What Is Schedule A
Schedule A is a U.S. income tax form that is used by taxpayers to report itemized deductions, which can help reduce an individual's federal tax liability.
The Schedule A form is attached as an optional supplement to the standard 1040 form for U.S. taxpayers paying annual income taxes. Itemized deductions serve as an alternative to claiming a standard deduction for tax returns, and the individual taxpayer can apply for deductions with whichever option will elicit the biggest returns.
What You Can Itemize
Like the standard tax returns, itemized deductions are subtracted from the adjusted gross income (AGI) to derive an individual's taxable income. Schedule A forms allow taxpayers to itemize taxes within six designated categories:
- Medical and Dental Expenses
- Taxes You Paid
- Interest You Paid
- Gifts to Charity
- Casualty and Theft Losses (but only if property is located in a federally declared disaster area)
- Other Itemized Deductions
Schedule A comes with detailed instructions explaining which of your expenses are deductible and where you should list them on the form.
Note that a number of deductions that used to be available to taxpayers no longer are, under the tax legislation passed in 2017. These include deductions for tax preparation costs, casualty and theft losses not in a disaster area and what were then called "miscellaneous deductions," including job expenses not reimbursed by your employer.
Does Itemizing Taxes Pay Off?
Most taxpayers do not itemize their deductions, electing instead to file at the standard deduction rate in which the taxpayer simply subtracts the standard deductions for their filing status to reach their AGI. For most taxpayers, it doesn't help their bottom line to personally itemize their potentially deductible expenses, and it saves them the trouble of keeping track of every possible deductible expense over the course of a year. In addition, under the new tax law, the standard deduction nearly doubled, making it much more difficult to accumulate enough itemized deductions to exceed the limit.
If you do choose to itemize your deductions, make sure to have documentation of your deductible payments: receipts, invoices, check stubs, etc. Furthermore, the standard deduction rate cannot be adjusted once an individual's tax returns have been filed, unless a taxpayer's filing status changes. Itemized deductions, however are subject to adjustment by the Internal Revenue Service (IRS), so applying with the standard deduction rate is predictable.
Who Benefits Most
Generally speaking, individuals on higher tax brackets have more to gain from itemizing their deductions. For example, many people list interest on a mortgage payment as a large deductible in the "interest you paid" section. Obviously, a wealthier homeowner will have paid more interest on their home than a poorer one. Under the new tax bill, however, the amount of that is deductible has dropped to mortgage interest on loans of $750,000. For the previous $1 million limit to apply, the loan must have been taken out before Dec.16, 2017 has
Individuals will opt for itemized deductions if the sum of qualified expenses is more than the fixed amount provided under the standard deduction. For many taxpayers, mortgage interest is a good benchmark for deciding whether or not to use the standard deduction. If your annual mortgage interest (which should be made available to you by your bank) is higher than the standard deduction rate (which in 2018 is $12,000 for a single tax filer), it is already to your advantage to itemize deductions instead of filing for the standard deduction for your tax bracket.The new limit makes it much less likely that itemizing will be worth it, however.
Gifts to charity, another deductible expense, are also more likely to occur among individuals in higher income brackets. However, many potential deductible expenses – for example, medical payments or uninsured asset loss due to theft or destruction in a federal disaster zone – are unpredictable. Each taxpayer should decide how to calculate their tax deductions on a yearly basis.