If you work as a 1099 worker or independent contractor, this info is for you. If your employer has given you a choice of working as an employee or Form 1099 worker, then pay attention. This info is for you. The answer may surprise you.
The Trump Tax Plan took effect January 1, 2018. Even though it may not seem like much has changed, it has. It’s just that you probably won’t see the changes until next year when you file your tax return.
One of the big changes is the 20% income reduction. If you are a 1099 worker who did not form a corporation, your business income and deductions would be reported on a Schedule C on your personal tax return.
The 20% income reduction is only for pass-through entities, like the Schedule C business.
So, as a 1099 worker, your business will qualify for that income reduction. That means if you make $50,000 after expenses, you only pay tax on $40,000. (The $50,000 is reduced by $50,000 * 20%) That’s a great deal!
There are some rules. First of all, look at the amount of money you make over all. Near the top of page 2 of your Form 1040, you’ll find your taxable income. If your taxable income is under $315,000 (married filing jointly or $157,500 (single), you will qualify for the reduction.
Please note that this is your total taxable income, not just the income from the business. If you have a lot of other income, you could be over that amount.
If your income is over the threshold, you need to then look at whether you have a service business or a product business. If you’re a 1099 worker, that means you are a service worker. And at the higher income threshold, you now have a problem getting that 20% income reduction.
That’s when it’s time to talk to a CPA who is familiar with the new rules. You probably need to think about changing your business structure. For example, if you formed an LLC and elected to be taxed as an S Corporation, you’ll save on self-employment tax and maybe get the 20% income reduction back.