While the merits and drawbacks of the Tax Cuts and Jobs Act are subject to constant debate on cable news networks and at water coolers around the country, experts from both sides of the political aisle agree the bill was designed to create significant tax cuts for corporations and wealthy individuals. However, if you look closer, the law also contains potentially valuable tax cuts for independent contractors and the self-employed.
Keep reading to learn how you could potentially save big or even increase your refund this tax season if you’ll be filing as an independent contractor or a self-employed individual.
The State of Independent Contractors in America
According to the Bureau of Labor Statistics, self-employment rates are on the decline, but this conclusion might be due to improper or inaccurate reporting on behalf of contractors and other self-employed individuals.
A 2015 study conducted by faculty members from Harvard and Princeton found that 8.4% of American workers are independent contractors. The same study found that “online intermediary” workers (those who earn extra money by doing things like driving for Lyft or delivering for Postmates) account for less than 1% of the American workforce, but the study also noted this number continues to rise steadily. In fact, the tax software company Intuit estimates that the self-employed segment of workers will nearly double by 2020, which means the Tax Cut and Jobs Act could have a significant impact for almost 8 million workers in less than two years.
On the surface, more independent contracting opportunities seems like a good thing for American taxpayers, but when you dig deeper, the situation appears more problematic. Traditional employers would rather hire independent contractors because they’re cheaper to employ, don’t require employment benefits, and more expendable than full-time employees. Some experts are concerned that employers are intentionally misclassifying workers as contractors to save on labor costs while making those “contractors” adhere to the strict work schedules that should characterize an employee relationship.
New Law Creates Tax Savings for Independent Contractors
Due to the controversy and debate surrounding the new tax law, most of which has centered around the tax breaks for corporations and wealthy individuals, many of the finer details have been overlooked. And if you earn income as an independent contractor, one of those details could potentially provide a substantial boost come tax season whether you’re a self-employed full-time freelance financial consultant or you drive for Lyft on the weekends to help make ends meet.
The Tax Cuts and Jobs Act allows most independent contractors to deduct 20% of their income when filing their income taxes. In addition, the new tax rates recently signed into law could create a significant boon for individuals who make $38,700 or less per year or married couples filing jointly who make less than $77,400, as their taxable rate under the law is just 12% or lower.
The law does restrict which taxpayers can take the full deduction based on income. Individuals who make $157,500 or more per year and married couples filing jointly who make more than $315,000 might still receive a limited deduction, but the percentage will likely vary based on their exact income.
Contact S.H. Block Tax Services to Learn More About Potential Tax Savings
Regardless of your income source or status, S.H. Block Tax Services may be able to help you save on taxes or increase your refund this coming tax season, and we also offer valuable tax liability resolution throughout the year. We have earned an A+ rating with the Better Business Bureau, and we offer free consultations where we can diagnose your current tax situation and offer potential solutions at no cost to you. To learn more, please call (410) 793-1231 or complete this brief online form.
Tax season will be here before you know it, and it’s important to pay close attention to your finances throughout the year. So, if you’re looking to get ahead of the curve and put yourself in a strong financial position, please reach out today!
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