 Here we are in our example form 1040 populated using LASERT tax software. You don't need tax software to follow along but it's a great tool to run scenarios with. You can also get access to the form 1040 related forms and schedules IRS website irs.gov irs.gov starting point as usual. We got the single file or Mr. Anderson no dependence. We've got the W2 income 100,000 the 12,950 standard deduction to start with 87,050 taxable income mirroring that in our excel worksheet income tax formula 100,000 12,950 87,050 page two calculating the tax at the 1477 for 15,000 with held gets us to the 226 and we see that down here in our formula but our major focus my major will be on the calculation of the taxable income as we look at the itemized deductions and the taxes so we're going to go back up to page one let's open up the itemized deductions that's going to be the schedule a every time we think about the schedule a remember that we first want to think we got to clear the standard deductions before they're beneficial the things that clear or usually push people over are the home owning the home why because then you've got the mortgage interest and then you've got the property taxes related to the home and then once that's included the other big thing that could push people over is the state taxes that they're going to be paying because and that might include and that'll also be bigger for states that have a higher tax rate such as like California and New York right so you can get fairly significant state taxes as well as income levels go up so you can see here by default it's basically calculating on the tables for the sales tax the software is quite useful to kind of do that calculation if you're doing the sales tax note that that's nowhere near by itself enough for us to be able to take the itemized deductions because if i go to the 1040 then we have to be clearing as a single file or that 12,950 if we were married it'd be 25,900 let's imagine they own the home and add the two big items let's add mortgage interest and property taxes the taxes on the home being one of the items we're focused in on here so i'm going to go in i'm going to say all right schedule a let's say we're going to have deductions for the schedule a and they will be the deductions for a will be i'll add the interest here let's just say it was 14 thousand and then we'll go to the property taxes and i'm going to add the property taxes i'm just making up numbers here for the principal residence i'm going to say is let's just say uh four thousand okay so then i'm going to go back on up and say the forms then if i go look at my forms the schedule a is now being populated and it's pulling over not the standard deduction because our itemized deductions are adding up to 1917 over the 12,009 single filer it wouldn't be enough to clear the 25,900 if married let's take a look at that schedule a now so the the mortgage interest is a significant factor helping to put push us over once we're over that threshold then the taxes could also be a significant factor and one of the major components of the taxes is going to be the real estate taxes if they own the home the second major component is going to be the state taxes that they used to fund the general activities of the state which is chosen by the state either as an income tax or a sales tax type of system so this four thousand we're imagining where would we get that we would we would get it from possibly if the the mortgage payments that were being made on the form 1098 so we would expect for example to get the form 1098 which will report the amount of interest that was paid on the mortgage or loan and sometimes the payments that we're making where they packaged it together so that they're also that company the financial institution is going to be paying some of the payments that you make to them to the principal of the loan to the interest which will be reported here and for the property taxes and then they'll generally give you that information as well but it's not required that that is the case so if you don't get that information from the financial institution for the property taxes but you know that they own a home then you're you're going to have to definitely get the information for the property taxes because they must have them you know everywhere basically has property taxes even though you have different states the property taxes is a pretty universal type of thing throughout the entire country of the united states so you want to be asking for the property taxes sometimes they're paid in like a staggered kind of format like twice a year they might be paid once a year but often they're paid twice a year generally we are on a cashed based system here so the payments that were actually made in the year for the most part are what are going to be included in the property taxes for the year which does lead to the question from some people to say well what if I have more income this year than another year and I want to basically prepay my property taxes possibly as a way to increase my itemized deductions and lower my taxes this year which means I won't have the property taxes in the following years he might say what's the big deal but if I had a lot more income this year than next year my tax rate and brackets will be higher in the higher income year than the lower income year so you can try to manipulate the cutoff dates that way but you can't do that because well the IRS is going to limit oftentimes so anytime that that idea comes up you got to think okay is the IRS going to limit the amount of prepayments that I might be able to play with because I'm on a cashed based type of system so beware of that normally it's going to be kind of a cashed based system here and you're going to pick up the taxes that were actually paid in the current year okay then so let's actually put that into our worksheet over here and just see how this might work I'm going to go to the schedule A and I'm going to say all right I had mortgage interest of 14 000 the taxes I'm going to say let's say this is the real estate taxes I'll say this is real estate estate taxes which I said was 4 000 and then I let the software do the calculation assuming because I haven't entered any other any other kind of tax so the software said well we're going to give you some tax and it's going to use the tables to calculate the 1017 tax of the sales tax from in essence the tax tables so there that let's just take a look at that and then I'll go into that more detail that adds up to the 1917 and that ties out to the 1917 here which pulls over to page one of the form 1040 100 000 minus the 1917 gets us to the 80000 983 as we see here this pulls over to page one minus this gets us to 80000 973 now we're taking the itemized deductions as opposed to the standard deductions because it's a single filer which is our 12950 so we're taking the greater of the two with our max formula there so there is that I'm not going to get into the tax down below because we're mainly focused on this line right now getting down to the taxable income so if I go back on over on schedule one then this box we have the state and local taxes on a state and local income taxes or general sales tax so remember the concept here they for some reason allowed state taxes to be deductible and they that was helping out the states that mirrored the federal tax system with an income tax so so and that's a little bit easier to work with because now now you know what you paid for the income tax for the state that would be deductible on the federal taxes now remember the state government is different from the federal government the form 1040 here is calculating the taxes for the federal government if there was a state tax as well such as california then we would have a state tax tax return that we would have to do as we do the federal tax return that are different but oftentimes if there's an income tax system the state tax system will mirror to some degree the format of the federal tax system and you'd have to do those two things at the same time with the same tax software and that would help you to figure out the amount on schedule a because you would be populating into the tax software as you prepare both returns the amount that you pay to the state so it's a pretty you know it pretty easy or a little bit easier to figure when you're when you're dealing with an income tax kind of system although it's still kind of confusing because you have those cutoff problems with regards to did they put the money in you know last you know the cutoff between when the when the amount was due on an accrual based method versus when you paid it but and we're really we're generally on when you paid it