8 Things Entrepreneurs And Freelancers Need To Know About The New Trump Tax Law

8 Things Entrepreneurs and Freelancers Need to Know About the New Tax Law

It’s been almost a year since President Trump signed the Tax Cuts and Jobs Act of 2017. We’ve not seen such a massive overhaul of the tax code in over 30 years. Change of this magnitude creates inevitable upheaval in any business.

Entrepreneurs and freelancers experience nothing different. Everyone is on edge about the new tax law. Questions crop up like “am I paying too much into my quarterly taxes?” or “what if I’m not paying enough?” Nobody likes surprises on tax day.

And really, who has time to pour over 10.1 million words of tax code? Certainly not a busy entrepreneur. That’s why in the next few paragraphs we’ll outline exactly what entrepreneurs need to know in order to get the most out of their taxes this year.

1. Equipment Depreciation is Accelerated

Before the 2017 tax law, a startup needed to depreciate the cost of their equipment over its lifespan. You would then use that calculated amount when deducting equipment cost.

Under the new law, you can now deduct up to one million dollars in equipment in the very first year. This is nearly double the amount you could deduct before the tax law came into effect.

If you’re building a startup with significant equipment costs, this is good news. Until 2022 when the benefit phases out, you will see considerable tax savings.

2. Reduction for S-Corporations and LLCs

If you own an LLC or an S-Corporation, we’ve got some good news. You might qualify for a 20% deduction on business income. Your business can’t be listed on the exclusions and you should research whether yours is there before claiming this deduction.

But generally, the excluded services include athletics, financial services, brokerage services, consulting, health, and law. Fortunately, some businesses excluded can still take advantage of this change. If their income is less than $157,500 for single filers and $315,000 for joint filers, they can take advantage of the 20% reduction.

3. Even Lower Taxes for C-Corporations

If you run a startup and are raising third-party capital, you’re most likely running a C-Corporation. C-Corporations used to incur a 35% tax rate. With the new tax law in place, they will only be taxed 21% of earnings.

If you aren’t actually making income right now, you won’t notice the change. But if you’ve been at the startup game for a while, you’re likely starting to see black. This means you’re going to benefit from the new tax law in 2018.

4. No More Vegas Shows For You

If you treated your entire team to a Cirque Du Soleil show last year and deducted the expense on your taxes, you’ll be disappointed this year. Entertainment expenses are no longer something you can deduct.

This is a sad day for employees across the country. They will notice their boss is no longer treating them to quarterly NFL games.

Transportation is another deduction that got the ax this year. You can no longer provide employees with transportation to and from work and deduct the expense from your taxes.

5. Freelancers Still Get the Home Office Deduction

Freelancers have been able to deduct a percentage of their home expenses if they worked from home. This hasn’t changed for freelancers.

Unfortunately, if you are employed and not a contractor, even if you work remotely, you can no longer take advantage of this. You are considered an employee, and your employer is now expected to provide some sort of compensation for your office costs.

6. Increased Standard Deductions for All

This is not limited to startups, entrepreneurs and freelancers. The standard deductions have gone up across the board.

Single filers can now deduct $12,000 automatically whereas they could only deduct $6,350 last year. And those filing jointly can deduct $24,000 whereas they could only deduct $12,700 last year.

The bad news is that itemized deductions will decrease this year. You can’t itemize if your other deductions don’t exceed the standard deduction. Last year, anyone filing jointly could deduct $20,000. They can no longer do this.

7. SALT in the Wound

If you pay attention to the news, you likely heard about this provision. SALT stands for “State and Local Taxes.” This provision caps the deduction for state income taxes and any local income taxes, even property taxes.

The cap sits at an obscenely low $10,000. Any SALT over that is no longer deductible. This essentially punishes property owners. And if you bought an office for your startup, you’ll be paying more taxes this tax season.

8. Fewer Entrepreneurs Caught in AMT Trap

Previously, if entrepreneurs exercised incentive stock options, they would get hit by the alternative minimum tax. This would erase any gains they received from their stock options.

From now going forward, the act essentially raises the exemption amount by a good 30%. This gives more entrepreneurs leeway to avoid the AMT trap.

Uncertain Times

Those who implemented the new law claim it will ultimately benefit everyone. It’s still to be seen whether the new law increases or decreases the tax burden on freelancers and entrepreneurs.

For now, the best course of action would be to increase your payments so you don’t avoid a penalty this next year. If you hire a tax professional, be sure to drill them with questions before they finalize your tax documents.

Don’t Forget Your Free Book! Speaking of finance books, don’t forget to get your free copy of my book: Financial Freedom on a Full ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.