Are you in the midst of filing your 2017 taxes? Good. While you have taxes on the brain, it’s time to think about how the new tax rules (aka tax reform or the Tax Cuts and Jobs Act — the TCJA for short) will affect you as a web designer in 2018 and beyond.
Given that the TCJA represents the biggest and broadest changes to U.S. tax laws in three decades, it’s likely that these new tax laws will affect you in some way.
12 key things web designers need to know about the new tax rules
To learn how, use the following list which serves as a quick guide to what web designers need to know about the new tax rules:
Web designers might benefit from lower tax rates.
Self-employed web designers might be able to take advantage of a new pass-through credit.
You are no longer subject to the Affordable Care Act’s individual mandate and associated tax penalties.
You might benefit from a larger standard deduction.
Reduced deductions for state and local taxes might adversely affect you.
Web designers might be impacted by changes to tax deductions for homeowners.
You cannot deduct moving expenses from your taxes under the new tax rules.
Web designers with student loans can still deduct the interest on them.
Meal costs are no longer deductible by employers.
There are no more deductions for entertaining your web design clients.
You can still claim a tax deduction for business-related meals.
For self-employed web designers, a higher alternative minimum tax exemption amount might eliminate certain deductions.
Let’s look at each key change in more detail.
1. Web designers might benefit from lower tax rates.
The TCJA might lower the individual tax rate for some people. Depending on your income, you might actually fall into a lower tax bracket now that the new tax rules have increased the number of individual income tax brackets to seven at 10 percent, 12 percent, 22 percent, 24 percent,, 32 percent, 35 percent and 37 percent.
2. Self-employed web designers might be able to take advantage of a new pass-through credit.
You are likely eligible for this credit if:
- You are a self-employed web designer.
- Your business is structured as one of the entities listed above.
- Your income is under $157,500 ($315,000 for married filing jointly).
3. You are no longer subject to the Affordable Care Act’s individual mandate and associated tax penalties.
If you are a self-employed web designer, starting in 2019 you can choose whether to carry health insurance or not, without worrying about the previous tax levy of $695 per person or 2.5 percent of income (whichever was higher) that was imposed under the Affordable Care Act.
Another health-related plus under the new tax laws: The medical expense deduction was retained, allowing people whose medical expenses represent more than 10 percent of their income to deduct those costs. The TCJA improves the provision so you can deduct medical expenses if they equal more than 7.5 percent of your adjusted gross income (AGI) in 2017 and 2018.
4. You might benefit from a larger standard deduction.
Under the new tax rules, many long-standing deductions have been eliminated. To offset this and to simplify tax deductions in general, a larger standard deduction is available in 2018: $12,000 (single and all other taxpayers); $18,000 (head of household); $24,000 (married).
5. Reduced deductions for state and local taxes might adversely affect you.
Depending where you live, the lower state and local tax deductions for individuals under the new tax laws might increase your tax bill. Under the TCJA you can only claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the total of (1) state and local property taxes; and (2) state and local income taxes.
6. Web designers might be impacted by these changes to tax deductions for homeowners.
If you have a large mortgage, keep in mind that under the new tax laws, mortgage interest will be deductible only on new mortgages of up to $750,000. In addition, if you are thinking of taking out a home equity loan or you already have one, there are no longer any deductions for the interest paid on these loans.
7. You cannot deduct moving expenses from your taxes under the new tax laws.
Looking to move? The TCJA suspends the deduction for moving expenses after 2017 (except for certain members of the Armed Forces), and it also eliminates the tax-free reimbursement of employment-related moving expenses.
8. Web designers with student loans can still deduct the interest on them.
The student loan interest deduction remains intact under the new tax laws, so rest assured that you can still deduct up to $2,500 of the interest you have paid on your student loans directly from your taxable income.
9. Meal costs are no longer deductible by employers.
If you are a web designer who owns their own business and you provide food to your employees as a “perk” this is an important point: under the new tax laws there is now a 50-percent limitation to expenses related to these de minimis fringe benefit expenses. Keep in mind that amounts incurred for these expenses and paid after Dec. 31, 2025, will not be deductible at all. For more details on these changes see our previous blog post on this subject.
10. There are no more deductions for entertaining your web design clients.
In the past, businesses have typically been able to deduct 50 percent of the cost of entertainment directly related to or associated with the active conduct of a business. Taking a client out to a sporting event or a play or concert after a business meeting, for example. However, under the new tax laws, there’s no deduction for such expenses for amounts paid or incurred after Dec. 31, 2017.
11. You can still claim a tax deduction for business-related meals.
If you like to take your web design clients out for a meal from time to time, you can still do that and claim a tax deduction for 50 percent of the cost, as long as there is a substantive business discussion taking place around it. The new tax laws have not changed the rules around business meals.
12. For self-employed web designers, a higher alternative minimum tax exemption amount might eliminate certain deductions.
Under the new tax rules, the alternative minimum tax (AMT) exemption amount increases significantly, starting in 2018. If you are a high-earning web designer and are subject to the AMT, some deductions, such as depreciation and the investment interest expense deduction, will be curtailed. If the higher AMT exemption means you won’t be subject to the 2018 AMT, it might be worthwhile, via tax elections or postponed investment transactions, to push such deductions into next tax year.
Consult a tax professional
Whether you are a freelance web designer or you work for someone else, it’s important to fully understand the impact that the new tax rules will have on you so that you can take steps to minimize your tax obligations. Before you put your documents away from this year’s tax filing, consider talking to a tax professional about any changes you need to make to ensure that you are in full compliance with the TCJA going forward.
For more information, visit the IRS’s Tax Reform website.
The above content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.