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The Freelance Tax Tragedy

How America's hardest workers lose thousands every year

Paul Koullick
March 27, 2023
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No items found.

The Freelance Tax Tragedy

How America's hardest workers lose thousands every year

Paul Koullick
August 17, 2023
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Reviewed by

Every year, around 40 million Americans overpay on their taxes by an average of $1,249. 

We call this phenomenon the Freelance Tax Tragedy. It’s the reason we started Keeper.

The victims: 40M Americans with 1099 income

By "freelancers" we mean people who have some independent contracting income, but don’t necessarily consider themselves business owners. Who are these people, really?

  • The media calls them “gig workers”
  • The IRS considers them “business owners”
  • Youtube videos call them “self-employed”

But they call themselves by hundreds of other names: dog walker, model, babysitter, nurse, tattoo artist, and more. Most of them have multiple sources of income — some of which might be traditional hourly or salaried W-2 jobs.

What unites them is a desire for the convenience of traditional tax software, despite needing more support than someone working a 9-to-5. Trapped between the world of business taxes and individual taxes, they get the worst of both. 

A confusing tax system

Freelancers are paid as independent contractors, subjecting them to a number of nasty tax surprises. 

First off, there’s self-employment tax: a flat 15.3% tax taken on top of income taxes, regardless of your tax bracket. Even people living below the poverty line, who owe no income tax, still have to pay 15.3% on all 1099 income after $400. To add insult to injury, none of this tax is withheld from your paycheck like it would be for regular employment (W-2) income. This results in surprise massive tax bills and general anxiety.

But there’s also good news — being able to claim tax-deductible business expenses, which offset their earnings and lower the amount of income they get taxed on. 

Every freelancer has business tax deductible expenses, including:

  • Phone bills
  • Car expenses
  • Software
  • Work supplies

These deductions can add up to thousands of dollars in tax savings.. And they can be claimed on top of the standard deduction. 

Billions of dollars at stake

Unfortunately, most Americans with self-employment income — especially those 40 million who don’t actively consider themselves traditional “business owners” — don’t claim any tax-deductible business expenses when they file their taxes.

It’s hard to blame them. Traditional tax filing software lures consumers in with free free free. but people with self-employment income can always expect to pay extra for the ability to deduct business expenses, with prices starting at $150.

Rather than paying up, many freelancers simply skip adding business deductions. Some may not even be aware that these deductions apply to them.

It’s only getting worse

A looming recession is pushing changes in the labor market, while continued technological advancements making remote, fractional work more attainable than full-time employment. As a result, the victims of the Freelancer Tax Tragedy are increasing in number, by as much as 30% year over year. 

Available solutions are misleading, expensive, laborious

Most of us in the business accounting world treat tracking business expenses as the user’s problem. We tell ourselves that these “business owners” should have known better — that it’s their job to know to open up a business bank account, track mileage, keep a spreadsheet of expenses, and pay quarterly taxes

However, these are vestiges of the old business tax world — a time before gig apps and the creator economy, when being self-employed meant renting a commercial office and operating an LLC. Today’s generation of freelancers are either unaware of, or flabbergasted by, such laborious expectations.

Traditional tax software: “Hope you kept receipts!”

The vast majority of freelancers think about their taxes once per year — at tax time. They mix their business and personal expenses, don’t track mileage, and may not have heard of quarterly taxes. 

Traditional tax software asks them to deduct expenses by filling out a Schedule C with limited guidance. As a result, they don’t claim nearly as many deductions as they qualify for.

It can be hard to remember the toll fee you paid 9 months ago when faced with this UI at tax time.

Accountants: “Fill out this spreadsheet”

Freelancers who don’t make do with a generic tax software turn to the local accountant or H&R Block rep. 

While a human touch is comforting, it does little to change the fact that these tax preparers still offload the work of expense tracking onto their clients.

Most simply ask clients to fill out a spreadsheet, like the below. With an accountant shortage in full swing, they rarely have the time to walk clients through every possible deduction, line by line. Therefore, their clients are still likely to miss out on valid business expenses. 

Looks like a lot of work.

Traditional bookkeeping software: “Review these 353 transactions”

Freelancers do have the option of figuring out business bookkeeping software (e.g. Quickbooks, Xero) and their slightly more consumer-friendly derivations (e.g. Quickbooks self-employed).

These tools theoretically give them everything they need to build “expense-tracking habit.” But at the end of the day, they require overwhelming amounts of work to maintain. 

After downloading Quickbooks Self-Employed and linking a financial account, users see 300+ “unreviewed” transactions and are forced to go through them just to catch up.

Battery-draining “automatic” mileage trackers aren’t much better. They expect users to manually categorize every trip they take, toggling them between “business” and “personal.”

Keeper: On a mission to save the freelancer

At Keeper, we aim to meet the freelancer where they’re at. 

We don’t expect them to change their habits or wrap their heads around business taxes. We’ve designed an experience that abstracts away all the work — our smart technology tracks their expenses and applies IRS guidance to their unique tax situations.

Using our automatic write-off identification technology, users can simply connect a financial account, wait 45 seconds, and watch as hundreds of dollars get added to their tax refunds. By redesigning tax software from the ground up, we have the tools to give the Freelance Tax Tragedy a happy ending — one where 40 million Americans can sleep soundly and even flourish in today's economy, knowing more of their hard-earned money is theirs to keep.

Company Contact Country
Alfreds Futterkiste Maria Anders Germany
Centro comercial Moctezuma Francisco Chang Mexico
Ernst Handel Roland Mendel Austria

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Paul Koullick


Paul Koullick is the co-founder and CEO of Keeper. He's committed a decade of his career to the consumer tax industry, and has been quoted as an authority on taxes in U.S. News & World Report, Vice, Forbes, and others. Paul holds an A.B. from Harvard University, and loves jogging and chess.