Taxpayer beware: significant changes in store this season
As of Monday Jan. 28, the IRS began accepting income tax filings for the 2018 tax year. However, this tax season could prove to be a whole different experience for those filing their income taxes, due to changes prescribed by the Tax Cuts and Jobs Act, commonly known as the “Tax Reform Bill,” which went into effect on Dec. 15, 2017. Most of the bill’s provisions went into effect starting in 2018 and are currently expected to expire at the end of 2025.
As Richard Mamer CPA Staff Accountant Matt Scheuers explains, while most changes incited by the bill have already gone into effect, there are exceptions. Perhaps the most notable exception is the shared responsibility payment for individuals, which will not be suspended until after the 2018 tax year.
“Basically this means those who did not have health insurance during 2018, may receive a penalty. Beyond the Shared Responsibility Payment for individuals, there are several key provisions that will affect everyone on the national level,” Scheuers adds. “The majority of these provisions are individual level changes in tax reporting, such as itemized deductions, exemptions, the standard deduction, the child tax credit and the new dependent tax credit. More specifically, exemptions have been suspended.
“Itemized deductions are impacted by several negative changes. The biggest change being a cap of $10,000 on taxes that are deductible, and the suspension of miscellaneous itemized deductions such as unreimbursed job-related expenses.”
There is some good news, though.
“The standard deduction has increased,” Scheuers explains. “For a husband and wife filing jointly, the standard deduction has increased from $12,700 to $24,000. For single filers, the standard deduction increases from $6,350 to $12,000. For those with children or dependents, there are a couple credits they could take advantage of. The first is the child tax credit which has a refundable portion of up to $1,400 per child. This is up from $1,000 previously. The second credit that is useful to individuals with children or dependents, is a dependent credit which allows for up to a $500 non-refundable credit per individual that qualifies as a dependent.”
In addition, other potentially significant changes are in store for business owners.
One such change is the elimination of the Domestic Production Activities Deduction (DPAD) and the enactment of the Qualified Business Income Deduction (OBID).
“DPAD is a deduction that largely only benefits manufacturing businesses,” Scheuers said. “QBID on the other hand promises to be more all-encompassing and could allow for a deduction to businesses in a variety of industries. Another impact to businesses is related to the suspension of miscellaneous itemized deductions. To be diligent, I would strongly encourage businesses and exempt organizations with employees to develop an accountable reimbursement plan.”
As a final bit of good news for the tax filing season, Scheuers confirms recent rumors of those who may have inadvertently made errors with reporting their withholding this year, due to the sweeping changes associated with the Tax Cuts and Jobs Act, not being penalized by the IRS.
“As a result of the changes brought on by the Tax Cuts and Jobs Act, the IRS will generally waive taxpayer penalties due to under-withholding, if at least 85% of the tax liability is paid through withholding or estimated tax payments,” Scheuers explains. “This appears to only be effective for the 2018 filing season.”
In closing, due to the changes and potential impact related to the Tax Cuts and Jobs Act, Scheuers advises those filing for their 2018 income tax returns to seek the assistance of a tax professional.
“I encourage the community to utilize a preparer of some kind for their tax needs. Given the changes brought on by the Tax Cuts and Jobs Act, if an individual does not feel confident with their ability to properly prepare their tax return, or they think they may benefit from some of the changes I have mentioned, I encourage them to speak to a seasoned tax preparer. A good tax preparer can help navigate the tax waters and provide opportunities for tax savings and education associated with the customer’s unique tax situation.”