A Guide to Understanding How TCJA Affects Taxes for Independent Contractors
Due to the recent passage of the Tax Cuts and Jobs Act by the Trump administration, there will be an impact on the taxes for independent contractors. More than 57 million freelancers exist in the United States and will make up to 50 percent of the workforce by 2027. You’ll find that freelance positions are increasing with time and now with TCJA, the growth of freelance positions is going to be accelerated. In this article, you will discover more about how freelancers are affected by the Tax Cuts and Job Act.
It is important you know that TCJA lowers the tax rates in each income bracket. This means that the tax authorities are going to take less of your money in the form of taxes. For instance, you will pay a 24% tax rate if you earn $100,000 today which was previously 28%. Also, the TCJA helps freelancers to deduct more from their taxable income. When the taxable income is reduced, the lower tax rates will be applied and results to a tax benefit to independent contractors. You’ll find that for example if an independent contractor was earning about $45,000 each year, the changes in the tax code will help them to save up to $1000.
You will realize that the TCJA is going to be beneficial to a variety of people. Freelancers or independent contractors do not work for business officially. Freelancers are independent and therefore do not have the traditional boss-employee relationship. Freelancers only enter into a contractual relationship with customers who are looking to fill a service need. Journalists and photographers were the main occupations that comprised the freelance workforce in the past. Also, you would find the independent contractors in the service industry in blue-collar jobs such as plumbing and carpentry. After the introduction of gig workers, there has been a shift in the freelance community since work is accepted through mobile apps. This is proving to be a common way of hiring independent workers because it reduces the company’s overhead and it is easy to assign work. The number of gig workers has been rapidly increasing and we will have a doubling of the number of gig workers from 2015 to 2020. Due to the changes in taxes for independent contractors, is going to be a growth in this industry. Be sure to check out this page if you want to find out more information about the impact of Tax Cuts and Job Act on independent workers.