Last updated on July 12th, 2018 at 11:22 pm

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.

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.

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 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!