New Tax Laws for Subcontractors

New Tax Laws for Subcontractors: What You Need to Know

As a subcontractor, it`s essential to stay up-to-date on the latest tax laws to ensure you`re in compliance and avoid any penalties or fines. With recent changes to the tax code, there are a few key updates that every subcontractor should be aware of.

One major change is the 20% pass-through deduction. This deduction allows certain types of businesses, including sole proprietorships, partnerships, and S corporations, to deduct up to 20% of their qualified business income from their taxable income. This can result in significant tax savings for subcontractors who qualify.

However, there are some limitations to this deduction. For example, it is only available to taxpayers with taxable incomes below a certain threshold, which is $321,400 for married couples and $160,700 for single taxpayers in 2019. Additionally, certain industries, such as health, law, and consulting, may not qualify for the deduction.

Another change that may affect subcontractors is the elimination of certain deductions. For example, the deduction for entertainment expenses has been eliminated, meaning that subcontractors can no longer deduct the cost of taking clients to sporting events or concerts. The deduction for miscellaneous itemized deductions, such as union dues and job search expenses, has also been eliminated.

Finally, subcontractors should be aware of changes to the tax bracket structure. The tax brackets have shifted slightly, meaning that some taxpayers may be subject to a higher or lower tax rate than they were in previous years. It`s always a good idea to double-check your tax bracket to ensure that you`re paying the correct amount of taxes.

In addition to these specific changes, there are some general best practices that subcontractors should follow to stay compliant with tax laws. These include keeping accurate and detailed records of all income and expenses, paying estimated taxes throughout the year, and working with a qualified accountant or tax professional to ensure that you`re taking advantage of all available deductions and credits.

As a subcontractor, navigating the complex world of tax law can be challenging. However, by staying informed and working with professionals who can help guide you through the process, you can ensure that you`re following all the rules and maximizing your tax savings.