With the new Donald Trump tax plan, you might be wondering what tax write-offs you can take advantage of as a self-employed entrepreneur. The Tax Cuts and Jobs Act (TCJA) is a major piece of legislation that could slash both corporate and individual tax rates — as a small business owner, that means you can expect a lower tax burden.
Since this major piece of legislation is overwhelmingly complex and the biggest overhaul of the tax code in three decades, we’ll give you the short version here. Keep in mind that there will be hundreds of changes still to come — the legislation is nearly 500 pages long, after all!
For now, here are the 2018 small business tax breaks you can expect:
Adjusted Tax Brackets for Individuals
There will still be seven different tax brackets, but the rates will be lowered and the income levels will be changed. These changes are slated to end in 2025. You can check out the changes for single filers here and married couples here.
Businesses Can Fully Deduct Expenses in a Given Tax Year
Instead of only deducting business expenses up to 50 percent, from 2017 to 2022 businesses can fully deduct expenses in a given tax year, according to Business Insider. This means that small business owners will no longer have to spread out tax write-offs over a given number of years with a set depreciation schedule. After 2022, the expensing rate for businesses decreases to 20 percent per year.
Elimination of the Affordable Care Act Tax Penalty
If you’ve had to pay a tax penalty for not having health insurance, you’ll appreciate this one. The TCJA would get rid of the tax penalty for those who do not have health care, which includes many self-employed entrepreneurs who don’t purchase private insurance. For the 2017 tax year, the penalty is 2.5 percent of your total adjusted gross income, or $695 per adult and $347.50 per child, up to $2,085.
Reduced Corporate Tax Rate
The corporate income tax rate will be reduced from 35 percent to a flat 20 percent. That’s right: the rate will be reduced by 15 percent. However, this won’t go into effect until 2019. According to Forbes, this would reduce net corporate taxes by about $600 billion over the course of 10 years, and most of the benefit would go to the nation’s highest-income households.
Standard Tax Write-Offs
If you’re self-employed, you can still expect to write off standard deductions such as your retirement savings, health care insurance, insurance premiums, legal and professional service fees, office supplies, home office, and business-related expenses for travel, food and entertainment. (You can see a list of tax deductions for self-employed folks here.)
Lower Tax Rates for Pass-Through Businesses
Pass-through businesses such as LLCs and S Corps will be able to deduct up to 23 percent of their revenue from taxable income. However, note that professional service firms (e.g., accounting firms) aren’t eligible for this lower tax rate.
If you’re interested in forming your business as a pass-through entity to take advantage of the lower tax rate, contact an Incfile representative to learn more about how to structure your company as an LLC or S Corp.
Note: This information is accurate as of December 11, 2017, and does not reflect any changes made to the legislation since that date.