1- Beginning in 2018, the new Tax Cuts and Jobs Act (TCJA) will eliminate or restrict many of the itemized deductions that were previously available to taxpayers. Chose an itemized deduction (select a different one from your classmates) and explain the requirements for this deduction prior to TCJA. How was this itemized deduction changed as a result of the new tax law? Do you agree with the changes? 2- Research a case where a taxpayer committed tax fraud by overstating business expenses on their schedule C. Discuss which business expense category was overstated, and what the proper tax treatment is for that expense.

Itemized Deduction

According to Skedinger, (2014), medical expenses are one of those tax itemized deductions that have always been a bit complex to calculate, and the laws seem to alter after every few years. For instance, the medical outlay deduction was established to support taxpayers with substantial medical costs. Therefore, here are some of the necessities for medical expenses that are before Tax Cuts and Job Acts. For example, the taxpayers were only allowed to deduct medical expenditures that were rewarded in the similar tax year as the profit. Besides, the guidelines under previous regulations also permitted a qualified cost that entails expenses that were to be paid for analysis, medication, mitigation, management or avoidance of sickness, which included the rental fees. On the other hand, the law offered the taxpayers to itemize through carrying out deduct on qualified out-of-pocket medical expenses that were over 10% of their adjusted gross income for the year.

Even though the charges must have been experienced for the taxpayer, taxpayer’s spouse, or needy (Skedinger, 2014). However, the recorded deduction is transformed in a way that the Tax Cut and Job Acts were in a position to conserve the presumption for medical overheads and altered the floor to 7.5% for tax years 2017 and 2018. Nevertheless, the taxpayers can now deduct eligible medical payments that are above 7.5% of their familiar gross profits for the year that comprise 2017 due reoccurrence that is on April 17, 2018. Although for the levy years that are well ahead of 2018, then the floor will provide departure to 10%. Therefore, I agree with the changes because most of the taxpayers will be better off due to winning greater standard deductions even after subtracting medical incidentals.

A Case of Tax Fraud

According to the case of Mr. Berlo who operates a restaurant in Canada and have been accused of filling untrue tax revenues for three years one after the other from 2009 to 2011. Therefore, he was suspected of absconding taxes that was totaling $10.9 million. For instance, the charges indicate that Mr. Berlo didn’t file a tax return in 2010, but instead collected above $2.56 million in income (Zidar, 2015). Furthermore, on May 16, 2012, Berlo pleaded shamefaced for failing to pay government taxes on revenue recognized. Nevertheless, he faces a prison sentence of 50 to 60 months and besides, he must pay a compensation of over $2.89 million to the department of revenue as well as the penalty of an extra amount as punishment for wrongdoing.

References

Skedinger, P. (2014). Effects of payroll tax cuts for young workers.

Zidar, O. M. (2015). Tax cuts for whom? heterogeneous effects of income tax changes on growth and employment (No. w21035). National Bureau of Economic Research.