Every year the tax code changes and for 2017, there are a number of important updates that may affect you and your freelance business. To help you get a handle on them, check out this handy Freelancer Tax Checklist.
1. Tax deadlines are changing and they may affect your freelance business. There are new filing dates for certain business entities including:
- March 15 – Tax returns for partnerships, LLPs or multi-member LLCs are due.
- April 18 - C-corporation tax returns are due and the Report of Foreign Bank and Financial Accounts (FBAR) is, too. There is also a new six month extension for FBAR filings.
2. You may have to provide identification with your tax return. In an effort to combat tax-related identity theft, some states are requiring that taxpayers provide either their driver license information or other state-issued identification with their tax return. Although the requirements vary from state to state, don’t be surprised if you need to provide proof of your identity in order to file taxes this year.
3. Tax Day remains April 18. This isn’t a change, but just a reminder that you have until April 18 to file your 2016 individual returns and to make your first 2017 estimated tax payment.
4. Social Security threshold amounts are rising dramatically for the self-employed.
The IRS has raised the “wage base” (a.k.a. the maximum amount of earnings) that will be subject to Social Security taxes in 2017. Compared to the $118,500 cap in 2016 this represents an increase of 7.3%. Self-employed freelancers with $127,200 or more in earnings will be paying more tax—$1,078.80 more, to be exact. For W-2 employees the increase is only half of this amount, since employers pick up half of the Social Security tax bill.
5. Take note of these standard deduction changes:
- The standard deduction for married filing jointly rises to $12,700 for tax year 2017, up $100 from the prior year.
- For single taxpayers and married individuals filing separately, the standard deduction rises to $6,350 in 2017, up from $6,300 in 2016.
- For heads of households, the standard deduction will be $9,350 for tax year 2017, up from $9,300 for tax year 2016.
- The personal exemption for tax year 2017 remains as it was for 2016: $4,050. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly.)
6. The penalty for not maintaining Minimum Essential Health Coverage remains the same.
For calendar year 2017, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage is still $695.
7. Individual tax credit and deduction updates include:
Earned Income Tax Credit —For tax year 2017, the maximum earned income tax credit (EITC) for low and moderate income workers and working families rises to $6,318, up from $6,269 in 2016.
Interest on Educational Loans – In 2017 (as in 2016), the $2,500 maximum deduction for interest paid on student loans is no longer limited to interest paid during the first 60 months of repayment. The deduction is phased out for higher-income taxpayers with modified AGI of more than $65,000 ($135,000 for joint filers).
9. Business tax credit and deduction updates include:
Standard Mileage Rates decrease – The rate for business miles driven is 53.5 cents per mile for 2017, down from 54 cents per mile in 2016.
Section 179 Expensing — The Section 179 expense deduction was made permanent at $500,000 by the Protecting Americans from Tax Hikes Act of 2016 (PATH). For equipment purchases, the maximum deduction is $510,000 of the first $2,030,000 million of qualifying equipment placed in service during the current tax year. The deduction is phased out dollar for dollar on amounts exceeding the $2 million threshold (adjusted for inflation beginning in tax year 2017) amount and eliminated above amounts exceeding $2.5 million. In addition, Section 179 is now indexed to inflation in increments of $10,000 for future tax years.
The 50 percent bonus depreciation has been extended through 2019 – Businesses are able to depreciate 50 percent of the cost of equipment acquired and placed in service during 2015, 2016, and 2017. However, the bonus depreciation is reduced to 40 percent in 2018 and 30 percent in 2019.
Research & Development Tax Credit — Starting in 2017, businesses with less than $50 million in gross receipts are able to use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.
Jonathan Medows is a New York City based CPA specializing in taxes and business issues for freelancers and self-employed individuals. He offers a free monthly email newsletter covering tax, accounting and business issues via his website, www.cpaforfreelancers.com, which also features a blog, how-to articles, and a comprehensive tax guide for freelancers.