January 25, 2019 wagnertax


Self-employed? What the new tax plan means for you

The Tax Cuts and Jobs Act changed a few deductions for small business owners and added one big break. If you are self-employed or incorporated as an s-corp or partnership such as an LLC or general partnership, you are probably wondering how the new laws will affect your income tax liability. Many businesses are incorporating as S-corporations (Small Business Corps) to take advantage of extra tax savings on profit. Here are some important questions to ask to understand what the new tax plan means for you.

What is the 20% Pass-Through Entity Deduction?

Under the new tax code, pass-through entities can deduct up to 20% of qualified business income on their tax return in 2019. Qualified business income is your total business income minus:

  • Capital gains or losses
  • Dividends or interest
  • Annuity payments
  • Foreign currency gains or losses
  • Reasonable compensation paid to owner or partners
  • Guaranteed payments to partners for services rendered

The remaining 80% of your income, then, would be taxed at the new, lower tax rates.

Do I qualify for the pass-through deduction?

Sole proprietorships, LLCs, S-Corps, and partnerships are pass-through entities because income is essentially “passing through” the business to the owner, who claims it on his/her personal tax return. If your business is a pass-through entity, you may qualify for the deduction.

What else can I deduct if I am self-employed?

With a few small exceptions, the deductions for small business owners and self-employed taxpayers were not affected by the tax law changes. Below is a shortlist of some important business deductions you may be able to take when you file your 2019 tax return.

Marketing Expenses

Promotional materials, business cards, branding and logo design, and related costs are still deductible in 2019.

Home Office Expenses

If you run your business from home, the IRS allows you to claim a deduction for home office space. If you own your own home, this deduction can be taken in addition to the State and Local Tax Deductions.

Office Equipment

The cost of supplies used to operate your business – paper, pens, your computer, a desk, etc. – are all still tax deductible.

Business Travel

Travel costs, hotel expenses, baggage fees and other related services are still tax deductible if it is required for your work.

Meal-Related Expenses

Whether you are traveling for work or meeting a client out for lunch, your meal-related expenses are deductible up to 50%.

However, if you are spending money on entertaining your clients, those costs are no longer deductible under the new tax law.

Education and Training

You are still able to deduct the cost of additional training, classes, seminars, etc., as long as it is necessary to maintain or improve the skills you use in your business.

Professional Service and Software Fees

If you pay a professional or software to perform legal, accounting, and/or tax services related to your business, you can still deduct these expenses on your 2019 tax return.

Vehicle Expenses or The Mileage Deduction

You can still deduct automobile expenses related to your business, including part of your car loan interest, tolls, and parking fees.

Are you a rideshare driver? If you bought a passenger vehicle for your business in 2018, the amount you can deduct for depreciation increased to $18,000.

Health Insurance

If you pay for your own health insurance, you can deduct the cost of premiums paid for you as well as your spouse and your dependents. You can also deduct a portion of unreimbursed medical expenses.

Business Insurance

In most cases, you can deduct your insurance premiums for the year of coverage if they are directly related to your business. Examples of this are auto insurance, life insurance, malpractice insurance, and liability insurance.