In 2018, the passage of the Tax Cuts and Jobs Act (TCJA) made it nearly impossible for the average taxpayer to take advantage of itemized deductions. There are three primary reasons why.
First, it’s much harder to itemize deductions because the Congress doubled the standard deduction amount for all filing statuses (single, head of household, married filing jointly and married filing separately) beginning in tax year 2018.
Second, individual taxpayers can only claim up to $10,000 for total state and local taxes paid (SALT). SALT includes property taxes, real estate taxes, state payroll taxes deducted from your payroll check, state and local sales taxes paid and other municipal taxes paid. For many homeowners and taxpayers that live in expensive areas of the U.S., those individuals have been hit with higher tax bills due to this new SALT tax deduction limit.
Third, the elimination of the following individual taxpayer tax credits and deductions led to increased tax bills:
- Personal exemption credit of $4,000 per person
- Home office expense deduction for W-2 employees
- Miscellaneous itemized deductions for unreimbursed work supplies, unreimbursed union fees and tax preparation fees
- Moving expenses deduction for job relocation (except active duty military personnel)
Due to these 3 major tax changes, more individuals should consider starting a business in 2020.
Business owners are eligible to write-off more deductions than individual taxpayers. The U.S. tax laws are more geared towards business owners. If you own and operate a home-based business, you can write off a portion of your home expenses (rent, mortgage, property taxes, utilities, home phone and internet, homeowners’ insurance, etc.). In addition, if you use your personal vehicle to attend business meetings, conferences or professional education, business owners may deduct up to 58 cents per business mile in 2019.
Why not take complete advantage of the opportunity to not only increase your income by launching a business, while at the same time potentially reducing your individual tax bill?
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