What is Schedule L
Schedule L is a form attached to Form 1040 that is used to calculate the standard deduction for certain tax filers. Schedule L is only used by taxpayers who are increasing their standard deduction by reporting state or local real estate taxes, taxes from the purchase of a new motor vehicle or from a net disaster loss reported on Form 4684. Schedule L is also used for those who file Form 990 or Form 990-EZ to provide information about the financial transactions and arrangements between the organization that filed the forms and disqualified persons under section 4958, or other interested persons. The Schedule L is also used a way to distinguish members of an organization governing body as independent members.
BREAKING DOWN Schedule L
Schedule L is necessary because refunds and rebates already received on real estate taxes reduce the amount of additional standard deduction for which a taxpayer may be eligible. With regards to motor vehicles, taxpayers in states that do not charge sales tax but levy another fee on the purchase of a new vehicle can treat those fees as a tax for the purpose of this form. Taxpayers should check to see if an increased standard deduction will provide the same tax benefit as itemizing deductions.
Schedule L is also used to report partnership income to the IRS. So, for example, if you are part of a business partnership that distributes incomes to its members, federal tax law dictates that the partnership is not taxed on the profit, but the partners report the income on their own individual returns. Form 1065 is used to first declare business partnership income to the IRS and then Schedule L is used to detail the specific of the partnership balance sheet. The balance sheet includes all business assets, equity, and capital, as well as liabilities and it provides a financial overview of the business. The balance sheet also dictates if any other forms are required based on the total financial amount, as more paperwork is needed if the total partnership assets exceed a total of 10 million dollars.
Who Must File a Schedule L
The IRS website lists specific instructions regarding the use and filing of a Schedule L. The form can be used for most organizations, with specific filing instructions based on their tax structure or membership. Schedule L can also be used to claim a net disaster loss if you live in an area affected by federal disaster.