.
Being entrepreneurial is something accounting and tax profession cannot afford to miss.
"Every human being I have ever met, irrespective of the business, the job or life situation they are in, possesses at least one and normally multiple instant jackpots that are within their grasp. All they have to do is recognize them, believe that they are there, and believe that they are entitled to harvest them and the financial and the personal wealth and riches that come along with them." – Jay Abraham
Hitendra R. Patil, the author of “Accountaneur: The Entrepreneurial Accountant” explores how insights from behavioral economics apply to the tax and accounting profession.
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