The new tax law contains a major benefit for many freelancers. It allows them to deduct 20% of their revenue from their taxable income.
This is the "pass-through" provision. It provides this deduction to sole proprietors, LLCs and and other entities that pass-through their business income to their personal taxes.
There are some caveats. There are limits to who can take this deduction and who can and can't will be unclear until the final IRS regulations are issued. This deduction also phases out starting at $157,500 of individual income and $315,000 of income for couples filing jointly.
But most freelancers who make less than these phase out levels will likely be able to take this deduction.
This is a major change from the original House bill. That proposed bill tightly limited who could take advantage of the pass-through provision. It's also more generous than early versions of the Senate bill.
But in the end the Republicans decided to greatly broaden who would get this deduction.
This deduction, coupled with new, lower tax rates means most freelancers should pay less in Federal taxes in 2018 than they would have under the former tax code.
While the tax code changes are good news for freelancers, the bill also repeals Obamacare's individual mandate. This is not good news.
The current administration seems determined to undermine Obamacare, even though they don't have an alternative. The repeal of the individual mandate will make health insurance more expensive and harder to get for those outside of traditional corporate insurance plans - meaning freelancers and the self-employed.
Older freelancers and those earning relatively low incomes will likely be hurt the most.
We'll also see an increase in health insurance "job lock" as people choose to stay with traditional jobs so they're covered under corporate health plans. This will be especially true for older Americans.
Because of the complexity of the new legislation, we urge freelancers to get help with their taxes in 2018. The leading tax software providers will be a good source of information as well as accountants and tax lawyers.
As for health insurance, all we can offer is the hope that congress will fix the mess they are creating by undermining Obamacare and the health insurance markets.
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