Question

Discuss the various Schedule A Itemized Deductions, the Standard Deductions for each Filing Status, the Additional Standard Deduction, and those taxpayers eligible for the Qualified Business Income Deduction.

Answer 1

For individual taxpayers, Schedule A is used in conjunction with Form 1040 to report itemized deductions. If you choose to claim itemized deductions instead of the standard deduction, you would use Schedule A to list your deductions. Your itemized total is then subtracted from your taxable income.

1040 Schedule A is an optional attachment to Form 1040.

The goal of the schedule is to help walk taxpayers through allowable tax deductions to reduce their overall tax liability.

By claiming itemized deductions, you might be able to save additional tax dollars if you choose this route over taking the standard deduction. The amount you save depends on your tax bracket and deductions made.

Yet, many taxpayers are not any of the itemized deductions discussed below are reduced or eliminated.

The IRS standard deduction is the portion of income not subject to tax that can be used to reduce your tax bill. ... Most taxpayers who use the standard deduction instead of itemizing do so because they don't have to keep track of qualifying expenses.When to claim the standard deduction

Here's the bottom line: If your standard deduction is less than your itemized deductions, you probably should itemize and save money. If your standard deduction is more than your itemized deductions, it might be worth it to take the standard and save some time.

Many individuals, including owners of businesses operated through sole proprietorships, partnerships, S corporations, trusts and estates may be eligible for a qualified business income deduction, also called the section 199A deduction. Some trusts and estates may also claim the deduction directly.

The deduction allows them to deduct up to 20 percent of their qualified business income (QBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. Income earned by a C corporation or by providing services as an employee isn't eligible for the deduction.

The deduction is available for tax years beginning after Dec. 31, 2017. Eligible taxpayers can claim it for the first time on their 2018 federal income tax returns filed in 2019.

The deduction has two components.

1. QBI component. This component of the deduction equals 20 percent of QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate. Depending on the taxpayer's taxable income, the QBI Component is subject to limitations including:
   
   1. The type of trade or business,
   2. The amount of W-2 wages paid by the qualified trade or business, and
   3. The unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business.
      
      These limitations do not apply to taxpayers with taxable income at or below a certain threshold. For 2018, the threshold amount is $315,000 for a married couple filing a joint return, and $157,500 for all other taxpayers.
      
      It may also be reduced by the patron reduction if the taxpayer is a patron of an agricultural or horticultural cooperative.
      
2. REIT/PTP component. This component of the deduction equals 20 percent of qualified REIT dividends and qualified PTP income. This component is not limited by W-2 wages or the UBIA of qualified property. Depending on the taxpayer's taxable income, the amount of PTP income that qualifies may be limited if the PTP is engaged in a specified service trade or business.

The deduction is limited to the lesser of the QBI component plus the REIT/PTP component or 20 percent of the taxable income minus net capital gain. The deduction is available regardless of whether an individual itemizes their deductions on Schedule A or takes the standard deduction.

Qualified trade or business

A qualified trade or business is any section 162 trade or business, with three exceptions:

1. A trade or business conducted by a C corporation.
   
2. For taxpayers with taxable income that exceeds the threshold amount, specified services trades or business (SSTBs). An SSTB is a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business principal asset is the reputation or skill of one or more of its employees or owners.
   
   The principal asset of a trade or business is the reputation or skill of its employees or owners if the trade or business consists of the receipt of income from endorsing products or services, the use of an individual's image, likeness, voice or other symbols associated with the individual's identity, or appearance at events or on radio, television and other media outlets.
   
   For 2018, the threshold amount is $315,000 for a married couple filing a joint return, and $157,500 for all other taxpayers. The SSTB limitations don't apply for taxpayers with taxable income at or below the threshold amount. Limitations are phased in for joint filers with taxable income between $315,000 and $415,000, and all other taxpayers with taxable income between $157,500 and $207,500. For later years, the threshold amounts and phase-in range will be adjusted for inflation.

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