Jan 28, 2019

Changes to 2018 Tax Deductions for Individuals and Businesses

By Maureen Renzi, vice president, communications

MoneyLife100The Tax Cuts and Jobs Act (tax reform) established new rules that are in play for 2018 tax returns. If you don’t speak with someone who understands the details, you could miss tax-saving opportunities and smart planning options for the future. Here are just a few of the reasons why you may need guidance from a certified public accountant (CPA).

Individual Taxpayer Considerations

Tax advice from a CPAYour itemized deductions may no longer be allowed.
Changes to the itemized deductions rules may be confusing and warrant new tax planning strategies. CPAs know which items are still allowed on Schedule A (Itemized Deductions) as well as the limits placed on specific deductions.

Contribution cap levels for traditional and Roth IRAs affect retirement plans.
If you are younger than 50 years old, the maximum annual contribution to these funds is $5,500. If 50 and older, you may be eligible for an additional $1,000 catch-up contribution. Contributions to traditional IRAs are usually tax deductible, but the deduction is phased out at higher levels of adjusted gross income (AGI).

The net investment income tax, with its multiple variables, still applies.
An additional 3.8 percent tax on certain investment income is levied when AGI exceeds certain thresholds. CPAs know when and how this additional tax may apply to you.

The simplified tax form may require individuals to file more schedules to complete a tax return.
The 2018 Form 1040 will have substantially fewer line items than previous years, but many of these items, including additional taxes and credits, have found new homes on separate schedules that taxpayers may now have to complete.

Changes in Business Taxes

Business income deductions have increased, but are complicated.
Section 199A deductions allow a personal income tax deduction of up to 20 percent of the taxable income passed through from a qualified business organized, such as a partnership or an S corporation. This deduction, however, may be subject to limitations. CPAs know what businesses qualify and the corresponding limitations.

Tax reform affects decisions about worker classification for employers.
The Section 199A deduction for partnerships, S corporations, and single-member LLCs may be determined in part by an entity’s gross payroll. A CPA can show employers how to properly classify workers to maximize the Section 199A deduction or to reduce the amount of payroll tax liability.

Make sure your business entity is the most tax efficient for you.
Learn whether the Section 199A deduction or the new lower C corporate tax rate provides the best tax outcome. There are different deductions for certain corporations compared with owners of partnerships and single-member LLCs.

General Issues & Planning Ahead

Mistakes can be costly.
If you make an error on your return, the IRS will assess penalties and interest on any additional tax it believes is due. A CPA can help you determine if the IRS is correct, and may be able to get the penalty reduced. If you get a notice of an IRS audit, a CPA can help you get ready for it, and even represent you.

Form W-4 can help calculate a more accurate payroll withholding plan.
The change to the standard deduction and the reduction of itemized deductions are the most important consideration for filing a new Form W-4 with your company in 2019. A CPA can help you accurately plan your payroll withholdings.

Members of the Pennsylvania Institute of CPAs (PICPA) developed these tips to help small business owners and individuals understand how some of the changes of tax reform will impact their taxes. PICPA members can show you how your tax return provides a roadmap to your finances, and how to use this information to devise a plan to reach your financial goals. Go to www.picpa.org/taxhelp for more resources and to find a PICPA member in your area.


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  • James DeLuccia | Mar 25, 2019


    Below is a response from Chris Humes, CPA.

    "You may be able to itemize deductions if you have out-of-pocket medical expenses in excess of 7.5% of your adjusted gross income. If these expenses along with state and local taxes (capped at $10,000), mortgage interest, and charitable contributions exceed the new standard deduction of $24,000, you can use the greater of your itemized deductions or the standard deduction for 2018. There are no other special deductions as a result of a having a serious medical condition."

    Jim DeLuccia - PICPA Team

  • Christine Watkins | Mar 22, 2019
    im a small business and file with my husband.Is there any special deductions for me being acancer patient and the monetary hardship that we have faced?
  • James DeLuccia | Mar 08, 2019


    In response to your question, please see the excerpt taken from a PICPA blog. Thank you.

    "Alimony Payments. Alimony codified in divorce agreements will no longer be deductible for couples who sign divorce or separation paperwork after Dec. 31, 2018."

    Source: https://www.picpa.org/articles/cpa-now-blog/cpa-now/2018/02/28/disappearing-deductions-under-the-new-tax-cuts-and-jobs-act  

    Jim DeLuccia - PICPA Team

  • Joyce Siciliano | Mar 07, 2019
    is there a change in filing alimony income for 2018

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    Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.