2019-03-01 Money

Tax Guide

You Work for

2019

50 MONEY.COM MARCH^2019

Yourself

WHAT CHANGED?

Boosting the economy was one of tax reform’s
key goals. As a result, freelancers and small-
business owners are some of the law’s biggest
winners. The biggest perk is a new 20%
deduction on so-called pass-through or qualified
business income available to anyone who is the
owner of an LLC or an S corporation, a partner,
a sole proprietor, or a gig-economy worker.
The deduction, which is available even to
workers who also take the standard deduction,
means a single freelancer with no kids making
$50,000 will save about $1,750 under the new
rules, according to the Tax Policy Center’s
calculator. That’s nearly $700 more than for a
similar wage earner. Wealthier taxpayers, such as
business owners, could save tens of thousands.

LOOK FOR

A 1099

If you get only a W-2,

the deduction for

pass-through income

likely doesn’t apply

to you. But if you get

one or more 1099 tax

forms—say, if you

moonlight as an Uber

driver—you are prob-

ably eligible, accord-

ing to tax pros.

Those who cannot

claim the deduction,

however, are hobby-

ists. The IRS distin-

guishes a hobby from

a business using nine

criteria, such as re-

cord keeping and in-

tent for profitability.

Mark Jaeger, director

of tax development at

TaxAct, says a good

rule of thumb to

follow is that if it’s

something you’ve en-

gaged in and made

money in over the

years continually,

the IRS might be

more inclined to view

it as a business.

THE SERVICE

EXCEPTION

Many wealthy

professionals face

restrictions.

Businesspeople in

fields characterized

as a “specified

service”—including

doctors, lawyers,

and accountants, as

well as entertainers

and consultants—

may not be able

to claim the full

deduction. People

in these fields

who have business

income higher than

$157,500 ($315,000

if married and filing

jointly) are subject

to limits on how

much of the

deduction they

can claim.

April

15

Ta x d a y

this year with

two exceptions:

Massachusetts

and Maine, where

tax filers have

until April 17.