Translating the New Tax Bill for Small Businesses

“Am I going to benefit from the new business deduction?”

“Do I need to incorporate to take advantage of it?”

These are questions I’m hearing a lot since the passage of the massive new tax bill. Much of the worry centers around some misconceptions. So, I’d like to outline what’s in the new provision, who it affects, and why you likely don’t need to change a thing to benefit.

The most important outcome of the new tax law (officially the Tax Cuts and Jobs Act, or TCJA) was to give a large, permanent tax cut to corporations. The corporate tax rate went from 35% to 21%. Those numbers are a little deceptive, because most US corporations don’t pay nearly that rate once you factor in tax credits and loopholes. A 2016 U.S. Government Accountability Office study found that between 67% and 72% of all active US Corporations between 2006 and 2012 had no tax liability after credits. In fact, the effective corporate tax rate (a much more meaningful number) is closer to 15%. But despite the fact that most corporations don’t pay anything close to the corporate tax rate, the point of the TCJA was largely to cut that rate.

But most businesses in the US are small businesses, not large corporations. In fact, 30.2 million businesses (or 99.9% of US businesses) are small businesses, according to a government-sponsored  2018 US Small Business Administration report. About half the private workforce in the US is employed by small businesses, and more than a quarter of the small businesses are minority-owned. However, the big corporate tax cut rate did not help these businesses at all. So rightfully, Congress introduced a provision into the TCJA to create a little more parity, called the deduction for Qualified Business Income (QBI) (also known as Section 199A). This provision, unlike the corporate tax cuts, is strictly for businesses known as “pass-through entities.” (More on that in a moment.)

But first, here’s what it does: …read more…

Money and Happiness: Artists' Superpower

Chicory, acrylic on canvas, 2016 by Hannah Cole. Courtesy of Slag Gallery, New York.

Artists Have a Superpower

I see all kinds of incomes in my tax practice, and the one thing it confirms for me is that, once past the basic human needs, money and happiness aren't related. I've been doing a lot of reading on the science of happiness lately, and also on the financial independence movement, (favorites: Mr. Money Moustache, Frugalwoods, and the Mad Fientist) and I've suddenly been noticing the strong thread of happiness science within the extreme-frugality movement. 

And I had a thunderstrike: artists have a superpower. We already know this. No one goes into art because their top priority is getting rich. And most artists do go into it because they feel a need, and they get things out of art that are more important than money. Things like connections, community, curiosity, continuous learning, challenges and projects, and engagement with the unknown. 

So this post is just a word of appreciation. 

But here are a few things you can DO with your money to help it grow and give you lifelong security. Because that is my particular passion project:

• Open a SEP IRA.

• A super basic (and funny) intro to low-cost investing, from Mr. Money Moustache

A Personal Finance Cheat Sheet for the Overwhelmed

Money is the most powerful metaphor we have. For many people it represents their self-worth, their standing, their power and their security. In many ways artists are a little different—we have a life where we choose to value different things than the rest of society – freedom, both artistic and from societal norms, as well as intellectual independence. Our very existence can be seen as a challenge to capitalism. It’s why some people feel threatened by us—our choice to place a high value on things other than money might call into question their own choices and values.

So I understand why many artists may want to or feel as though they live outside the “regular” financial system. However, we all still must function within it. I have seen too many artists succumb to their own lack of financial knowledge and security – by giving up art, making outsized financial sacrifices (like homeownership, children, or secure retirement), and even becoming destitute. Money can be very emotional: not knowing how to manage it can make us feel out of control, anxious, overwhelmed, and ashamed.

But the flipside is wonderful. Taking some basic steps to control your money is empowering. It can prolong your career, help you meet personal and professional goals, and set your mind at ease.

I’d like to outline the most basic ideas of personal finance. There are tomes written on each single line below, and a million variations. But since feeling overwhelmed can cause paralysis, I want to assure you that the very basics of solid personal finance are universal.* Here they are.  Read more...

Set up For Your Best Year Ever: A Tax Day How-To

Here we are at Tax Day. Your taxes are filed. (They aren’t? Here’s an IRS extension form – postmark it today. You’ll need one for your state, too.)

Last year you vowed to get your stuff in order. Then suddenly the tax deadline was upon you, and you scrambled through the process, and weren’t as careful as you intended to be. You suspected you should have been paying estimated quarterly taxes all year, but didn’t, and now your tax bill is surprisingly high.

You meant to set some money aside in a retirement account, but that shocking tax bill meant you didn’t have any cash to do it.

You suspect that there were deductions you missed.

If you’re being honest, your books were a mess (if you’re thinking “I need to keep books?” go back and read this.)

Now that the time pressure is off, let’s take a look at how you can make this year better. Plus some discounts on apps that can help you.  Read more...

The SEP IRA: A Lovesong

We freelancers pay a lot of tax. We don’t just pay an income tax rate of anywhere from 0 to 39% on our freelance income – we also pay a flat 15.3% self-employment tax, no matter what our income bracket. Without tax planning, this can be a huge bite.

As artists and cultural workers, our freelancer tax strategy is generally to reduce the amount of our taxable self-employment income as much as legally possible. Tax planning is hard, because it’s about saving small bits in many places. There are few silver bullets. But the closest thing there is to a silver bullet is tax-sheltered retirement savings. Read full article