 Income tax 2023-2024, itemized deductions, property taxes, and other taxes. Get ready and some coffee so we can recognize the quacks when doing income tax 2023-2024. Most of this information can be found in the instructions for Schedule A Taxure 2023 which you can find on the IRS website at irs.gov, irs.gov. Looking at the income tax formula we're focused on what I would call the below the line deductions more specifically the itemized deductions. Remember in the first half of the income tax formula is basically a funny income statement. Most income statements having income minus expenses resulting in net income. Here having income minus various deductions resulting in taxable income. Noting for taxes deductions are good therefore we're typically looking to have more of them the difference between the above the line or adjustments to income and the below the line deductions in part being the above the line deductions do not have to be clearing a hurdle such as the standard deduction before they start to benefit us. However when looking at the itemized deductions they typically do need to accumulate higher than the standard deduction before they become a benefit to the taxpayer. Looking at the first page of the form 1040 we're focused on line number 12. 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 CPA six pack shirts a must have for any pool or beach time mixing money with muscle always sure to attract attention. Even if you're not a CPA you need this shirt so you can like pull in that iconic CPA six pack stomach muscle vibe man. You know that CPA six pack everyone envisions in their mind when they think CPA. Yeah as a CPA I actually and unusually don't have tremendous abs. However I was blessed with a whole lot of belly hair. Yeah allowing me to sculpt the hair into a nice CPA six pack like shape which is highly attractive. Yeah maybe the shirt will help you generate some belly hair too. And if it does make sure to let me know maybe I'll try wearing it on my head. And yes I know six pack isn't spelled right but three letters is more efficient than four so I trimmed it down a bit okay. It's an improvement. So we would then be attaching the form or schedule a schedule a is for the itemized deductions. You can see the categories on the left hand side although this is not the entire schedule. These are the hurdles that we have to clear. In other words the standard deduction tied closely to filing status for a single filer. We have the standard deduction 13 850 double that for married 27700 middle being head of household 20800 and if over an age limit and or blind we have increased standard deductions for one of both of those items if single one or four of those if married because we have two people with those two categories for each head of household qualified surviving spouse and so on and so forth. All right quick recap. We're looking at the federal income taxes meaning the federal income tax being the major type of tax for the federal government to collect money to do what it's supposed to do mainly defense for us and essence the military. We're thinking about whether or not we can deduct taxes for the calculation of federal income taxes which would mean of course we can't deduct federal income taxes to calculate federal income taxes that would result in a circle reference but what about the state taxes possibly we could deduct the state taxes. However remembering that normally in an income tax system the natural types of deductions would be those that we had to expand in order to generate revenue as is seen and like a schedule C where we have income minus expenses business deductions resulting in net income so that we're taxed on the net income but sometimes they're going to include and this happens much of what schedule A is other deductions that we can deduct even though they're basically personal in nature as would be the case for normal taxes for the state and local because those are taxes that will be dependent on your personal living choices on where you're going to be in other words if you paid state and local taxes as a part of your business you would think they might be deductible unlike a schedule C as a normal and necessary business expense but if they're personal you would think it would not be deductible but for some reason some of them are right and we talked about the ways that the state can tax in prior presentation which could include then the having a state income tax similar to the federal income tax system or possibly a sales tax system and we also talked about taxes on property in this case before real estate property typically someone's home and the deductibility of that and now we're taking a look at basically other property taxes which probably isn't the big one right because the big one when you think of taxes is the state tax the primary tax tool they use to fund the state which is typically a sales tax system and or of income tax system and then we have the property tax for those that own a home which is going to be significant and this category then is not the big one but still could be something that we have to keep in mind and add for the state and local personal property taxes alright enter online five C the state and local personal property taxes you paid but only if the taxes were based on value on loan and were imposed on a yearly basis example you paid a yearly fee for the registration of your car part of the fee was based on the car's value and part was based on its weight you can deduct only the part of the fee that was based on the car's value so this becomes something that seems a little bit complex right so now we're paying taxes on our car and you would think that that's going to be some form of taxation but actually only part of it is going to be the deductible part technically and so you want to so and this is something that although it's not as big of a dollar amount it will typically come up because everybody has the vehicle and so therefore are typically going to be paying the tax now again when would this come up only if someone is itemizing so if someone doesn't own a home then most likely of course they don't have a mortgage and not aren't paying the mortgage interest and don't have the property taxes therefore are far less likely to be itemizing unless they're fairly wealthy individuals in which case this the tax itself could get them close to itemizing for the state income tax and so on even though there's a cap on it now but in any case if they are itemizing then it becomes something that you got to pick up because they are they're almost certainly going to have a car and then you're going to have this tax that will be applicable as a standard kind of questioning point and then the question is how exactly are you going to calculate the fees that they're paying for their car to make sure that you're in compliance with the part that is deductible verse that that is not so example you paid a yearly fee for the registration of your car mostly everybody has the car registration they have to deal with because they own a car and all places and locales are going to have that registration part of the fee was based on the car's value and part was based on its weight you can deduct only the fee that was based on the car's value okay prepayment of next year's property taxes now here's a net the same kind of issue comes up here we're going to say when do you get the deduction for property taxes well the same as most other taxes for or most other deductions for federal individual income tax purposes on a cashed basis when you pay it and then you're going to come up with a bunch of bright ideas and say well look I made more income this year that I'm going to make next year because of the progressive tax system I'm going to be in higher tax brackets so I would like to take more deductions this year than next year why don't I play with the cutoffs and I'll prepay some of my stuff like taxes I'll try to pay it in advance getting the deduction this year and then not next year which will be beneficial because I'm in higher tax brackets this year or something now the IRS is going to not want to do that of course they're going to try to limit the manipulation of the tax code which again if you look at like corporations they have to use an accrual basis typically because the cash basis would allow them too much flexibility for that type of manipulation which distorts the actual financial statements for individual income taxes we can't audit everybody that closely to make sure they're using an accrual basis and it's too complex for most individuals to kind of have to do an accrual basis the cash basis is already hard enough so you stick to the cash basis but then people are going to try to get creative and do some accrual cutoff things and then the IRS is going to have to try to make rules to stop that from happening which one of those would be these prepayment ideas so only taxes paid in 2023 and assessed prior to 2024 can be deducted for 2023 state or local law determines whether and when a property tax is assessed which is generally when the taxpayer becomes liable for the property tax imposed line number six other taxes enter only one total on line six but list the types and amounts of tax included so we have the other taxes so these would be obviously they don't have their own line item so you would think they would be less common items we can put the one line here and then include the detail of them on another schedule right so include on this line income taxes you paid to a foreign country and generation skipping tax that's the GST imposed on certain income distributions now again if you have foreign taxes and you're dealing with people that are paying foreign taxes you're probably dealing with more complex returns that's going to be a question from a taxpayer perspective a taxpayer perspective do I want to be taking on clients that have issues that are outside of my state even because I'm probably going to specialize in the state that we are in if they have other states or they have tax implications in multiple states that could add a level of complexity which you might say I'm not just going to take those on or maybe I will and then foreign if people have foreign taxes that they owe and so on and dual citizenship and basically foreign income and that kind of thing whole another world that can really expand the complexity of the tax return the question from a tax preparer standpoint being do I want to take those clients on do I want to specialize in those areas maybe that's where I want to really create value possibly and then we've got this generation skipping tax what is that well note that we have the a state tax or the federal government usually taxes people on an income situation meaning we tax people when they earn the money we don't tax their balance sheet because we already taxed it when they earned the money so that's the idea but when someone dies they wanted to tax the balance sheet they want to compile all the stuff that they have and tax the wealth that they have at that point in time that's called an estate tax or a death tax right so what are people going to do if that happens well if you're going to tax me when I die I'm going to try to give away all my money before I die on my death bed right but if you so then the government's going to say well I don't like that because now that rich person I was all waiting on my fingers where like Mr. Burns is going ready to take the guy's money when he dies because he's on his death bed but then he gave all his money to his children right before he died and so we can't have that so then you can see that they're going to say well you can't do that you can't give all your money away on the death bed so how are you going to limit that well then you have to put in a gift a limitation on the gifts that you can give right so you and that's going to lead into all kinds of of estate planning kind of issues in terms of how can someone pass money from one generation to another without being hit with the state tax with the with the estate tax or death tax and then income tax situations and that's when you're saying well if I can't give it to my to my son or daughter maybe I can give it to their grandchild and have a generation skipping kind of situation and so on and so forth so that gets into a state planning which again is usually there for higher income individuals because those would be the ones that would typically be subject to this kind of a state or death tax although I wouldn't be surprised the way things are going because we're the money's you know the federal government spending too much money they're going to like anything else they might start applying it lower down lower down the ladder at some point when they when they hit the wall in terms of spending but that's so that's usually planning for large for higher income individuals so you would be dealing with that kind of thing typically if you have higher income individuals and you're doing things like a state planning or more complex tax planning situations usually all right tip you may want to take a credit for the foreign tax instead of a deduction so if you have foreign taxes then the question is again how are you going to be dealing with that because if you have taxes related to a foreign country they're going to have their own tax system so the question is who's going to get the income the foreign tax income the United States or the other country we don't want a situation where you're double dipping because that would be bad for the taxpayer of course but in order to work that out we would need some kind of tax treaty between in essence the two countries so you have to see how how that works and then and then basically what's the best way to record that on the return is it like a deduction that you record on it or is there a credit so again that would be more of a specialized area for people that have like income for example in multiple countries that could be subject to multiple taxes from those countries so you may want to take a credit for the foreign tax instead of a deduction see the instructions for schedule 3 form 1040 line 1 for details don't include taxes you pay to a U.S. territory in this line instead include U.S. territory taxes on the appropriate state and local tax line don't include federal estate tax on income in respect of a decedent on this line instead include it on line 16