If there is one undeniable change in the way people make their living in our modern age, it is an increase in the self-employed. Nearly 42 million Americans were classified as independent freelancers or contractors in 2018.
Economists have coined a phrase for this phenomenon, calling it the "gig economy." Self-employed people on the lower-skilled end are folks who are doing things like driving for Uber or Lyft to bring in extra cash, serving as virtual assistants, or renting out their houses on Airbnb. On the high end are high-income individuals like business consultants or federal government contractors.
U.S. economists Lawrence Katz and Alan Krueger found those working in nontraditional arrangements — defined as self-employed, freelancers, contractors, on-call workers, and temporary help agency workers — rose from 10.7% of the overall workforce in 2005 to 15.8% in 2015, according to a working paper published by the National Bureau of Economic Research.
For accountants and CPAs who have self-employed clients, The Rules of Thumb blog from MoneyThumb would like to offer the following tips to be more effective as their accountant:
Expect clients who have never hired an accountant
If your accounting practice has taken on a self-employed client, there's a great chance that this is their first foray into having a professional take care of their accounting. It is a very good idea to have a phone or in-person consultation with this new client to make sure you know what they expect from you and to make clear what you need from them. With a new self-employed client, communication can be the crucial key to having a smooth relationship going forward, and throughout your professional relationship.
Provide different types of interactions
What many accountants who take care of the finances of self-employed people have discovered through trial and error is that using more casual ways to deliver information and educate clients--including email, texting, and hosting Facebook Live sessions or offering free webinars, for example--really does have a great appeal to these type of clients.
Keeping things short and to the point is key. Few people want a lengthy explanation of the ins and outs of tax law. What many accountants find, after hosting a live Facebook session or live webinar, is that clients will save their questions and concerns until after the session or webinar is completed.
Taxes are a big point of concern
A number of tax-related topics should be discussed with clients in the gig economy. Among the biggest needs for the self-employed are maximizing and substantiating their business expenses, such as work-related mileage, home office space, business meals, and startup or other expenses.
There is also the issue of whether they are truly self-employed (i.e., an independent contractor) or whether they could be classified as an employee. Every client will be different, and it's important to take time to understand the particular scenario to determine whether a worker is an employee or an independent contractor.
And for self-employed clients, there is also the question of whether their activity rises to the level of a trade or business, especially if it is an activity they enjoy doing. With hobby losses no longer deductible (through 2025), it is more important than ever for clients to be able to establish a profit motive.
Choose a specialization
There's a huge advantage to targeting a particular industry or type of self-employed worker. For example, let's say you decide to handle the accounting for only writers. When you choose a niche like self-employed or freelance writers and learn all of the ins and outs of their finances and taxes, you can easily become an authority, drawing to you more freelance writers who need an accountant, which goes for any other type of specialized clients.
Be ready to answer contractor or employee questions
There's another aspect that will make you very valuable to self-employed accounting clients, and that's working with business owners to assess whether the people they're paying should be considered and treated as employees or independent contractors.
For those self-employed business owners who have never before hired an accountant, you may often discover that they have been handling the way they treat the payment of workers wrong and you can help fix that issue.
Remember that small jobs aren't insignificant
You may find that often self-employed people who have work they do in addition to a W-2 job consider it only a side hustle. This is a playful way of describing the work but it downplays the strategic importance and potential of having multiple income streams while building a career or business. One major reason workers take side work is they think their current 9-to-5 job isn't a final destination, and having a side business, even if small, offers a way to quickly shift gears if need be. You should treat these side jobs with respect. What starts out small can often end up being a lot bigger.
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