 Income tax 2023-2024. Other itemized deductions and casualty and theft losses. Tax software example. Get ready and some coffee because we'll have to handle a little perspiration so we can push through with our income tax preparation 2023-2024. Here we are in first a word from our sponsor. Yeah, actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us. But that's okay whatever because our merchandise is better than their stupid stuff anyways. Like our Accounting Rocks product line. If you're not crunching cords using Excel, you're doing it wrong. A must-have product because the fact as everyone knows of accounting being one of the highest forms of artistic expression means accountants have a requirement, the obligation, a duty to share the tools necessary to properly channel the creative muse. And the muse, she rarely speaks more clearly than through the beautiful symmetry of spreadsheets. So get the shirt because the creative muse, she could use a new pair of shoes. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Our Form 1040 example problem using LASERT tax software. You don't need tax software to follow along but if you have access to it, it's a great tool to run scenarios with. You can also get access to forms, schedules, instructions at the IRS website, irs.gov, irs.gov, starting with our taxpayer Adam Taxman. Just trying to avoid a dang tax man living in Beverly Hills 90210 single file order start out with no dependence. $100,000 W2 income standard deduction at the $13,850 to get to the taxable income $86,150. We can mirror that in our income tax formula. $100,000 minus the deduction $13,850 gets us to the $86,150 tax calculated by the software at $14,266 to start out with which is on page 2 of the Form 1040. And there's our starting point. Let's go back to the first page. Our focus this time is going to be on line number 12 which is the greater of the standard deduction or itemized deductions. Remembering we would only take the itemized if it's greater than the standard which is dependent in large part on the filing status. If single filers have that standard deduction $13,850 married filing joint doubled to $27,700 head of household in the middle $20,800 and if they are over a certain age and or blind we can see the 1040 SR with added standard deductions for one or both of those conditions. If single raised here if married filing joint then you have two people with two possible conditions so we have four possible standard deductions there. Let's go back to the Form 1040 and if we are going to be itemizing we're going to be pulling in the Schedule A so let's go on to that Schedule A which is the itemized deductions the list of the categories on the left hand side. We're down here in the casualty and theft losses and the other itemized deductions. So first let's think about the casualty and theft losses which have been restricted. This is one of those areas that have kind of grown and then detracted over time and it's been in a period of detraction. Meaning there's going to be a lot of restrictions in terms of what you might be able to include with casualty and theft losses and if you get questions about it many people might be thinking of basically old rules with relation to it. Now there's also a question as to whether something is going to qualify for a federally declared disaster and whether or not it's something that you can get a benefit from only if you itemize or if possibly we can use the itemized deductions as we can basically see here in this other format of the Schedule A if we had a net qualifying disaster loss. In other words depending on the categorization of the type of loss that we have we might be able to use the Schedule A to give us a benefit over and above the standard deduction or we might have to include it as a standard deduction which means we'd have to clear the hurdle before we get a benefit from it. Now note that wherever you are if you're a tax preparer then if there was a natural disaster or something that was declared as a disaster in your area then it's likely that it's going to be impacting clients around you and then of course you want to do your research from that point at that particular location would be the general idea so this will be very specific to particular types of locations but just a general overview of it if we said that there was some kind of loss, some kind of disaster happened we might be putting that into something similar to like a depreciation kind of schedule or a Schedule D basically would not depreciation like a Schedule D where we would usually report sales of like stock or something like that like dispositions but in this case we're going to assume that some type of property has been removed from us right? Our location or something was harmed due to a natural disaster or something like that is the general idea. So then you might have a casualty loss so I put something down here with regards to a casualty loss so we might say that the date acquired I'm going to say negative 010100 to just have various dates the date sold which is going to be the date basically of the disaster we're going to assume I'm just going to say 060523 sometime in the tax year the sales price I'm going to assume is basically zero because it was basically destroyed and not sold and I'm going to assume the cost or basis is let's start with 50,000 50,000 and then down here I'm going to put it as a casualty and theft loss so it's not like a Schedule D or capital gain I'm trying to get it as something that could be deducted on the Schedule A so I'm going to give it a description I'm going to say it's personal versus business I'm going to say personal in our case and then I'm just going to notice we have a list software will typically give you kind of these lists of the federally declared disasters so that will help you to determine if it's deductible because it should be something that would be declared and have basically a number that has been assigned to it so if I pick something like a federally declared qualified disaster actually let's start with a federally declared disaster other than qualified and I'll pick that one and then I'm just going to pick a disaster here and again this will help you to help you to determine and locate because the disaster should basically have a number to it so I'm just going to basically pick one to give a general idea here and I'm going to say that the fair market value before the casualty or theft was 50,000 the fair market value after is zero that might not always be the case because it might not be totally washed away or destroyed or whatever so you might still have some value within it fair market value determined under safe harbor and then the insurance or some other reimbursement if you got a reimbursement for it then you're going to have to put that there because you got reimbursed for the loss so then if I pull that over and say okay what's that going to do to the form just as a general outline this is just a general outline here of the data input so then if I scroll down we're going to say alright what what happened here it's put into the casualty and theft losses as opposed to other itemized deductions casualty and theft losses from a federally declared disaster other than net qualified disaster losses and we can see that that's pulling in form 4684 and enter the amount so if I go into the 4684 here's the information from their casualty and theft losses and we have the personal use property so here's the property and we listed out basically the property here's the code that we are using if there were multiple properties that were lost then we would have to basically we can have multiple categories here and we might even need an addendum or attachment if we had more than that here's the cost or basis and that's going to be a $50,000 loss in this case it's got to clear this $100 hurdle which is kind of a funny thing that's been there for some time with the casualty and theft losses and hasn't really changed even though the dollar amount seems fairly low at this point and then it's taking 10% of our adjusted gross income that's going to be our form 1040 line 11 there's line 11 adjusted gross income pulling into form 4684 where it's taking 10% of that so the 49,900 minus the 10,000 that's where it's coming up with that 39,900 which is pulling over to the schedule a that amount being large enough to clear the standard deduction and that's why we're able to take it in this case it's pulling over then to the form 1040 and we can see the 41105 is greater than the 13,850 therefore we're itemizing as opposed to the standard deduction the taxable income at 58,895 page 2 tax is now at 8,260 so if I go back to this 4684 couple things to note here if there was something like insurance that was reimbursed let's say the insurance was 10,000 then if I go back on over you would expect the 50,000 we got reimbursed by the insurance so it's bringing it down to 40,000 minus the 139,900 minus the 10% we're at the 29,900 let's say the insurance reimbursement was 20,000 that we got reimbursed for so now we could see that it's down to 19,900 let's say the reimbursement of the insurance was 30,000 and we go back on over and now we can see that we don't we no longer have the itemized deductions because we still have to clear that hurdle in this particular case so the 9,900 is pulling in but that's not enough to pull us over okay so we're not itemizing now in some cases it might be reported down here which we can see in this schedule a depending on the type of disaster that happened so now we're saying it's going to be a net qualified disaster loss so similar condition but now I'm going to say oh wait but what if it was a net qualified disaster loss I'm just going to pick a federally declared disaster occurring in that period right and I'm just going to pick it randomly just so we could kind of get an idea of the of the information so if I pull that over then I'm going to undo that now it's not in the casualty and theft losses up top but rather down below what has the net qualified disaster loss 19,500 and the standard deduction claimed with the qualified disaster loss 13,850 so in this case we're still using the schedule a in essence but it's being used in such a way that someone that doesn't qualify for the the the itemized deductions still gets a benefit from it which is a little bit wonky right it's a little bit tricky and that's how we're getting up to this 33,350 in other words if I go up to this form 1040 we can see that 33,350 is here we had to clear the hurdle of 13,850 in order to get there but what it did is it said we we're going to we're going to in this section give you the disaster loss of the full 19,500 and give you that 13,850 that's how it's getting to the 33,350 which is a substantial deduction on the on that pulls into the first page of the form 1040 now this is still pulling in from the 4684 casualty and theft losses so we've got the 50,000 the 30,000 that was reimbursed there's the 20,000 then we have the 500 instead of the 100 that's why it brought about down to that 19,500 and so on so again this is just a general kind of concept so you can kind of see how the flow of the forms might work but you want to make sure that any kind of losses or disaster losses that you have in your area you're doing the research for them because they can be quite complex as we saw in prior presentations when we discussed the reimbursement of insurance and all that kind of stuff we can also have personal personal versus page two where we have the business income producing property page three the theft for lost section for the Ponzi type and then page four we have an election to deduct federally declared loss in proceeding tax year so remember this is important because if you're dealing with people that have a disaster that happened then it's likely that it's going to wipe out their income so the fact and that means that they're not going to get as much of a tax benefit if they have to take the loss in the current year so number one if the disaster happened in 2023 then if you want to get the money as quick as possible you would like to go back to 2022 so that hopefully you can get the funds sooner to deal with the loss that happened and number two if the loss happened in 2023 then your income might be a lot lower so if I go to the form 1040 if I was making 100,000 we know we have a progressive tax system so my higher tax rate is going to be higher if my income dropped from 100,000 to like 30,000 then I'm going to have a lot lower of a tax rate and this 33 this huge deduction that I get this year wouldn't be all that advantage is because I wouldn't have any income anyways and I wouldn't be owing much tax so the ability to take the loss in the current year or the prior year is something that you want to keep in mind with those kind of losses as well so that's just a general overview of that alright so let's remove that for now I'm going to go back on over and Sarah let's delete that one and so now if I go back on over so we're back to where we were if I go into the Schedule A and go into my Schedule A we also have the trustee gambling losses that might go in there as well so that's going to be in coincide with some kind of income that we saw in a prior presentation so if I go into the Schedule 1 and if we have some kind of income for gambling winnings if I go into that and say we had gambling winnings reported on a W2G and let's say that was 10,000 of winnings and then I'm going to say this was from G winnings and let's pull that on over here so now we've got the form 1040 that was 100,000 W2 and then we've got the 10,000 from gambling winnings up to 110 I'm going to have to report those gambling winnings of course to the government because if the winnings were over a certain amount the government's going to have the W2G that was required to give it to us also to them and then the question is well what if I had losses with those gambling winnings well if one if you were a professional gambler maybe you wouldn't be reporting it here but rather on a Schedule C and then you might have a different situation because that would be your business but for most people you're not a professional gambler so then the question is if I have to report my income here what about the losses that I had to put in play and typically you could only put the losses on the Schedule A and only up to the point of the winnings so in practice the question you often might have to deal with if you have someone that does a lot of gambling the question is well do I have to track all my losses because that's kind of a pain to do well if you don't expect to have much winnings or whatever or if you're not close to itemizing at all then it might not be beneficial because you'll have to clear this huge threshold of in our case for the single file the 13850 in order to even get the itemized deductions even if you had winnings right because you have to clear that threshold in order to get them if they are itemizing however if they've cleared the threshold then it might be worthwhile of course to try to add up your losses because then if you do have winnings then you can net the losses possibly out at least to the extent of the winnings on the Schedule A where you might have some benefit from it so let's go back on over and let's go to the Schedule A and let's go to the itemized deductions and let's say we had gambling losses now notice in this software I'm gonna say gambling losses oh wait there's an oh that means it's an override many softwares will have that so I'm gonna go as there a better way for me to enter those losses so I don't override something and so I'm gonna go okay let's go back into those winnings and then I'll I'll see it here that it has this losses up top so I can go to the losses and say okay what if I had losses of something greater than the winnings 20,000 now remember that the losses are not something that you're gonna get documentation for the IRS doesn't have it either but if you were to get audited then you would have to produce the documentation so that's how you'd have to so you want to make sure that you have the documentation although you will not be providing the documentation and the casino obviously didn't provide the document or whoever you got the winnings from didn't provide the documentation to the government but they could still come after you in the form of an audit in which case you'd have to produce the documentation so now we've got the winnings still included at the 10,000 on the schedule a then we have the losses coming in but those losses aren't enough the 10,000 it was capped at 10,000 because that was the amount of the winnings even though I put 20,000 in and that's not enough to push me over so I didn't get any benefit from it because I'm not able to itemize what are the things that usually help somebody to itemize owning a home because you're usually going to be alone on it as well as the property taxes so let's add those components and then we'll see we'll see what happens here so if I go back in and I say that now we have itemized deductions and we're going to go that they have that's not what I wanted itemized deductions schedule a and we're going to say that the interest what we'll say is at where's the interest 12,000 and then the taxes on the home real estate taxes once again we'll just say is the 6,000 well not 66,000 and then if I go back on over now on now I'm getting a benefit from it because now I have state taxes 6,000 plus to 1,000 205 7,000 205 and then I have the mortgage interest at 12,000 now that 10,000 is giving me a benefit because it's taking me up to 29205 which clears the hurdle of the of the 13,850 for a single filer so now I'm able to itemize if I see that over here on our worksheet we could say okay let's look at it this way I had winnings from gambling which I would see on the W2G and I'm going to say all right we had winnings I didn't add it here yet let's add let's add one here I'm just going to pull this down and I'm going to call it gambling winnings I thought I added that some at some point but we'll put it here gambling winnings did I spell it right probably not let's do review spell check gambling gambling I told you I bet you that I didn't spell it right and I was right 10,000 and then so that pulls over now wait it didn't let's sum it up and then it'll pull over summing this up down to here and then that should pull over so now we've got the 110,000 and then we're going to say that the itemized deductions now let's add the taxes so we have the real estate taxes of we said 6,000 and the the tax that they put in place for the sales tax which we let the system calculate 1205 1205 and then we said that the mortgage interest was 12,000 12,000 that brings me to the 19205 which allows me to to then itemize so now those losses will come into play and give me a benefit because I'm already over the standard deduction so now I'm going to say that we have the interest gets to charity casualty losses other I'm just going to put gambling losses and I'll put 10,000 here now notice it was actually 20,000 but I'm going to limit it to 10,000 because that's the amount of the winnings that I had and so that brings it up to 29205 going to the first page of the 1040 29205 is greater than the standard deduction 13850 therefore we're taking the 29205 get into the taxable income of 80,795 is that what we have over here let's check it and we've got here the 8780,795 so that's the general idea with that one now remember we had some other ones that fall into this category I'm not going to go over to them in detail because I think those are the ones that you'll see most often but we have the gambling losses, the casualty and theft losses, the federal estate tax on income in respect of a dissident so you have the state information the deduction for amortizable bonds which we talked about before which I think most investors probably aren't going to have which we talked about before and ordinary loss attributable to a contingent payment debt instrument so we talked about that in a prior presentation not you know the most common of occurrences there deduction for repayment of amounts under a claim of right if over $3000 certain unrecoverable investment in a pension and impairment related work expenses of a disabled person so again these are less common to come up but if they do come up you might want to keep them of course in the back of your mind so you can basically do more research with regards to properly inputting those