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Finally, Some Good Tax News!


By now you’ve heard that your 2018 tax return will look much different due to the Tax Cuts and Jobs Act (TCJA), the massive tax law passed by Congress in December of 2017. The standard deduction has nearly doubled, personal exemptions have been eliminated, the child tax credit is worth twice as much, and itemizing will be a thing of the past for most taxpayers. These changes have received much attention in recent months, but there is another big change brought about by the TCJA that hasn’t gotten as much notice even though it can benefit many taxpayers.


We’re referring to the new 20% deduction for qualified business income. This includes pass-through income which is qualified business income that is not subject to corporate income tax because it “passes through” to a taxpayer’s individual tax return. Businesses, including S-corporations and LLCs taxed as partnerships, have pass-through income flowing to the owners. However, many taxpayers who file a Schedule C due to having business income, perhaps from a side gig, will also benefit from this new deduction.


Do you sell Mary Kay to your friends? Do you sell craft items on Etsy? Are you a musician who gets paid to judge competitions? Do your friends rely on you to supply them with cute jewelry? In short, do you get paid for doing something that qualifies as a business as opposed to simply being a hobby? (If you’re not sure if your activity is a business or hobby, this article can help you decide.) If the answer is yes, you have income that may qualify for the new 20% deduction!


Schedule C must include all business-related income. Some taxpayers will receive a 1099-Misc or 1099-K, but everyone is required to include all business income whether these documents are received or not. Be sure to keep track of allowable “ordinary and necessary” business expenses, since you can deduct qualified expenses to arrive at your net business income. These expenses might include such things as dues, advertising, professional fees, mileage, and other related costs of doing business. Being able to deduct these expenses is an advantage Schedule C gigs now have over W-2 jobs, because employees can no longer deduct unreimbursed job expenses.


Many taxpayers will be able to deduct 20% of their net qualified business income on their tax return. Of course, there are some restrictions and income limitations you’ll want to check into before taking this new deduction, but the good news is most of our clients who have casual side gigs will benefit from it. You’ll still owe Self-Employment taxes on your Schedule C net income, and if your income is substantial, you’ll still need to consider making estimated quarterly payments to avoid an underpayment penalty at tax time. Is all of this too confusing? Give us a call and we’ll help you out! But in the meantime, enjoy knowing that the TCJA includes a new deduction that can really pay off for anyone with a side gig!








Down South Accounting & Tax


Tel: (252) 364-2900

Fax: (252) 364-8933

 

Email:  kspruill@downsouthtax.com

             ddavis@downsouthtax.com

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             Greenville, NC 27858

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