What is Schedule A?
Schedule A is the tax form that is filed with Form 1040 to report itemized deductions. Taxpayers must choose between the standard deduction applicable to their filing status, or compute their various allowed itemized deductions on Schedule A.
What types of deductions are on Schedule A?
There are several key deductions on Schedule A that historically benefited taxpayers in high-tax states, such as state and local income and property taxes (the SALT deduction). Prior to the 2018 Tax Cuts and Jobs Act (TCJA), these items were fully deductible. Since the passage of the TCJA, this deduction has been capped at $10,000 per year for combined total taxes.
The mortgage interest deduction is the next best-known tax benefit claimed on Schedule A. Deductible mortgage interest is limited to interest paid on the first $750,000 of the principal loan amount for married taxpayers filing jointly ($375,000 if married filing separately).
Currently mortgage insurance premiums are still deductible as mortgage interest if the taxpayer’s Adjusted Gross Income(AGI) is below $109,000.
Medical expenses can also be deducted on Schedule A, if they were for you, your spouse, or dependents. This includes medical, dental, or long-term care insurance premiums (with limits) as well as fees paid to doctors, hospitals, mental health services, and prescription drugs that are not otherwise paid by insurance. There are lesser-known medical expense deductions listed in IRS Publication 502. However, you can only deduct medical expenses that exceed the deduction threshold of 7.5% of your AGI. For example, if you have $15,000 of deductible medical expenses and your AGI is $80,000, your deduction threshold is $6,000. This means the amount over $6,000 ($15,000-$6000=$9000) is deductible.
Charitable contributions are also deducted on Schedule A. These contributions must be made to an eligible entity, such as a house of worship, school, or a recognized 501(c)(3) charitable organization. Political donations and gifts to individuals are not deductible. If you make noncash gifts, such as donating goods to charity thrift shops, you must value your donation accurately and get written acknowledgement from the organization if your donation is valued at $250 or more. Mileage and unreimbursed expenses for volunteer work are also deductible.
Lesser-known deductions on Schedule A include, but are not limited to, deducting legal fees paid to get taxable income owed to you, gambling losses, and casualty losses.
Is there any benefit in filing Schedule A even if my itemized deductions are less than the standard deduction?
With the changes to the standard and itemized deductions following the 2018 tax reform, fewer taxpayers are itemizing deductions. However, some may opt to file Schedule A for state tax purposes even if the standard deduction would be more beneficial at the federal level.
If you are married filing separately and one spouse itemizes but you do not, your standard deduction is $0. You will need to itemize deductions to see any benefit at all.
Regardless of filing status, you may live in a state that employs a matching principle when it comes to itemized deductions, meaning that you must file Schedule A to also file itemized deductions on your state income tax return. Some states allow for more generous itemized deductions and, in some cases, paying additional taxes at the federal level may result in a lower tax obligation at the state level.