deductions

2018 Self-Employed Tax Changes

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There are a few big tax changes in 2018 for self-employed individual and small businesses with the passage of the Tax Cuts & Jobs Act , and here at Everlance we wanted to make sure we addressed them so you can be ready when it comes time to do taxes this year.

After all, self-employed individuals and micro-businesses (10 or fewer employees) make up 76% of all small businesses and the bulk of Everlance customers!

Self-Employed Tax Change Highlights

  • Lowered individual tax brackets
  • 20% Deduction
  • $1m Equipment Deduction
  • Simplified Filing

Lowered Individual Tax Brackets

Let’s kick this off with a general, but very important change – lowered tax brackets for individuals. While the 7 bracket structure was ultimately retained, the general percentages have been lowered for most brackets.

Marginal Tax RateSingleMarried Filing JointlyHead of HouseholdMarried Filing Separately
10%$0 - $9,525$0 - $19,050

$0 - $13,600

$0 - $9,525

12%$9,525 - $38,700$19,050 - $77,400

$13,600 - $51,850

$9,525 - $38,700

22%$38,700 - $93,700$77,400 - $156,150

$51,850 - $133,850

$38,700 - $78,075

24%$93,700 - $195,450

$156,150 - $237,950

$133,850 - $216,700

$78,075 - $118,975

32%$195,450 - $424,950
$237,950 - $424,950
$216,700 - $424,950

$118,975 - $212,475

35%$424,950 - $426,700
$424,950 - $480,450
$424,950 - $453,350

$212,475 - $240,025

37%Over $426,700
Over $480,450
Over $453,350

Over $240,025

20% Deduction

This is the real winner. Self-employed people like you are going to be able to take 20% of your gross income right off the top! How does this play out? Here’s an example.

Self-Employed Company X
Taxable Income:
$100,000
2017 Rules:
Claim $100,000
2018 Rules: 
Claim $80,000

In this instance that’s a savings of $20,000!

The government is hoping that this 20% savings is going to go back into small businesses, creating more jobs, bonuses, pay hikes which ultimately provides more taxable revenue (as a result of more people having jobs). It’s a win-win for now.

For those of you that are self-employed that own a service-based business, such as consulting, legal, tax prep, .etc – be aware that there is a limit to this 20% deduction based on filing either single, or married/jointly.

Service-Based Business Threshold (Single): $157,500

Service-Based Business Threshold (Married/Joint): $315,000

This ceiling was created to curb potential abuse, so it’s a great thing to have in place, you just need to be aware of it.

$1m Equipment Deduction

While the higher limits on this deduction may not apply to most self-employed individuals, you can now take an extra $500,000 in deductions on purchases of equipment. There are obvious restrictions, but for the most part you’ll get double the deduction if you qualify.

The phase-out deduction has been increased to $2,500,000 from $2,030,000 in 2017.

Doubled Standard Deduction

In 2017 you were allowed to take a $6,500 deduction, and now in 2018 that number nearly doubles to $12,000 for a single filer.

What does this mean? This means that instead of that time-consuming itemizing you would normally do for expenses over the standard deduction ($6,500) you now have an extra $5,500 you can add without itemization. That’s $5.5k less itemizing!

Here’s the complete breakdown of deductions by filing status.

Filing StatusPrevious Deduction2018 Deduction
Single$6,500$12,000
Married Filing Jointly$13,000$24,000
Married Filing Separately$6,500$12,000
Head Of Household$9,350$18,000

Simplified Filing

What does this mean? Well, for the average self-employed individual it could mean a savings of 100+ hours. The average amount of time spent dealing with taxes is estimated at over 160 hours, and thanks to a few new tweaks to the code – filing taxes should get a little bit easier for you.

The standard deduction increase was aimed squarely at reducing time itemizing and ultimately, it should shave off a bunch of time you spend every year filing taxes.

 

Self-Employed Mileage Tracker

Don’t forget that one of the best ways to save on taxes as a self-employed individual, freelancer or small business is to maximize your deductions.

Everlance does a seamless job of automatically tracking your company mileage, adding your expenses and even revenue (if you have it) to create a complete picture of your self-employed finances.

When it’s tax time, simply export your data and import it into your favorite tax software (like TaxAct) or give it to a tax preparer.

It’s really that easy!

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Dan Trapp is a longtime Internet marketer that works on Content @Everlance. When he's not busy tapping keys for the Everlance blog he's attempting to convert clicks into happy users.

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