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With just a few weeks left to file your freelance taxes, there’s no time to waste when it comes to completing your return. Given all of the changes that the Tax Cuts and Jobs Act (tax reform) has brought with it, you may be left feeling unsure about how tax deductions and tax credits will impact you now. Here are some pointers to help clear up the most common areas of confusion about tax exemptions, deductions and credits. Personal tax exemptions are eliminatedOne of the line items on your return where you are likely to see some of the biggest changes is that related to the personal tax exemption. Up until the 2018 tax year, you could claim a personal exemption of $4,050 for yourself, your spouse, and each of your dependents. Under tax reform you cannot claim a personal exemption any longer. However, the new tax laws have introduced a much larger standard deduction which may indeed offset this loss for many freelancers. Standard deductions are increasedThere is now a standard deduction of $12,000 per individual taxpayer ($24,000 for married taxpayers who file jointly). This is notably larger than both the previous standard deduction of $6,350 per individual or $12,700 for married taxpayers who filed jointly, and the now defunct personal exemption. Where the confusion may come in is when you try to decide if you should take this standard deduction or itemize your deductions. While experts estimate that less than half of all American taxpayers itemize their taxes, for some people it is an important way to lower their tax obligations. This may be especially true if you are a freelance business owner who has significant expenses to deduct. If your eligible deductions exceed the new standard deduction, then it may pay for you to itemize. If they don’t then, you are likely best off just sticking with the standard deduction. Changes to dependent tax creditsIn most cases, the qualifying rules for dependents remain the same as they were before the TCJA. If you are a freelancer claiming dependents on your tax return there are some important updates to tax credits under tax reform that you should note:
In conclusionWith all of the changes tax reform brings to exemptions, deductions, credits and other areas, you may find that completing this year’s return may be a little more challenging than previous years. If you haven’t already started working through your tax return, don’t postpone it any longer (Netflix will always be there once your return is filed). If you need help, consider reaching out to a tax professional — but be aware that they may advise you to file an extension depending on how complex your return and your tax situation is. Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He offers a free consultation to members of Freelancer’s Union and a monthly email newsletter covering tax, accounting and business issues to freelancers on his website, www.cpaforfreelancers.com — which also features a new blog, how-to articles, and a comprehensive freelance tax guide. Jonathan is happy to provide an initial consultation to freelancers. To qualify for a free consultation you must be a member of the Freelancers Union and mention this article upon contacting him. Please note that this offer is not available Mar. 1 through April 18 and covers a general conversation about tax responsibilities of a freelancer and potential deductions. These meetings do not include review of self-prepared documents, review of self-prepared tax returns, or the review of the work of other preparers. The free meeting does not include the preparation or review of quantitative calculations of any sort. He is happy to provide such services but would need to charge an hourly rate for his time. via Freelancers Union Blog https://blog.freelancersunion.org/2019/03/22/know-these-tax-exemptions-deductions-and-credits-before-you-file/
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AuthorI have 5+ years experience working as a medical transcriptionist. When I am not working, I enjoy sports like playing basketball or judo. I love making friends and connections. Archives
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