 Income tax 2021-2022, taxes you paid. Get ready to get refunds to the max, diving into income tax 2021-2022. Most of this information can be found on the Schedule A Instructions Tax Year 2021 found on the IRS website at irs.gov, irs.gov. Here is our income tax formula focused in on the itemized deductions keeping them distinct in our mind from the adjustments to income, what you might hear called the above the line deductions, the deductions for adjusted gross income or possibly the Schedule 1 deductions. When we're thinking about the itemized deductions, we're always comparing and contrasting them to the standard deduction only taking the itemized deductions if they're greater than the standard deduction. Typically higher income taxpayers are more likely to be itemizing typically taxpayers that own a home and therefore have some of those big itemized deductions such as the home mortgage interest and the property taxes are the people likely to be itemizing just useful to keep those facts in mind. We're focused here on page one of the Form 1040 looking at line 12A, the standard deduction or itemized deduction. This is the Schedule A, the itemized deduction worksheet which could be added if we were itemizing the total of all the categories which are listed on the left hand side of all the itemized deductions put flow through and back to page one of the Form 1040 on line 12A if larger than the standard deduction. So these are gonna be the standard deductions that you just want to keep in mind. They're listed on the left hand side of the tax return. You wanna keep the general rule in mind. Easiest way to do that really is to just to get an idea or range is to remember the standard deduction for a single filer that is filing 12, 550 and then double it for the married and then the head of household is gonna be somewhere in between and then you're gonna increase them if there's certain conditions that will be met including over a certain age limit and if lined or not. So just keeping those in mind will give you a better idea of what different things will happen depending upon whether someone can itemize or not. So taxes you can't deduct. So when we get into the tax situation now the general idea that you want to be getting here and this is important just to visualize what is actually going on. When you're talking about the federal income taxes we're talking about the Fed versus the state and local taxes. So although they're still, they're both government entities, the federal taxes are different than the state. They're not like the same entity. They're different governmental entities that are not linked together. So when we're talking about deductions then we could have a situation where the state and local deductions may be deductible for federal income tax purposes and that's the general concept that we're considering here. So when we're talking about our taxes deductible obviously we're not talking about the federal income taxes being deducted to calculate federal income taxes because you could see that would give us a circle reference in our formula that would be confusing but possibly other taxes which are on the state and local level are the ones that could be possibly deductible. Those are the items we're looking into. And just as a side note you might just think about this from a political perspective as well because it's a really interesting debate and topic in terms of should state and local taxes be deductible on the federal side of things because when they are they actually influence the form and the amount of state and local taxes that would happen because you're basically having a federal influence you're kind of in a way you could say that you're kind of subsidizing higher state and local taxes because then you know you're gonna deduct it on the federal side and you could get some of it basically refund to some extent. So there's a lot of debate in terms of what should be the deductibility of state and local taxes and which states are being more or less benefited due to being just high cost of living states or low cost of living states and so on. So it's an interesting topic just in and of itself from kind of just the legal standpoint should they be deductible. But general rule the federal income so these are the taxes that can't be deducted federal income and most excise taxes. So clearly again you can't deduct the federal income tax when we're talking about federal taxes because you get a circle reference. Social security, Medicare, federal unemployment tax and railroad retirement RRTA. These are typically what we think about as the payroll type of taxes social security, Medicare and the federal unemployment. Now they are federal taxes but they're not federal income taxes. The primary tax we think about when we calculate the form 1040 is the federal income tax. Although we could deal with these other with like social security and Medicare for example, if you're a Schedule C business you have the equivalent which is basically the self-employment tax that could be on there as well. But basically we're talking about federal income taxes and the payroll taxes then are not generally deductible for it. Notice when we get into the self-employment tax then you have that above the line deduction. So it gets a little bit confusing there but we're talking about on the Schedule A here that deduction would be on the Schedule 1 if you were self-employed you might get half of the self-employment tax which we talked about in the past but now we're talking about the Schedule A deductions for taxes. Custom duties, federal, estate and gift taxes so these are different types of taxes than the income tax but not deductible. However, C line 16 later if you had income in respect of decedent certain state and local taxes including tax on gasoline, car inspection fees, assessments for sidewalks or other improvements to your property, tax you paid for someone else, a license fees. So these are all gonna be on the state and local side of things which are the items we're more likely to be able to deduct. Generally we're looking into their either possibly their sales tax or their income tax on the state side often times. So these other kind of taxes, the gasoline tax obviously is not something that we can include, it's just gonna be in the price of the gasoline maybe you could deduct it if you had a Schedule C business as an expense or something but we're not pulling out the tax to be deducted on the Schedule A, car inspection fees not deductible, assessment for sidewalks and those kind of things not deductible, tax you paid for someone else so you can't pay someone else's tax and deduct it on your return and say yeah I paid my neighbor's tax or something like that and then a license fee not license fee for example marriage drivers and the fees there. So foreign personal or real estate, foreign personal or real estate taxes for so these are gonna be the foreign taxes we're typically talking about the possibility to be able to deduct on the Schedule A here. Remember we're talking the specific location of the state and local taxes. So the deduction for state and local taxes so these are taxes you paid so the deduction for state and local taxes is generally limited to $10,000, $5,000 if married filing jointly. This was a change that was made a couple years ago and they put a cap on it and again this was a controversial type of thing because there's debate especially from state to state and locality to locality, the higher cost of living states and the states that tend to have higher taxes there are the ones that are benefiting most from being able to deduct the state and local taxes and that would of course be California and New York probably topping the list and they put a cap on being able to deduct the state and local of the $10,000 which probably hit mostly more well off people in higher income and cost of living states and so again that's a debatable kind of thing. They haven't reversed it at this point in time so it's still on the books at this point but that'll be a debatable kind of thing going forward as there's tension between high cost of living and low cost of living states and high income tax states and low income tax states so state and local taxes subject to this limit are the taxes that you include on lines 5A, 5B and 5C. Safe harbor for certain charitable contributions made in exchange for a state or local tax credit. If you made a charitable contribution in exchange for a state or local tax credit and your charitable contribution deduction must be reduced as a result of receiving or expecting to receive the tax credit. You may qualify for a safe harbor that allows you to treat some or all of the disallowed charitable contribution as a payment of state and local taxes. The safe harbor applies if you meet the following conditions. One, you made a cash contributions to an entity described in section 170C so it's a specific type of entity that qualifies under that section and return for cash contributions when you received a state or local tax credit. You must reduce your charitable contribution amount by the amount of the state or local tax credit received. Taxes you paid line five, if you meet these conditions and to the extent you apply the state or local tax credit to this or a prior year state or local tax liability, you may include this amount online, 5A, 5B or 5C, whichever is appropriate. To the extent you apply a portion of the credit to offset your state or local tax liability in a subsequent year as permitted by law, you may treat this amount as state or local tax paid in the year the credit is applied. For more information about the safe harbor and examples, you can see notice 219-12 at irs.gov. So you can look that up on the IRS website, a little bit more of an unusual situation you might not see all the time or you most likely will not. For more information about the safe harbor and examples, you can see notice 219-12 as well on the IRS website. You may want to take a credit for US possession tax instead of a deduction. So if US possession tax you got, you wanna look into which would be more beneficial the credit or a deduction. So you can see the instructions for schedule three, form 1040 line one for details if that would be applicable found on the IRS website. Stake and local income taxes line five A, you can elect to deduct state and local general sales tax instead of state and local income taxes, you can't deduct both. Now if you talk about, this is where the heart of it starts to get into. If you talk about how does the state generally fund the state in general, they usually have either an income tax mirroring kind of the federal system that has a federal tax or they will be using a sales tax to basically fund most of the operations of the state. So remember we have this distinction between the states and the fed. The fed is the federal taxes are usually geared towards mainly defense. They're supposed to be making sure, defending the whole country against foreign invasion is kind of what they're supposed to do just in general. And then the state and local is supposed to be collecting their own taxes for their own state and local things. And then there's these kind of crossover if there's things that go between states like freeways and stuff that then goes to the federal, you could debate on what's on the federal side on the state side. So that the state can tax in theory however they want. And usually the main forms of tax systems for a state or large entity, a large place would be a sales tax or an income tax. Now it used to be that they would be able to deduct the income tax. This was a long time ago and we weren't able to deduct so much the sales tax. And again, that kind of influences you would think states that say, hey, I think the sales tax works better for us here. And so once again, the federal government by having this deduction kind of imposes or influences what the state's gonna do, which is like if you could have taken off the state tax deduction before in the first place without ever putting it in, it probably in my opinion would have been a better thing, but now we're all dependent on it and so it's hard to change things once it's in place. But then they came back and said, well, okay, we're gonna allow you to take a sales tax deduction since we wanna keep our state income tax deduction on the federal side, the state income tax deduction typically benefiting the high cost to living states, California, New York and most prominent, most likely. And so then they added the sales tax and which most prominently there, there was the debate, I think Texas was probably the biggest state was saying, hey, we're kind of getting ripped off on the sales tax. And so then they included a sales tax, which is a little bit more complicated to do because the sales tax is something that you have to add up a little bit differently. So they got then tables that can help you to figure out what the average sales tax would be. So you can elect to deduct state and local general sales tax instead of state and local income taxes, but you can't do both. If you don't elect to deduct general sales taxes, include online 5A, the state and local income taxes listed next. State and local income taxes withheld from your salary during 2021. So generally just like with the Fed, if you're in like a state local tax, like that has income tax on the state side, this would be like California and New York, I believe. I live in California, so that's what they do here. So right, they just like on the federal, they kind of mirror the Fed to some degree and basically take out money for the state if you're a W-2 employee and have a similar kind of setup as you do on the federal side. So the state and local income taxes withheld from your salary during 2021, your forms W-2 will show these amounts. Forms W-2G, 1099G, 1099R, 1099 Miscellaneous, and 1099NEC may also show state and local income taxes withheld. However, don't include online 5A any withheld taxes you deducted on either forms such as schedule C, E, or F. And those are kind of be like the business forms, C being the most common E for rental property, farming, F. State and local income taxes paid in 2021 for a prior year, such as taxes paid with your 2020 state or local income tax return don't include penalties in interest or interest. So you can't really typically, if you have penalties or interest, we're talking about the state taxes that are deductible. So if you have penalties and interest on top of the state taxes, then they're trying not to incentivize racking up penalties and interest. So you don't get to deduct the state or the penalties that you had to pay to the state. If you had any penalties that you had to pay.