No matter what your partisan affiliation, the new Tax Cuts and Jobs Act, signed into federal law just under the wire last year, makes for big changes in your monetary relationship with the government. Freelance and contract workers have a lot at stake, especially in an already tight gig economy. On paper, some parts of the new law might seem promising, but there's a big caveat to all these reforms.
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Jonathan Medows is a certified public accountant in New York City. He wrote up a point-by-point analysis of the TCJA for the Freelancers Union blog, shared Thursday. Certain provisions do seem written with freelancer' interests in mind. For instance, increases in the standard deduction may help simplify filing for you, or "the 20 percent qualified business income deduction for pass-through entities such as partnerships, S-corporations, and sole proprietorships," per Medows.
But skeptics warn of pitfalls. Lots of deductions are going away, including the ability to write off business outings as expenses (think taking a client to dinner); even bigger is the loss or dramatic reduction of deductions for moving for a job, many home costs, and last but not least, state and local taxes. The real kicker, however, is probably the kneecapping of the Affordable Care Act. The ACA, or Obamacare, proved pivotal in allowing many small business owners and freelancers to start their own businesses. By removing the individual mandate, which levies a tax against those who choose not to buy health insurance, the TCJA removes a huge impetus for insurers to offer low-cost plans.
Many portions of the law are set to expire in 2025. Either way, if you want to talk to a tax professional this year, forewarned is definitely forearmed.