If you're an independent contractor working in the so-called "1099 Economy," tax season can be an unsettling time. You may have had the foresight to pay the IRS quarterly. But, more likely, you're spending early April looking for earnings slips, Staples receipts, and write-off opportunities. And, of course, money: You're going to need that to keep the tax man quiet for another year.
Painless1099 is a new service that, as the name implies, aims to take the hassle out of filing 1099 taxes. It's a "smart savings account" with an algorithm attached. Contractors get their clients to pay invoices into the account, which automatically deducts the right level of tax. Then Painless1099 routes the rest to a normal checking account. (Currently, it only works with direct deposit, not checks or P2P payments like PayPal).
"Where most people get in trouble in the 1099 world is in managing their tax obligations," says cofounder ACe Callwood. "The American workforce is terrible at putting aside 15% to 20% of their money and not pinching into it for various reasons. This is about getting money out of your face before you see it and want to spend it."
Callwood, who's based in Buffalo, previously created Coffitivity, which streams the sounds of coffee shops into the homes of freelancers (based on research that ambient sound increases productivity). About 400,000 people have downloaded the app alone. So it seemed like an obvious next step to develop other services for the community, Callwood says.
"The majority of our user base is freelancers, and they told us they wanted a place to belong, a way to find work, and help with invoices. They also wanted to know how to navigate health care and insurance, or save for retirement. But taxes was the thing that came up that really hadn't been explored, or that hadn't been done that well."
Plus, one of Callwood's cofounders, Matt Russo, had a personal perspective on the perils of tax season. A full stack coder, he'd earned decent money and been landed with a $15,000 bill one year. "Being technologists, it was like 'nobody has handled this well for guys like us and our audience, so why don't we build it?"
Callwood argues that the 1099 community has been generally underserved by mainstream finance and that there's a growing gap in the market. Independent contractors filed about 90 million 1099 forms in 2014, and, since the recession, the share of 1099 filings has been rising relative to W-2 filings (for traditional full-time work).
Once the bank account service is launched in the next month or two, Painless1099, which is FDIC-insured, hopes to branch out into 401ks and perhaps insurance for Uber and other on-demand workers. "Freelancers have been treated as an under-earning bunch of hippies who do work for themselves and can't get a real job. But that's not the case. Generally, they're high-earning, and they're a good demographic to look at," Callwood says.
Cover Photo: Stephen Ehlers/Getty Images