‘Bring back Main Street’: Trump pressures Congress to unite on tax reform
At a manufacturer in Springfield, Missouri, Trump told an audience of supporters that he was going to bring back Main Street with a tax plan that he said is “pro-growth, pro-jobs, pro-worker and pro-American.”
“We're here today to launch our plans to bring back Main Street by reducing the crumbling burden on our companies and on our workers,” Trump said. “The foundation of our job creation agenda is to fundamentally reform our tax code for the first time in more than 30 years.”
Trump urged members of Congress to get behind his efforts, saying that this is a “once in a generation opportunity to deliver real tax reform for everyday hard-working Americans.”
“I don’t want to be disappointed by Congress. Do you understand me?” Trump said to the cheering crowd. “I think Congress is going to make a comeback. I hope so. I'll tell you what, the United States is counting on it."
'I do not want to be disappointed by Congress. I think Congress is going to make a comeback. the United States is counting on it' - Trump pic.twitter.com/B7pD7Ie8gg
While calling for bipartisanship, Trump told his audience that if Senator Claire McCaskill (D-Missouri) did not support his proposals, they should vote her out of office.
“We must lower our taxes and your senator, Claire McCaskill, she must do this for you, and if she doesn’t, you have to vote her out of office,” Trump said. “You can't do this anymore with the obstruction and the obstructionists.”
On Sunday, Trump tweeted that McCaskill, who faces reelection in 2018, would lose her seat to a Republican because she “is opposed to big tax cuts.”
I will also be going to a wonderful state, Missouri, that I won by a lot in '16. Dem C.M. is opposed to big tax cuts. Republican will win S!
However, Trump’s wish for bipartisan support could be answered, as some Democrats are facing tough 2018 reelection races in states Trump won.
The White House is reportedly looking to gather support from three Democratic senators who will face reelection bids in states that Trump won by large margins.
On August 1, nearly every Democratic senator signed a letter to the Trump administration, listing the changes that had to be made to the proposed tax reform plan in order to gain their support. Senators Joe Donnelly (D-Indiana) Heidi Heitkamp (D-North Dakota) and Joe Manchin (D-West Virginia) were the only three members who broke with the party line and refused to sign the letter.
Democrats are not looking to obstruct *real* tax reform. Our letter to Trump & GOP leaders: pic.twitter.com/Q2k2UPTdhg
One White House official told Politico that if Democrats don’t help them, “it could end up hurting them in the 2018 midterms.”
Under his plan, Trump said the tax would be simple, fair and easy to understand. In order to achieve this, Trump said he would get rid of loopholes, reduce the number of tax brackets, and lower rates.
Trump cited the fact that there has not been a major rewrite of the tax code since 1986, when former President Ronald Reagan was in office. Since then, Trump said the tax code has tripled in size to 2,600 pages. He said that more than 90 percent of Americans need professional help to do their taxes because the rules are “not understandable.”
Trump also called for a competitive tax code that creates more jobs at higher wages for more Americans. Trump said the US has fallen behind other countries and proposed cutting business tax down to 15 percent.
“America must lead the way, not follow from behind,” Trump said. “We have totally surrendered our competitive edge to other countries. We’re not surrendering anymore!”
The president then called for tax relief for middle-class families in order to reduce the costs of child care and raising a family.
“We want to help them take home as much of their money as possible,” Trump said.
Finally, Trump said his plan would bring back trillions in wealth parked overseas. Under his proposal, he said companies would be incentivized to return 3-4 trillion dollars to the US that has been kept overseas.
While Trump said that his proposal would benefit the middle-class, many Democrats disagree.
Democratic National Committee chair Tom Perez said Trump’s proposal would “overwhelmingly benefit the super-rich and corporations over hardworking Americans."
"Under this plan, the richest Americans would become even richer at the expense of middle-class families," Perez said in a statement obtained by CNN.
Senate Minority Leader Chuck Schumer (D-New York) accused Trump of using populism to sell his tax plan, adding Democrats are ready to fight him over the coming months to stop his proposals from becoming law.
Who benefits the most from the tax "plan9quot; Trump's @whitehouse released? The top 0.1% pic.twitter.com/6yjnBCsz0L
“If the president wants to use populism to sell his tax plan, he ought to consider actually putting his money where his mouth is and putting forward a plan that puts the middle class, not the top 1 percent, first,” Schumer said in a conference call, according to the New York Times. “This is going to be one of the biggest fights of the next three, four months, and Democrats are ready for it.”
Most Republicans came out in support of Trump’s proposals, with Speaker of the House Paul Ryan (R-Wisconsin) saying Wednesday that Congress is “united in our determination to get this done.”
“We9rsquo;ve made it clear that our top priority this fall is reforming the tax code and cutting people’s taxes,” Ryan said in a statement.
Thank you, Mr. President, for calling for a level playing field for American workers & job creators. The time for major tax reform has come.
House Ways and Means Committee Chairman Kevin Brady (R-Texas) released a statement saying that he was “encouraged9rdquo; by the president’s proposals.
“He explained clearly today why Washington must act now on pro-growth tax reform that will create jobs, grow paychecks, and improve the lives of all Americans,” Brady said in a statement. “The Ways and Means Committee is ready to work with the president and deliver on this important priority this year.”
Several other Republicans and conservative groups came out in support of Trump’s proposals, tweeting their support just after his speech.
[email protected] is absolutely right. We need #TaxReform that lets families keep more of their hard-earned money.
Working w/ @POTUS we’ll reform our tax code into a fairer, flatter one that works FOR the American people. #MAGA pic.twitter.com/snuKcwPaav
Great speech by @POTUS! He's right. The American people are counting on us to deliver on #taxreform. It's time to make good on our promise. pic.twitter.com/aweipQea9c
I came to Washington to reform this outdated tax code --feeling energized to get back to DC & push our pro-growth reform to @POTUS desk
[email protected] is right, we've completely surrendered our competitive edge. We need #taxreform so American businesses are on a level playing field
Happy to work w/ @POTUS & across the aisle to create a fair tax code to create more jobs & allow people to keep more of their money.
Do I Have to Pay Taxes If I Earn Money on the Side?
No, just kidding. (It is April Fool’s Day, after all.) I promise there’s a whole informative post waiting here for you — and a more in-depth answer to the question, “do I have to pay taxes?”
Before we dive into this basic tax overview, I want you to get two important concepts straight right away: side income still counts as income, and even if you don’t make enough to owe taxes, technically the IRS still wants to know about it.
While you may not actually need to pay taxes, you should be prepared to report your income.
Here’s the second important concept: I am not an accountant, I am not a tax professional, and I am not a lawyer. (If you need a financial professional, get yourself over to XY Planning Network.)
My intention is to provide you with basic information that you need to know if you earn money on the side so you can feel confident about tax season and understand what the IRS expects from you.
I do not advise anyone here engage in any shady bookkeeping, and if you are unsure about something or are confused, please do not hesitate to take a specific concern to a tax professional.
Got it? Good. Let’s begin this basic tax overview for solopreneurs, side hustlers, and anyone making a few extra bucks on the side.
First thing’s first for side income earners: are you going to be a hobby or a business? Your answer does matter, and personally, I think there’s a right answer here that you should choose. Here’s why.
The IRS makes a distinction between a money-making hobby and a money-making business. If you are for profit, you are a business to the IRS. And you’re all about making a profit, right? Of course!
Whatever you consider yourself, if you make money from your activities for at least three out of the last five years, the IRS will label you a business. That gives you some special hoops to jump through.
Let’s continue on with the assumption that you want to make decent chunk of change from whatever it is you do on the side. We’ll also say you want that income to be sustainable over a period of years.
Regardless of why the IRS says there’s a difference between a “hobby” and a real business, there’s another factor here to consider. It’s important to take yourself seriously! If you want to create a side or small business to continue earning money in a big or more professional way, you need to treat things that way from the start: as a business.
Having the right mindset will set you up nicely for success. If you take yourself seriously, as a real business, then other people will too.
One more important reason we’re assuming you consider yourself a business: if you don’t file your taxes that way, you’re limited on what kinds of deductions you can take. You can’t claim more than what you made if you’re filing like your side gig is a hobby that happens to make money, and that’s a big deal when you’re starting out.
If you’re a business, you can claim all your expenses and take the deductions you’re entitled to as a for-profit, money-makin’ entity on your tax return. Just want to consider your side gig as a hobby? No such luck, because you can’t claim more than you make if you declare your activities to be a hobby instead of a business.
Let’s look at an example to illustrate that point. If you paid $150 for hosting your website (to promote what you do), another $50 for your site design, and $100 for an educational course to help you grow your side hustle — but you only made about $75? If your side work is a hobby, you don’t get to deduct $300 worth of expenses. You get to deduct $75, and all the rest you get to pay the full taxable amount on.
As a business, however, you can deduct the full cost of all business expenses. This is a big deal once you start making a significant side income. Being able to report all your expenses helps keep your taxable income lower, which means a smaller tax bill and more money available to reinvest in your work.
Keep all these factors in mind when determining if you’re a “hobby” or a “business” for tax purposes. Don’t feel intimidated by the idea of calling yourself a business. Remember, you don’t need to do anything fancy to be a business if you don’t want to. You can simply be a sole proprietor. I am and I’m happy as a clam that way.
“Do I have to pay taxes on [your money-making side gigs], even though I only made X amount?”
Again, the answer is probably YES. You have to pay taxes — and regardless of whether you owe or not, the IRS expects you to report all income (no matter how small).
This means keeping careful records is critical. You want to claim every deduction you qualify for and write off expenses where you can to ensure you keep your tax bill as low as possible.
So, just to drive this point home, here’s a little something from the IRS about taxable income:
While most people are aware they must include wages, salaries, interest, dividends, tips and commissions as income on their tax returns, many don’t realize that they must also report most other income, such as:
- cash earned from side jobs,
- barter exchanges of goods or services,
- awards, prizes, contest winnings and
- gambling proceeds.
What should this tell you? The IRS wants every source of money it can get. (Of course, right?)
Just about anything you make is taxable according to the IRS. It doesn’t necessarily mean you’ll owe money, but it does mean that you can’t say, “oh, I didn’t make enough for anyone to notice me. I’ll just throw this in my bank account and only worry about my W2 income when I file.”
Sorry Charlie, but you’re responsible for telling Uncle Sam what you made and how you made it. The best thing to do is to do your best to be accurate and honest when filing.
Logically, the next question solopreneurs and side hustlers ask is something along the lines of, “okay, I have to report my income and I may need to pay taxes… but how much do I need to pay in taxes?”
I’m so glad you asked.
Here’s an excerpt from the IRS’ site on folks who are self-employed. If you “work for yourself” in some capacity, which does include work you do on the side to earn extra money, that means you!
As a self-employed individual, generally you are required to file an annual return and pay estimated tax quarterly.
Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. In general, anytime the wording “self-employment tax” is used, it only refers to Social Security and Medicare taxes and not any other tax (like income tax).
You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Form 1040 instructions.
This is why the answer to “do I have to pay taxes” is almost always yes. Even if you only work part-time for yourself and full-time as a salaried employee somewhere else, the side gig part of your income qualifies as self employment income.
Self employment tax is how the government makes sure it receives the social security and medicare taxes that are normally paid by an employee and an employer. Here’s the fun part: since you’re not an employee, you are your own boss and have your own business going on, you’re responsible for paying both the employee and the employer portions.
Self-employment tax must be paid whether or not you owe any federal income tax.
It’s hard to provide an exact answer on “how much.” That depends on a number of factors, including:
- Your gross profit
- Your expenses
- Your deductions
- Your state (for state income tax)
As a general rule, I immediately take 28% of my gross earnings and set that amount aside each month for taxes. I established that percentage after discussing my situation with a CPA, and if you’re making a significant amount from your side work I suggest you do the same.
Again, many of my friends at XY Planning Network hold CPA designations and specialize in serving entrepreneurs and freelancers.
I know hiring a pro can feel intimidating, but it’s the best investment I’ve made in my business. I know I don’t understand the tax code and how to ensure I’m following all the rules. And lacking knowledge can cost you far more than paying a professional to help keep you on the up and up.
In fact, I have to admit I screwed up my SEP IRA contributions for 2014! I contributed far too much and could face a stiff penalty from the IRS — but I’ve alerted my CPA and we’re working through the issue so that I can avoid getting into trouble. That’s the value of having someone who does this full-time and for a living on your side.
As a self-employed freelancer, consultant, or general hustler, if you’re making a good profit you’re more than likely going to pay estimated taxes.
Since you don’t have any taxes deducted from your side income, you need to lob a check over to the IRS every quarter. The due dates for estimated taxes are April 15, June 15, September 15 and January 15 (and generally there are exceptions or extensions for stuff like holidays).
If you don’t pay your estimated taxes in a timely fashion, you may owe an additional tax penalty. But before you panic, know that if you didn’t have any tax liability in the prior year, or if you don’t expect to earn at least $1,000 in side income this year, you may be able to avoid paying estimated taxes.
But, because this is all about learning new stuff, let’s assume you need to handle estimated taxes.
Form 1040-ES, Estimated Tax for Individuals is used to figure these taxes. You’ll use the worksheet found in Form 1040-ES to find out if you are required to file quarterly estimated tax.
The form also contains some handy blank vouchers you can use when you mail your estimated tax payments or you may make your payments using the Electronic Federal Tax Payment System.
A quick PS on this: Form 1040-ES can be scary. Here’s how I figured my own estimated tax payments when I switched to self-employment full-time last year:
- Looked at my income from January through March
- Multiplied that by 4 to get an estimated gross total for the year
- Multiplied my total by .28 to get a guess of what I’d owe in taxes for the year
- Divided that number by 4. That’s how much I should send off to the IRS each quarter
So as an example, let’s use a (nice, round) real number:
- Let’s say my side income was $10,000 from January through March
- I multiply that number by 4. I estimate I’ll make $40,0000 in side income for the year
- I multiply $40,000 by .28, because I want to set aside 28% of gross earnings for taxes. I estimate I’ll owe $11,200 in taxes for the year
- I divide $11,200 by 4. I will send off $2,800 as my estimated tax payment each quarter.
Note the keywords here: ESTIMATE. GUESS. This isn’t a scientific process but it’s straightforward and easy and helps me keep the IRS happy. I may owe when I file my taxes, or I may have overpaid. It all depends on what my actual gross income (and expenses) work out to be.
Additional Resources for Your Financial and Tax Needs
For all its annoying faults, the IRS does try to provide lots of information on their site. If I didn’t cover something you feel you need to know here, check out IRS.gov.
My friend Carrie Smith of Careful Cents also has a number of resources on finances and taxes for solopreneurs and freelancers. You can get a tax checklist freebie when you sign up for her newsletter.
And if you need a professional, please check out the financial advisors and CPAs with XY Planning Network. I highly recommend working with a CPA and financial planner to get your personal and business finances and goals on the right track.
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