Schedule A (Taxation) - Explained
What is Schedule A?
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What is Schedule A?
In the United States, taxpayers file their annual income tax returns with the Internal Revenue Service (IRS) using the standard 1040 form. Schedule A is an attachment to 1040 form that allows taxpayers to report eligible expenses or itemized deductions that will help them reduce their tax liabilities. In addition to filing a 1040 form, taxpayers who accrued expenses that can make them eligible for tax deductions can file them using Schedule A.
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How Is Schedule A Used?
Generally, the eligible expenses or itemized deductions that individuals can file on a Schedule A are in seven categories. Expenses outside the designated categories are not recognized for tax deduction purposes by the IRS. These categories are;
- Expenses on charity
- Medical dental expenses
- Job expenses
- Interest individuals pay
- Taxes individuals pay
- Casualty and theft losses, and
- Other miscellaneous deductions.
The Schedule A form is optional, that is, taxpayers can choose to attach it to their Standard 1040 form or otherwise. When using Schedule A, taxpayers apply for deductions using the category that will yield the highest deductions. Through Schedule A, taxpayers adjusted gross income (AGI) are reduced after itemized deductions have been made. Aside from the categories of itemized deductions that are allowed on the Schedule A, there are guidelines on where taxpayers are expected to list their deductible expenses. Itemized deduction is an alternative to standard deduction that is subtracted from the AGI of taxpayers. Using itemized deductions allows a taxpayer use the deduction category that will give the highest deduction but this also means that the taxpayer must keep track of all deductible expenses. Keeping record of deductible expenses is a daunting task, this is why many taxpayers used standard deduction rather than itemized deductions. Taxpayers who use itemized deductions must keep all receipts, invoices and cheques showing their expenses deductible. Taxpayers who itemize their deductible expenses enjoy more tax deductions than those who use the standard deduction. In some cases, taxpayers opt for itemized deductions when the total amount deductible using standard deduction is less than the amount deductible using itemized deductions. Expenses that are eligible for tax deductions include medical expenses, dental expenses, gifts to charity, losses to casualty and theft losses and others. Generally, tax payers calculate the amount deductible from their taxes using both standard deduction and itemized deduction and select the option with the highest deduction.
Academic Research on Schedule A
- A taxing trend: The rise in complexity, forms, and paperwork burdens, Keating, D. (2005). NTU Policy Paper, 116. Tax complexity is creeping up. One of these situations is the latest assessment of the present paperwork burden created by the Treasury Department almost all accounted for by the IRS (Internal Revenue Service), overall 7.64 billion hours now, as per record of the OMB (Office of Management and Budget). This is equal to almost 3.82 million employees serving forty hours per week every year having only 2 week holidays.
- Federal income tax on timber: A key to your most frequently asked questions, Haney, H. L., Siegel, W. C., & Bishop, L. M. (2001). USDA Forest Service, Region 8, TP-034, April 2001. This paper evaluates the most general situations faced by non-corporate taxpayers while estimating federal income tax on the timber holdings. The authors analyze the prospects of every situation with the help of a 3-column format. The columns include forest activity type, the way to qualify for optimal tax treatment and tax and reporting forms. The received responses are essentially concise and taxpayers must consult the other information sources listed in this paper at the end for a more detailed discussion on these issues.
- Modeling and enactment of workflow systems, Ellis, C. A., & Nutt, G. J. (1993, June). In International Conference on Application and Theory of Petri Nets (pp. 1-16). Springer, Berlin, Heidelberg. This paper investigates the ICNs (Information Control Nets) taken from Petri nets of high-level as a modelling office workflow tool. The authors, first, elaborate carefully the workflow notion and then, provide a formal as well as informal ICN definition. They explain its utility with the help of an analysis example. Another use of ICNs is as a base for the implementation and application of office work coordination systems which provide an environment based on the computer network to assist in monitoring, scheduling and executing the office work. These systems should be robust, reliable, flexible and easy to use. The authors present a mechanism for exception handling and dynamic change. The summary of the paper has been concluded with research challenges to meet in future.
- Tax Deductions for Individuals: A Summary, Lowry, S. (2014). Congressional Research Service, Washington. There is an option for every tax filer that he can claim deductions while filing his income tax return. Deductions have 4 main objectives in the tax code: (i) to account for unusual, big and essential personal expenditures for example, outstanding medical expenses (ii) to encourage specific type of activities, e.g. charitable and homeownership contributions (iii) to release the tax burden paid to local and state governments (iv) to make an adjustment for the cost of earning income, for example, unreimbursed expenses of employee. Individuals can take a few tax deductions even if they don't itemize.
- How would small business owners fare under a business entity tax?, Knittel, M. J., & Nelson, S. C. (2011). National Tax Journal, 64(4), 949. The main focus of this paper is to investigate how small business owners will fare under a tax of business entity. There were flaws in the prior analysis of the tax code effect on the owners of small business concerns because of the lack of clear definitions and data constraints. This paper uses a new data source providing a nuanced definition of the owner of a small business. The authors propose tabulations which quantify many tax features of small business owners for the 2007 tax year. They use their findings to understand how small business owners may fare under a certain business reform offer that applies a flat rate on all business revenues irrespective of organizational form.
- Social security administration's master earnings file: background information, Olsen, A., & Hudson, R. (2009). Soc. Sec. Bull., 69, 29. The SSA (Social Security Administration) gets earnings reports for the working population of the United States every year. Earnings information is used to administer the SS programs (social security) and to do research on the populations. The admin requirements of SSA have changed now and consequently, there are many changes to the basic source of earnings data of SSA called the Master Earnings File. This paper acts as a resource for researchers using earnings information for going through the work patterns and their implementations. It is a resource for administrators and policymakers who should understand the information used in organizing present-law programs and the information available for potential changes to these programs.
- Taxation and household portfolio composition: US evidence from the 1980s and 1990s, Poterba, J. M., & Samwick, A. A. (2003). Journal of Public Economics, 87(1), 5-38. This article evaluates the relation in the assets set owned by households, the portfolio shares and households marginal rates of income tax. It uses information from the years 1983, 1989, 1992 and 1995 SCF (Surveys of Consumer Finances). The authors propose a new algorithm to impute rates of federal marginal taxes households. The findings are that the marginal tax rate of a household has a significant impact on the decisions of asset allocation. The probability of tax-advantaged assets owned by a household has a strong relationship with its tax rate on general income. The investment amount through tax-deferred accounts, [e.g. IRAs and 401(k) plans] is an increasing function of the marginal tax rate of a household.
- The impact of floors and phase-outs on taxpayers' decisions and understanding of marginal tax rates, Rupert, T. J., Single, L. E., & Wright, A. M. (2003). Journal of the American Taxation Association, 25(1), 72-86. This paper investigates the impacts of phaseouts and floors on the ability of taxpayers to estimate their accurate marginal tax rates and how it can influence investment decisions depending on the tax rate. The authors made an experimental setting and inquired the taxpayers to optimize their after-tax income by selecting between a nontaxable and taxable bond. They assigned every participant to 1 of 3 tax systems, i.e. low complexity and no floors, medium complexity and 1 floor and high complexity with a phase-out and a floor. In every condition, the effective marginal rate of tax remained the same. The decision performance was much better for participants encountering the low complexity system as compared to medium and high ones.
- Determinants of tax preparer usage: Evidence from panel data, Christian, C. W., Gupta, S., & Lin, S. (1993). National Tax Journal, 487-503. This paper investigates what are the causal factors of tax preparer usage. The authors present new evidence on the determinants linked to using preparers of the tax return from a micro-level tax return information balanced panel for the year 1982 to 1984.
- Paid tax preparer determinants extended and reexamined, Ashley, T., & Segal, M. A. (1997). Public Finance Review, 25(3), 267-284. This paper collects data from 1988 individual public use panel and evaluates the causal factors of paid tax preparers use by including a variable comprising the significance of income-related US dollars attached to schedules. The findings are that for each schedule, Income-related US dollars are important and have a positive correlation to using a paid tax preparer while filing schedules E it B. The chances of using professional tax support increases by four percent and 1.6 percent per 10000 USD of income-related US dollars. The authors found the Schedule E assistance to evaluate dollar measuring variables in logarithmic form.
- The impact of embedded intelligent agents on tax-reporting decisions, Masselli, J. J., Ricketts, R. C., Arnold, V., & Sutton, S. G. (2002). Journal of the American Taxation Association, 24(2), 60-78. This paper highlights the effect of intelligent agents embedded in the system on tax-reporting decisions. This article shows the outcomes of a computerized tax experiment having consistency with the expectations. For new taxpayers, the embedded audit flags tend to extreme conservative adjustments leading to considerably higher reported taxable incomes having relativity to the counterparts who had no access to the audit flags embedded in the software. On the other hand, knowledgeable taxpayers stayed at the same taxable income level and associated tax liability in spite of potential audit software warnings.