 Income tax 2023-2024. Itemized deductions, other itemized deductions. Get ready and some coffee because we're providing inspiration about income tax preparation. 2023-2024. Most of this information can be found in the instructions for Schedule A, Tax Year 2023, which you can find on the IRS website at irs.gov, irs.gov. Looking at the income tax formula, 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 a funny income statement. Most income statements having income minus expenses resulting in net income here having income minus deductions resulting in taxable income. Noting deductions for taxes are good. We're typically looking for more of them. The differences between the above the line deductions or adjustments to income and the below the line deductions including the fact that the adjustments to income do not need to clear a hurdle before the taxpayer gets a benefit from them. Whereas the itemized deductions do need to clear the hurdle of the standard deduction before the taxpayers get a benefit from them. First page of the form 1040, focused on line number 12, we're 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 crunching numbers is my cardio product line. Now, I'm not saying that subscribing to this channel, crunching numbers with us will make you thin, fit and healthy or anything. However, it does seem like it worked for her, just saying. So, yeah, subscribe, hit the bell thing and buy some merchandise so you can make the world a better place by sharing your accounting instruction exercise routine. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. We take the greater of the standard or itemized deduction. If itemizing, we would then be including the schedule A, the schedule A being the itemized deductions, the types of itemized deductions on the left hand side, although this is not the entire schedule. Remembering the itemized deductions have to clear the hurdle of the standard deduction, the standard deduction being tied heavily to the filing status. Single filers having a threshold or standard deduction of the $13,850, double for married filing joint $27,700 in the middle for head of household $20,800. If over a certain age and or blind, we increase those standard deductions for single filers, one or two of those conditions, we have the increased standard deduction on the right. Married filers, we could have four different conditions because two people, two conditions each here are the related standard deductions on the right. So now we're looking about other itemized deductions. So now we're in that other category. We're in the catch all type of category. Remembering this is another section where in the past there might have been more things that could be included in it. You can imagine this would be one of those categories that would expand and detract as different people, as different lawmakers get into place and into power and want to do different things with the tax code. Also, just recall when we look at taxes, federal income taxes or an income tax system in general, we would expect the natural deduction to be those things that helped us to generate revenue, which we can see clearly on the schedule. See your business income where we have income minus those deductions needed to generate the income taxing on the net income, not the gross income. We don't see that as clearly on the individual income tax return because most people are W2 employees. Therefore, don't have those business deductions because the assumption is that the employer is providing those the deductions that we do see are unnatural to a federal income tax system, meaning the government's trying to incentivize us manipulate our behavior through the tool of the tax code. So just keeping that in mind because that's what most of the itemized deductions, that's the kind of category that they fall into. The IRS is manipulating us with the tax code in terms of whatever behavior they're trying to persuade us towards based on whatever whoever's influencing the lawmaking. So other itemized deductions line 16, increased standard deduction reporting. If you have a net qualified disaster loss on form 4684 line 15 and you aren't itemizing your deductions, you can claim an increased standard deduction by using schedule A by doing the following. So we noted a little bit last time on disaster losses, noting that if you have a loss related to a disaster, you would think it would not be something that you would want to only allow people who are itemizing because people who are itemizing are people that are usually going to be more well off individuals because they at least own a home, possibly a home in a more higher cost of living area because those are the things that are going to push people over to itemizing, meaning they're the ones that are going to need to be paying the loan for the mortgage interest and the property taxes. However, if there's a disaster, you would like everybody to get a benefit from it because it's one of those unusual kind of situations that you're trying to give more immediate relief, most likely relief being more important to the lower income people those not taking the itemized deduction. So if you're going to allow the deduction on the schedule A, then you might need an exception to be able to allow a deduction on schedule A, even though you're not itemizing but are taking the standard deduction. Okay, so list the amount from form 4684 line 15 on the dotted line next to line 16 as, quote, net qualified disaster loss in, quote, an attached form 4684. So if you have a net qualified disaster loss in your particular location as a tax preparer, you probably want to do your research on that situation and be ready for this kind of documentation looking possibly in more detail at the form 4684 noting that the software of course will help a lot because you'll be able to see hopefully the disaster loss listed in the software, which will help you to appropriately calculate the disaster loss. But you want to keep that in mind and it's severely restricted to being a net qualified disaster loss is what we're talking about here. So list your standard deduction amount on the dotted line next to line 16 as, quote, standard deduction claimed with qualified disaster loss in, quote, combine the two amounts on line 16 and enter on form 1040 or 1040 SR line 12. So net qualified disaster loss reporting. So if you have a net qualified disaster loss on form 4684 line 15 and you are itemizing your deductions, list the amount from form 4684 line 15 on the dotted line next to line 16 as net qualified disaster loss and include with your other miscellaneous deductions on line 16 also be sure to attach form 4684. So obviously if you have the qualified disaster loss and it's being reported on the schedule a if you're already itemizing, you're already cleared the threshold you already own the home having the mortgage interest and the property taxes push you over. Then you would think the itemized deduction would be reportable on the schedule a and you would get the benefit from it because you're itemizing. It's when you're not itemizing then the question is how can the tax system be set up so that you can still get a benefit for the qualified disaster losses even though you're not itemizing because possibly you don't own a home or possibly don't own the home in a high cost of living area, for example. Other itemized deductions list the type and amount of each expense from the following list next to line 16 and into the total of these expenses on line 16 if you are filing a paper return and you can't fit all your expenses on the dotted lines next to line 16 attach a statement instead showing the type and amount of each expense. Most of the time these days people are using electronic software in which case you might have more ability to add a longer list to the documentation but if you need to then I think the electronic software also allows you to basically add an attachment oftentimes depending on the software. So we have the gambling losses. Gambling losses include but aren't limited to the cost of non-winning bingo, lottery and raffle tickets but only to the extent of gambling women winnings reported on schedule one form 1040 line 8B. If gambling winnings and losses and gambling in general sounds familiar it's because we talked about it when we thought about the income side of things in which case if you participated in some type of gambling then you might have to record the winnings as income because the general idea from the IRS's perspective is that anything should be taxable in income that you receive right unless the IRS says otherwise and that would of course generally include gambling. Also if your income is above a certain threshold you win more than more than a certain threshold then the payer will most likely have to give you documentation about those winnings going not only to you but like with other documentations like W2's and 1099's also to the IRS and therefore you're going to have to record it of course on the taxes because if you don't the IRS will most likely question you about it. Now if you had winnings you might say hey look I lost a lot more money than I won if I do a lot of gambling that will often be the case. What about my losses? Well losses usually the expenses in a sense of gambling if you were a professional gambler then it might be on a schedule see it should be a business possibly we talked about that idea. But if you're not like a professional gambler then you would think it's going to be a hobby type of situation in which case the income not subject mainly to self employment income which is nice might still have to be taxable and the expenses then you can't typically deduct but you can't typically deduct as like business expenses but possibly on the schedule A as we can see here. The losses that you're allowed to deduct however only be going up to the amount of income that that you receive so you have that kind of limitation. And you can only take the losses if you're very fairly well off individual or at least one that owns a home typically because that's the thing that's going to be pushing you over to the itemized deduction. So if you're a poor person gambling then you get no benefit for the losses and you still have to report the winnings but if you at least own a home then you might be able to take some of the losses with relation to gambling. What does this do in practice? Well you might have questions about people should I should I try to record all of my losses and whatnot and keep track of them. And the and generally the idea well that's kind of a pain to do. But if you are itemizing then you might want to do that because if you have winnings you're going to have to report them and then you might get the benefit of the losses up to those winnings. The losses being something that isn't reported to the iris the iris doesn't have that information. However, in the event of an audit they're going to want to see it right so if you won, you know, a $100,000 car and then you wrote off losses of 100,000 on the schedule a then the iris is not going to have that documentation to verify it. But they might audit you on it and it'd be like well where's the losses that you wrote off up to that you know $100,000 car you would need then the documentation would be the general idea. Okay. Casualty and theft losses of income producing property from form 4684 line 32 and line 38B or form 4797 line 18A. So we talked a little bit about the casualty and theft losses for more information related to those we can look at the instructions for the form 4684 and then we have the federal estate tax on income in respect of decedent. Now estate taxes in general get into a whole nother world of tax planning and preparation and once again are usually involved in the more higher income side of things remembering that the income tax the federal government in the United States typically gets most of its money from the federal income tax. So we have an income tax type of system meaning they're going to try to tax people when they earn the money. They're not taxing people after the money is already in their bank account because that would be a wealth tax they tax the money before it gets into the bank account. But for some more wealthy individuals generally you're going to have the tax on the balance sheet on what's in the bank account or more more accurately what the holdings are or the value of an estate. So they have to want someone dies the death tax the estate tax value the estate and then basically apply the tax and then you get into some complex relationships sometimes between like the income tax and the estate tax. So again that usually is going to come into play for more well off individuals in which case you might be getting into the world of a state tax planning which is tied together with gift taxes and of course with the income tax. So a deduction for an amortizable bond premium for example a deduction allowed for bond premium carry for carry forward or a deduction for amortizable bond premium on bonds acquired before October 23 1986. Now this is also something that's somewhat more unusual for most people because when most people invest they're going to be investing in stocks and bonds but often done through like a retirement plan like an IRA or a 401 plan typically not investing in stocks and bonds directly but using tools mechanisms such as mutual funds and ETFs in which case you might not run into this kind of situation but you might have some traders that are purchasing and selling bonds and then you get them to the idea of amortizing the bond premium and that's when you can get into the weeds more on that specific situation. So an ordinary loss attributable to a contingent payment debt instrument or an inflation indexed debt instrument for example a treasury inflation protected security. So again you have a similar kind of situation with a type of investment which is quite specific which could be purchased by normal individuals but often times when you're looking at normal taxpayers most of their investments are probably going to be using the tools of mutual funds and ETFs and most likely will be also under the umbrella of like a 401k plan or an IRA in which case you might not have those these situations apply often times. Deduction for repayment of amounts under a claim of right if over $3000 so if that comes up you can see publication 525 for details there a certain unrecovered unrecovered investment in a pension which again hopefully is a somewhat unusual situation where you have an unrecovered investment that was in a pension that would be a not good. So so impairment related work expenses of a disabled person so again somewhat of an unusual category but one that could come into play so you want to you know keep that in mind.