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Schedule A (Form 1040): A Simple Guide

What is Schedule A?

Schedule A is an optional schedule of Form 1040, which is the form U.S. taxpayers use to report and pay their individual income tax. You must fill out Schedule A if you choose to itemize your deductions instead of taking the standard deduction.

Schedule A asks you to list and tally up all your itemized deductions to figure out your Total Itemized Deductions amount (line 17 of Schedule A), which are then subtracted from your adjusted gross income (AGI) to determine your total taxable income.

What are itemized deductions?

Itemized deductions are expenses on certain deductible products, services and contributions that you can report to the IRS to lower your total taxable income amount. These usually include things like medical expenses, taxes, mortgage interest, charitable gifts and donations.

Generally speaking, you can save money on your taxes if your total itemized deduction amount is higher than the standard deduction ($12,550 for single filers in 2020), and you elect to itemize.

How does itemizing my deductions lower my tax bill?

You can usually save money on your federal taxes by itemizing if your total itemized deduction amount is greater than the standard deduction ($12,550 for single filers in 2020).

Make sure not to confuse tax deductions with tax credits. Every dollar of tax credits lowers your tax bill by one dollar—$500 in tax credits lowers your tax bill by $500. Tax deductions are different in that they lower your total taxable income.

For example, let’s say you made $75,000 last year, and the tax rate for your income bracket is 22%.

If you take the standard deduction ($12,550), you’ll save 22% x $12,550, which equals $2,761 in tax savings.

Now let’s say you figure out that if you itemized, your total deduction would be $15,000. That means you’ll save 22% x $15,000, which equals $3,300.

That means that itemizing, in this case, would save you $3,300 – $2,761 = $539 compared to taking the standard deduction. Not bad!

Further reading: Sole Proprietorship Taxes (A Simple Guide)

How has Schedule A changed?

As a result of the Tax Cuts and Jobs Act, tax rules around what you’re able to deduct changed quite a bit in 2017. In addition to eliminating or changing certain popular business expense deductions, it also removed some popular itemized deductions from Schedule A, including:

  • Deductions for casualty and theft losses not in a federally declared disaster area
  • Tax preparation fees
  • Deductions for state and local taxes above $10,000

At the same time, the new law increased the standard deduction for single filers from $6,350 in 2017 to $12,200 in 2019. The result of all this has been that it now makes a lot more sense for taxpayers to opt for the standard deduction over itemizing.

How do I fill it out?

Schedule A is a one page tax form from the IRS that looks like this:

Schedule A - Form 1040

It’s divided into six parts, corresponding to the six major categories of itemized deductions people report on their tax returns.

Here’s how to fill out each one:

Medical and Dental Expenses (Lines 1-4)

Line 1 of this section will ask you to total up and record all of your qualified medical and dental expenses. These include insurance premiums for medical and dental care (but not life insurance), medical examinations, acupuncturists, chiropractors, eye doctors, etc. (See the instructions for this form for a longer list of examples.) The only catch here is that you can’t have been reimbursed for these expenses.

Lines 2-4 will ask you for the amount you wrote down on line 7 of Form 1040, which is your adjusted gross income (AGI). You must then multiply line 2 by 0.075, and then subtract the resulting amount from the amount in line 1 to get your total medical and dental expenses deduction. Long story short: the IRS is only letting you deduct the amount of your medical and dental expenses that exceeds 7.5% of your AGI.

Taxes You Paid (Lines 5-7)

Line 5a of this section will ask you to choose between deducting one of two things: a) state and local income taxes, or b) general sales taxes. Generally speaking, if someone lives in a state that doesn’t have a state income tax, they’ll opt to deduct state and local general sales tax instead of income tax

Line 5b lets you deduct any real estate taxes you paid this year (local or state), as long as they satisfy the following conditions:

  • The property wasn’t used for business
  • The taxes are assessed “uniformly at a like rate on all real property throughout the community”
  • The taxes are used for general community or governmental purposes

Line 5c lets you do the same for any taxes you paid on personal property you own, like a car or motorhome, as long as the taxes are:

  • Based on the value of the property
  • Levied annually

Keep in mind that the total deduction for this entire section can’t exceed $10,000 (as explained in Lines 5d-e).

The IRS says to use Line 6, “Other taxes,” to record one of two types of taxes:

  • “Income taxes you paid to a foreign country”
  • Any “generation skipping tax (GST) imposed on income distributions”

Interest You Paid (Lines 8-10)

Lines 8a-c let you deduct any home mortgage interest you paid on your primary or secondary residence this year, which you’ll also report on Form 1098, as long as:

  • You’re legally liable for the repayment of the mortgage
  • The loan proceeds were used to “buy, build, or substantially improve the home securing the loan”
  • The total value of the mortgage(s) doesn’t exceed $1,000,000 (you can’t deduct the interest you paid on any amount above $1,000,000) and the loan was taken out on or before December 15, 2017.
  • For loans taken after that, the maximum amount is $750,000

Add lines 8a-c up to fill out line 8e, your total mortgage interest amount.

Line 9 lets you deduct any “investment interest,” i.e. any interest you paid on money you borrowed that is allocable to property held for investment. Use Form 4952 to figure out this deduction.

Gifts to Charity (Lines 11-14)

This section lets you deduct any cash and non-cash donations you made to religious, charitable, educational, scientific, or literary charities. Check out the instructions to Schedule A for a longer discussion about what qualifies as a charitable organization.

Line 11 asks you for any donations you made by cheque, cash or any other form of monetary payment.

Line 12 asks for any other donations you made—clothing, household items, motor vehicles, etc.—which you should deduct at their fair market value. The IRS defines this as “what a willing buyer would pay a willing seller when neither has to buy or sell and both are aware of the conditions of the sale.”

If the value of the donation is small, the IRS will usually let you determine a donation fair market value yourself, usually based on how much comparable goods and services are selling on the market. If the value of the donation is over $5,000, you should get the donation formally appraised by an expert.

If the amount of this deduction is more than $500, you must also complete and attach Form 8283.

Line 13 is where you can report your carryover from the prior year. This would be any charitable contributions you could not deduct in the last 5 years because it exceeded the limit.

Generally speaking, the total amount you deduct in the Gifts to Charity section can’t total more than 60% of your AGI, but there are a few exceptions. Check out IRS Publication 526 for a full breakdown of what falls under the 60% limit and what does.

Casualty and Theft Losses (Line 15)

This section lets you deduct any casualty or theft losses you might have sustained as the result of a federally declared disaster as long as:

  • The amount of each separate casualty or theft loss is more than $100
  • The total amount of all the losses is greater than 10% of your AGI

If you think you qualify for this deduction, complete and attach Form 4684, and record the amount you calculate there (line 18 of Form 4684) on line 15 of Schedule A.

Other Itemized Deductions

This is a catch-all section for all the deductions that don’t fall neatly under any of the other 5 categories. Deductions that fall under this category include:

  • Gambling losses that you sustained this year (but only if you also report gambling winnings on Schedule 1 of Form 1040, line 21)
  • Federal estate tax on the income of a deceased person
  • Impairment-related work expenses of a disabled person

See a full list of all the allowed deductions for this section on page A-12 of the instructions to Schedule A.

So who benefits from itemizing?

If your itemized deductions total up to more than the standard deduction, itemizing your deductions is generally going to save you tax money. If you’re on the fence about whether itemizing is worth it for you, see if you fall into one of the following categories. These are indicators that your itemized deductions will be higher than the average person.

You have a large mortgage

If you pay a lot in mortgage interest, you may qualify for the mortgage interest deduction. That could bump your total deductions for the tax year above $12,200, which means you should itemize. Just remember, you’re only allowed to deduct interest on the first $750,000 of your mortgage(s) if you took them out after 2017 (and the first $1,000,000 if you took them out before that).

You pay a lot in property taxes

People often overlook all of the property and sales taxes that they pay. If you pay a lot in property taxes—i.e. if you own multiple cars, a motor home, a boat, etc., your local and state tax deductions could also bring you above the $12,200 standard deduction threshold.

You had a lot of medical or dental expenses this tax year

If you paid a lot for medical or dental services out of pocket this year, that might also push you over the standard deduction threshold. Just remember: the IRS only lets you deduct expenses that exceed 7.5% of your adjusted gross income.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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