As the year draws to a close, authors in the US are getting ready to file their taxes. They're gathering their receipts, checking bank balances, running rough calculations based on 1099 estimates, and strangling stress balls.
Tax season is always a stressful time of year, and that is doubly true with the impending changes to US tax law. A new tax plan is winding its way through Congress right now. It's going to be voted on in the US Senate tomorrow, and it will shortly be on the president's desk.
The new tax plan will affect authors, but unfortunately we don't know with surety how they will be impacted.
In spite of what you my have read on social media, there are far too many unknowns in the proposed tax plan to make blanket declarations.
As I sit here writing this post in 30 November, the US Senate has not yet passed its version of the bill. If the Senate passes the bill (it might not happen) then the Senate bill and the House bill will have to be reconciled. There's no way to tell what will make it into the final bill that will be sent to the president's desk to be signed.
Some of the possibilities include:
- Reducing the number of tax brackets (House plan) or Reducing the tax rates in existing brackets (Senate plan)
- Eliminating the deduction for medical expenses (the House plan includes this, but the Senate plan does not)
- Removing itemized deductions except for those for charitable contributions, mortgage interest, property taxes, and retirement savings (both plans)
- Eliminating personal exemptions. The exemption currently allows taxpayers to subtract $4,050 from income for each person claimed on the tax return (both plans)
- Doubling the standard deduction for everyone. A single filer's deduction increases from $6,350 to $12,000. The deduction for Married and Joint Filers increases from $12,700 to $24,000. (both plans)
- Repealing the Obamacare fine/tax (Senate plan)
- Eliminating deductions for interest payments on school loans, moving expenses, theft or loss of valuable, and electric vehicles (both plans)
- Eliminating the Alternative Minimum Tax (both plans)
There's also a whole host of changes to business income taxes, and they're making it a lot harder to tell whether your taxes will go up or down.
According to the Washington Post's analysis, most people will pay less in taxes, and it may even be possible to lower your taxes further.
I'm still waiting to see the final figures, but it looks like it might be possible to for authors to lower their taxes by incorporating as an LLC, taking the new 17.4% deduction, and then paying the personal income tax rate on the rest of the income. Of course, we're also losing the ability to deduct many business expenses like office supplies, home office costs, legal fees, etc, so it's impossible to say for certain who will come out ahead.
The only thing we can say with any certainty is that, contrary to his campaign promise, Trump's new tax plan is going to generate a lot of business for accountants, tax preparers, and tax lawyers.
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