The IRS is cracking down on this small business tax break. What it means for you

Personal Finance


Previously, tax professionals pondered whether enterprising employees could leave their jobs, start their own business, and be rehired by their old company as independent contractors.

This way, these new entrepreneurs could qualify for the 20 percent deduction.

The IRS also put the kibosh on that.

“If you worked for the employer and became an independent contractor for the same person, performing the same work, you’re presumed to retain your status as an employee,” said Michael D’Addio, a principal at Marcum.

As a result, you wouldn’t qualify for the break. The kicker? You’re still on the hook for all tax responsibilities related to running your own business.

“The self-employment tax, the need to file a separate tax return for the entity, depending on how you set it up? All of that still applies,” said Tim Steffen, CPA and director of advanced planning at Robert W. Baird & Co.

“You might’ve unnecessarily complicated your life without the upside of the exclusion,” he said.



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