Another year, another tax season. Taxes can be stressful for even the most tax-adept individual. Deductions. Exemptions. Tax credits. You’ve probably been dealing with taxes for years, but it’s just as bothersome as the first time.
With the new tax bill put in place January 1, 2018, taxpayers will see some changes in their return, but most affected will be the self-employed, a category many third-party planners find themselves in.
With the help from tax experts at Nerdwallet and TurboTax, here are five tax deduction tips to help planners (and everyone else) lessen the stress and heighten the returns. If you have any specific questions, you should always consult with a professional.
Self-employment Tax Deduction
According to the IRS, when you are self-employed, you are both the employer and the employed, making you responsible for both the employer and employee tax contributions to Medicare and Social Security. The good that comes out of this is that—under the new law—50 percent of what you pay in self-employment tax is deductible.
Qualified Business Income (QBI) Deduction
Self-employed taxpayers have a new deduction that assists small businesses with pass-through income. Sole proprietorships, partnerships and S corporations may deduct up to 20 percent of QBI.
If you meet the requirements outlined in the “Business Expenses” section of the IRS Publication 535, you may be able to deduct premiums for you and your family. The new tax law no longer penalizes those without health insurance from 2019 on. However, as it was still required in 2018, it still must be filed this tax season.
The deduction for automobiles has increased for cars used for business. Self-employed and employees driving for business can use the standard mileage rate, which for 2018 is 54.5 cents per mile, up from 53.5 cents per mile in 2017.
Itemize or Standardize
The self-employed will likely have a lot to itemize. Standard deduction is a fixed amount that you’re allowed to deduct from your AGI, depending on your filing status. Itemizing lets you cut your taxable income down by listing the hundreds of individual tax deductions that you qualify for; it’s time consuming, but could potentially save you a lot of money.
The amount you’re able to deduct from your standard deduction this tax season is double what it was during last tax season. This time around, you may find bigger savings if you take the standard deduction.
Reminder: Pay on Time!
Filing taxes is one those things that’s often put on the backburner, but the delay could cost you. If you file late, the IRS will issue a late-filling penalty of 4.5 percent and late-payment penalty of 0.5 percent per month for as long as the tax is owed. If you absolutely can’t file, consider filling a Form 4868, which will give you a six-month extension to October 19, 2019.