The year is quickly coming to an end. For you Owner Operators and Independent Contractors, the time to settle up with Uncle Sam will be here before you know it. The recently passed Tax Cuts and Jobs Act results in significant changes to tax law. For most of you, this new legislation will result in a lower tax liability on your 2018 tax return. This article is intended to give you a basic understanding of some of the key changes and how they might impact you. This article should not be interpreted as tax advice or used to avoid tax liabilities. Should you have questions about any of these topics, please contact a tax professional with Equinox at 801-736-9347.
Without a doubt, the most significant change for self-employed individuals is the new Qualified Business Income (QBI) Deduction. For most drivers, QBI is a deduction equal to 20% of Net Taxable Business Income. If your business income is $100,000, you will now be allowed to take a $20,000 deduction on top of your other business deductions. QBI is subject to several limitations, and the calculations can get complex depending on your individual situation. Please contact Equinox for an in-depth review of this deduction on your personal or business return.
The Individual Mandate (otherwise known as the Obamacare Tax) is out. Starting January 1st, 2019, those drivers who do not purchase health insurance will no longer face penalties. As a business practice, Equinox recommends you obtain insurance to mitigate expense in the event of illness or accident. Self Employed health insurance deductions remain in effect.
Effective January 1st, 2018 most Tax Brackets and Income Tax Rates have been reduced. This will result in a lower marginal tax rate for most Equinox clients.
Standard Deductions for all tax payers nearly double under the new rules: Individuals increase to $12,000; for heads of household, it rises to $18,000; and for married couples filing jointly the standard deduction increases to $24,000.
Although the Standard Deduction is increasing, Individual Exemptions and most Itemized Deductions are eliminated. Save a few exceptions, the only remaining itemized deductions are the Mortgage Interest Deduction and the Charitable Contribution Deduction. This change will have the biggest impact on company drivers, especially married couples team driving. They will no longer be able to take the Per Diem Deduction as an unreimbursed employee expense on IRS form 2106.
This change has no impact on Owner Operators or Independent Contractors, as you will still be able to take the Per Diem Deduction as an approved business expense. In fact, the per diem deduction has increased beginning October 1st, 2018 to $66 within the US and $71 outside the US. This is an increase of $3 per day and will save Equinox clients an average of $144 in annual income tax.
For most Equinox clients, the changes to tax rules for Depreciation will have little to no impact. However, good tax planning and effective use of depreciation rules remains a significant tool to be used in limiting tax liability while growing a fleet of trucks. Contact Equinox for an in-depth discussion on how Accelerated Depreciation can help you.
These changes, along with many more not discussed here, will result in the average Equinox client saving between $1,500 to $2,000 annually on federal income tax. To fully take advantage of these savings contact Equinox today.
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