Chances are, if you’re self-employed, you’ve already heard about some major tax changes. While you’ve probably picked up on the buzz by way of the news or social media, there’s a lot of mystique around this recent upheaval.
The Tax Cuts and Jobs Act has certainly caused quite a bit of trepidation among business leaders of all sizes, particularly those who find themselves on the small business or self-employed side of the spectrum. You can still take certain tax deductions, but others are now out of the game.
So, how does all this change impact you as a self-employed business owner? Our Arizona business accountants are on the case!
Major Changes Arising from the 2018 Tax Cuts and Jobs Act
Self-employed business owners have a lot to look forward to when tax time rolls around again. Whether you file monthly, quarterly, or yearly statements with the government, there are a couple major changes that will likely affect your income in a positive way:
- Excluding Up to 20 Percent of Your Income from Taxes. As a self-employed business owner, you may be able to exclude up to 20 percent of your income from taxes. This idea is founded on the Qualified Business Income (QBI) Deduction, which was once only in place for the purpose of giving corporations tax breaks. As of the recent tax changes, you’re eligible for this deduction also, if you’re a sole proprietor, owner in a partnership, or investor in an S-corp. There are specific details related to this deduction, however, so it’s best to speak with a professional tax professional before you file.
- Enjoying a Nearly-Doubled Standard Deduction. The standard deduction is now $12,000 for single filers and $24,000 for married filers. That means you have to do a whole lot less receipt-keeping if you’re spending less than $12,000 (or $24,000, respectively, on itemized personal expenses.
Deductions that Ring True to Self-Employed Business Owners
Amidst the confusion, a lot of good has come out of these tax changes, at least as far as self-employed business owners are concerned.
- You Can Still Deduct Your Home Office. As long as your home desk is your principal place of employment, this deduction is all yours. It just can’t be used for any purpose other than business. Consult your tax professional if you’re unsure.
- You’re Still Afforded Mileage, Contract Labor Costs, Bank Fees, and Ad Expenses. The key here is to keep your receipts. Nothing has changed regarding the costs incurred for doing business. You just have to be able to backup your claims.
What to Watch Out for When Filing 2018 Self-Employment Taxes
Taxes have their pitfalls. (We’re sure you’re super surprised!) Here are a few things you should be aware of if you’re self-employed:
- You’ll Still Owe Self-Employment Tax. When you’re self-employed, the IRS sees you as both an employer and an employee. Double whammy! You’re responsible for both contributions to Medicare and Social Security from both sides, but you can write off the “employer contribution” portion.
- You’re No Longer Penalized for Not Having Healthcare. In the past, health insurance was once place self-employed people chose to forego in favor of saving cash. While you’re no longer penalized for not having health insurance, this is one expense you probably shouldn’t skimp on. You never know when you’ll need it.
No tax law is ever cut-and-dry, but recent changes in legislation are tilted toward small business owners and self-employed professionals. While this may change in the future, it certainly benefits you to seek professional tax advice to ensure you’re cashing in on the savings while they’re available.