A Guide to Understanding How TCJA Affects Taxes for Independent Contractors
Today, the Tax Cuts and Jobs Act by the administration of Trump has taken effect and this is going to impact the taxes for independent contractors. In the United States, there are more than 57 million freelancers and estimates show that more than 50 percent of the American workforce by 2027 is going to be made up of freelancers. You’ll find that freelance positions are increasing with time and now with TCJA, the growth of freelance positions is going to be accelerated. By reading this article, you’ll learn more about how the Tax Cuts and Job Act affects freelancers.
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 example, a person who was earning $100,000 had a tax rate of 28% but now it is going to be 24%. Also, the TCJA helps freelancers to deduct more from their taxable income. The advantage of the taxable income getting reduced is that the lower tax rates are going to be applied and this will provide benefits 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.
TCJA is going to be of benefit to many different people. Freelancers or independent contractors do not work for business officially. Freelancers are independent and therefore do not have the traditional boss-employee relationship. When there is a service need, freelancers are going to be called upon to fill in through a contractual relationship. Long time ago, the freelancers were mostly journalists and photographers. The independent contractors were also mostly in the service industry undertaking blue-collar jobs which include carpentry and plumbing. However, there is a shift in the freelance workforce which has been caused by the creation of gig workers that accepts work through mobile applications. Most of the independent workers are hired this way because it is easy to assign work and reduce the company’s overhead. Between 15 and 2020, it is estimated that the number of gig workers is going to double due to the rapid increase in the number of gig workers. In a nutshell, the changes to the taxes for the independent contractors is going to accelerate the growth in this industry. If you want to discover more about the impact of Tax Cuts and Job Act on the independent workers community, ensure that you click here.