If you are a freelance worker, you may have come to expect certain tax deductions from past tax filing seasons. However, the Tax Cuts and Jobs Act of 2017 has gone away with many of the regular tax deductions that freelance workers have experienced in past years. Due to the many changes, it is best to contact a tax professional to ensure that you are not missing out on other new tax deductions available. In the meantime, here are nine tax deductions that have disappeared as a result of the Tax Cuts and Jobs Act.
1) Unlimited State and Local tax deductions
Under the new law, the maximum amount for state and local deductions is $10,000. Shaun McClung, a Florida based tax manager director, argues that this altered tax deduction is going to hurt middle class taxpayers and taxpayers in states like California and New York, whose state income and property rates are above the average, the most.
2) Personal Exemptions
The new tax reform law actually increases your standard deduction. However, this is replacing the $4,050 in personal exemptions for each dependent. The increased standard deduction attempts to make up for the loss in personal exemptions, but there is a chance the standard deductions won’t make up for the loss entirely.
3) Unrestricted deductions for home equity loan interest
Unlike in the past where the loans could be used for travel or debt consolidation, this deduction is no longer viable unless the loan is being used to “buy, build, or substantially improve” the home that the loan is secured on.
4) A Mortgage Interest Deduction of Debt up to $1 Million
If the mortgage transaction came after January 1, 2018, the deduction for mortgage interest is now capped at $750,000. If the mortgage was taken out prior to January 1, 2018, you are still able to deduct the interest up to $1 million. Again, this change affects those in states such as California and New York.
5) Deductions for Unreimbursed Employee Exemptions
If you are both a freelance worker and employed, you are no longer able to deduct unreimbursed purchases made in relation to your job. In 2017, taxpayers were able to deduct any amount that exceeded 2 percent of their adjusted gross income in 2017.
6) Other Popular Itemized Deductions
In 2017, taxpayers could deduct advisor fees and tax preparation fees. Other disappearing miscellaneous deductions are those costs related to tax preparation services, investment fees, professional dues, qualified employee education expenses, among others on a long list of other previously approved items.
7) A Deduction for Moving Expenses
The deduction for moving expenses has now been erased for practically all jobs, other than military members who are required to move.
8) Unrestricted Deductions for Expenses Related to Natural Disasters
If you were affected by a Natural Disaster in 2018, you are no longer able to deduct any losses that were not covered by insurance. This deduction now only applies to those who live in designated danger zones.
9) Alimony Payment Deductions
For divorces finalized after December 31, 2018, deductions for alimony payments are no longer be available.
You promised yourself 2018 was going to be different. You were going to be organized this year – all your receipts would be scanned in that fancy new scanner you bought yourself in April and all your accounts would be reconciled at the end of each month. Instead, spring and summer come and go faster than your daughter’s data plan minutes and suddenly you wake up on November 1st and realize that your receipts are in 5 different shoe boxes – 2 in the garage, one under the bed, one in the kitchen, and the other under your son’s lacrosse sticks in the trunk of your car. All is not lost. Take a deep breath. Do not fret and follow these 5 steps to get your books in order.
- Let’s Get You Organized
Before you can get started you need to go on a search and rescue mission of all your documentation from 2018. Once you have retrieved all your paperwork – separate by Income vs Expenses. Then separate both piles by month.
- Let’s Get Your Book Keeping Up to Date
Next step is to get your bookkeeping up to date. Hopefully you already have General Ledger created. Now it’s time to ensure that each transaction is listed and accounted for – whether you do this yourself or hire a Bookkeeping Service (like Yield Bookkeeping) to help you get your ledger updated, it needs to be done. Once your General Ledger is completed then either you or your Bookkeeper can create a P & L Statement (Profit & Loss). The P & L will assist you delving deeper into your financial health, and help you determine where to cut expenses, make investments, and project costs.
- Let’s Calculate Your Income
Now you are ready to calculate your revenue from 2018. Did your revenue increase or decrease? Did your expenses increase or decrease? Once you are able to see where you stand on your income and expenses you can start working out your tax liability for the year.
- Let’s Review Deductions
This is where you may need help from a tax professional. 2018 brought several new tax laws with the implementation of the Tax Cuts and of Job Acts of 2017. These changes will most likely affect the way your deductions. Here are some examples:
- 21% Corporate Tax Rate
- Entertaining clients is no longer tax deductible
- The act allows for 100% for expensing for business property acquired and placed after September 2017 and before January 2023
- And so much more – we highly suggest consulting a tax professional to help you maneuver through these new laws
- Let’s Get Help
If you didn’t notice – one of the main themes of this article – only second to staying organized is that we feel passionate that small business owners seek professional help when it comes to their Bookkeeping and Tax needs. We know how much it takes to run a successful small business (we run one too!), and we want you to focus on the things you know and let us take care of your books. We know that you are hero and that your cape tells you that you can do it all, but even Batman needs Robin – and even the most successful small business owner needs a bookkeeper. Call us – YOU CAN COUNT ON US!
Preparing For Year End
Please make sure that all W9’s for any contractors you hired this year are filled out and sent to your account manager so that we can prepare your 1099’s.
If you had your 1099s completed last year by Yield we will automatically move forward on them for 2018.
If you did NOT have your 1099s completed before by Yield please email your account manager to let them know if you’d like us to prepare them.
The due date for W9’s is December 31. 1099s are $2 each + the time it takes to do the research and compile them. Usually its under an hour.
Due to the super busy month of January we will need all information to reconcile your accounts through Dec 31 by the first week of January.
1099s are due January 31. Preparation for those cannot happen unless your books are closed for the year.
For most companies it makes sense to buy big ticket items before year end.
If you were already thinking of a purchase of an asset or anything that you need for your business, anything paid before Dec 31 will be included as a deduction for 2018 taxes.
Yield Bookkeeping Services™ has teamed up with one of our CPA partners, The Anderson Group, to complete our clients tax returns if they desire.We have worked with Mike Anderson for many years and he comes highly recommended. firstname.lastname@example.org | 703-281-5212
We would love your referrals!
Any client that refers a business to Yield will receive $100 credit on their next invoice!
Once the new client signs our proposal you will automatically receive the credit.
We appreciate your business!
And lastly, please stay tuned for an end of the year survey to give feedback on our services! We appreciate all of you so much and thank you for putting your trust in Yield. We wish you and your families a safe and happy holiday season!
Here is to a prosperous new year in 2019!
Check out Yield Bookkeeping Services!
The ballot is now open for the Best of Loudoun 2019 poll. Cast your votes for your favorite people, places, businesses and events in Loudoun County.
Vote for your favorite people, places, and business in Loudoun County!
Here’s How it Works:
This year, voting will take place in two rounds. The nomination round runs from November 12 to December 2.
The ballot is initially populated with last year’s winner and runner up in each category. As nominations are received, entries with a minimum number of write-ins will be added to the ballot. If your favorite is already on the ballot, you must still vote for them to help them move to the finals.
Up to ten finalists in each category will be selected by popular vote and the final voting round runs from December 10 to December 31.
Limit one ballot per person over the age of 13. Ballot stuffing, including the purchase of votes through third parties and the use of voter bots, is expressly prohibited.
Entrepreneurs keep a lot of the financial details of their business in their heads. Doing so has its advantages: No new software to learn, no danger of a system crash that loses all your data, and you can tweak your budget as often as you need without sitting down at a desk.
But when you don’t have a system and some processes in place, unpleasant surprises can pop up, goals can be easily missed and important paperwork forgotten. Getting a better handle on your money can help you to make and keep long-term goals, smooth out the seasonal ups and downs of your cash flow and maybe improve your profits. It can also help you to stay out of trouble with the Internal Revenue Service.
Here are five bookkeeping tips for entrepreneurs.
1. Plan for major expenses.
Why it’s helpful: You’re less likely to miss business opportunities or have to scramble for a loan when the expenses become unavoidable.
What to do: Put events like a major computer upgrade on the calendar a year in advance or, ideally, three to five years ahead. Acknowledge the seasonal ups and downs, something many entrepreneurs are reluctant to do.
“This helps you to be honest about the fact that it’s coming and plan for it,” says James LeMay, a director with the accounting firm Daigle & Associates in Boston.
You’ll avoid taking money out of the company during the flush periods only to find yourself short in the slower months, when costly projects like upgrading computers or replacing factory components usually happen.
2. Track expenses.
Why it’s helpful: You otherwise might some miss tax write-offs and may lose out on others.
What to do: A credit card that you use solely for business can be a basic accounting system, says Raffaele Mari, an accountant in Newport Beach, Calif., who teaches a financial course for entrepreneurs at Pepperdine University.
Most card statements categorize expenses, so you can see which outlays relate to which business activities. If you always use your business credit card for business expenses, you’re less likely to pay cash at, say, Staples and lose the receipts, forfeiting tax-time write-offs. Pens and printer paper can add up.
Additionally, Mari says, routinely jot down business trips, lunches, coffee dates and other events with cash outlays in your electronic or paper day planner. This habit can go a long way toward substantiating those items for your tax records in the event of an audit.
Related: How a Banker Sees Your Financial Records
“Often on tax returns, those numbers are too round. No one drives exactly 5,000 miles for business in a year, so the IRS knows this is an estimate,” Mari says. “In an audit, if you can’t substantiate those numbers, the whole category [of write-offs] can get thrown out.”
One of his clients provides a link to a Google map for each trip instead of trying to remember to note the mileage for every trip he takes on his odometer. That data, along with a day planner recording the trip, are usually enough record keeping to satisfy the IRS, Mari says.
3. Record deposits correctly.
Why it’s helpful: You may be less likely to pay taxes on money that isn’t income.
What to do: Adopt a system for keeping your financial activities straight, whether it’s a notebook you use consistently, an Excel spreadsheet or software such as Quickbooks. Business owners typically make a variety of deposits into their bank account through the year, including loans, revenue from sales and cash infusions from their personal savings. The trouble, Mari says, is that at the end of the year, you or your bookkeeper might erroneously record some deposits as income, and consequently pay taxes on more money than you’ve actually made.
4. Set aside money for paying taxes.
Why it’s helpful: The IRS can levy penalties and interest for not filing quarterly tax returns on time.
What to do: Systematically put a portion of money aside throughout the year for taxes. Then note tax deadlines on your calendar, along with prep time if you need it, to make sure you actually make payments when they’re due.
Payroll taxes that go unpaid can be especially problematic, Mari says. He often sees cash-crunched entrepreneurs get through a down cycle by dipping into employee withholdings that they should have sent to the IRS.
Related: Midyear Tax Check: Organize Now, Save Later
“If you mess with [payroll taxes], you have a two-fold problem,” Mari says. “You haven’t paid taxes due and you’ve taken money that the IRS sees as belonging to your employees. They can be very unforgiving about that.”
5. Keep a close eye on your invoices.
Why it’s helpful: Late and unpaid bills hurt your cash flow.
What to do: Assign someone in your organizations to track your billing. Then put a process in place for issuing a second invoice, making a phone call and perhaps levying penalties such as extra fees at certain deadlines.
“You want to have a plan for what happens if they’re 30, 60 or 90 days late,” Mari says.
Some entrepreneurs believe that once they’ve sent out an invoice, they’ve taken care of billing. Not so, Mari says. “Every late payment is an interest-free loan and hurts your cash flow.”
Original Article: https://www.entrepreneur.com/article/219517
I was born in Arizona and moved to Northern Virginia when I was 5. I have lived in the area since then and worked as an accounting professional for 30 years.
I have experience in numerous industries including construction, telecom, tradeshow, publishing and healthcare. I worked for Nielsen Business Media for over 10 years. Most recently I worked for Inova Health Systems. My job skills include A/P, A/R, all types of reconciliations, preparing financial statements, financial analysis, payroll and human resources.
I have a lot of knowledge and experience that I bring to clients in regards to both corporate accounting and small business bookkeeping.
At Yield, I too can offer you full bookkeeping services customized to your small business needs. Call me today to get a free quote and get your business on the right financial path for success!
Yield is proud to announce the opening of our newest satellite office in beautiful South Florida. Managed by Jodi Carey, Yield FL will offer small businesses in the region affordable bookkeeping services with professional results. From bill paying to invoicing to providing financial statements, you will save yourself time and money with Yield’s fully customizable services.