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. There are over 57 million freelancers in the United States and will become more than 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. By reading this article, you’ll learn more about how the Tax Cuts and Job Act affects freelancers.
With TCJA, you’re going to enjoy lower tax rates in each income bracket. With the TCJA, you will realize that you will pay less money to the tax authorities. 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. With the recent changes in the tax code, if a freelancer was earning $45,000 each year, they are going to save up to $1000.
TCJA is going to be of benefit to many different people. In most cases, freelancers or independent contractors are not recognized as official workers of a business. Freelancers are independent and therefore do not have the traditional boss-employee relationship. Freelancers operates in terms of a contractual agreement with the clients that want to be helped in executing a certain service. In the past, most of the freelancers were mainly composed of journalists and photographers. Also, you would find the independent contractors in the service industry in blue-collar jobs such as plumbing and carpentry. When the gig workers was created, there was a shift in the freelance workforce that accepted 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. 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. This industry therefore is going to experience a growth due to the changes in taxes for the independent contractors. 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.