Today TaxMama® wants to give you something to think about before switching from employee status to independent contractor.
Dear Friends and Family,
As far as individual taxpayers, the biggest losers under the Tax Cuts and Jobs Act are employees who have unreimbursed out-of-pocket expenses. You won’t be able to deduct them any longer – from at least January 1, 2018 – December 31, 2025. And longer, if Congress extends this harsh rule.
That’s why many employees are thinking of taking aggressive action and considering changing their status at work, to become freelancers. This will allow the former employee to deduct all their expenses, and potentially, reduce your taxes. For those who successfully negotiate a change in status, it’s important to understand the full impact of what you are doing.
You will now be in business – and will have to act like a business. With all the responsibilities of a business – formation, filing, licensing, and reporting. And if you chose to set up a corporation, partnership or LLC, you might have to face the costs of an extra business tax return.
What do you lose that you were getting as an employee?
- Sick days
- Vacation days
- Health Insurance
- Some reimbursed expenses
- Paid holidays (remember Christmas, Thanksgiving and at least 8 – 10 other paid days off, or long weekends)
- Promotions and raises
- Employer pays half of your Social Security and Medicare (7.5% of $128,700 – nearly $10,000 and 1.3% of everything over that income level)
- State disability benefits
- State and federal unemployment benefits
So, instead of taking off on your own – consider trying to negotiate with your employer. It’s time that they paid your expenses, via an accountable plan. That means you would submit your expense reports each month and they would reimburse you. That might require a slight reduction in your wages or commission percentage so everyone stays even. It’s a good idea to sit down with a skilled tax professional to sort out the numbers to determine the best path for both you and your employer.
You can find Enrolled Agents (EAs) here – http://taxexperts.naea.org/and Certified Public Accountants (CPAs) here – https://www.aicpa.org/forthepublic/findacpa/findacpa.html
And remember, you can find answers to all kinds of questions about the Tax Cuts and Jobs Act and other tax and business issues, free. Where? Where else? At www.TaxMama.com.
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