Schedule A (Form 1040): A guide to the itemized deduction

Schedule A (Form 1040) is a tax form used by taxpayers to itemize deductions, such as mortgage interest, state taxes, and charitable donations, rather than taking the standard deduction. Filing Schedule A can be particularly beneficial for small business owners as it allows for the deduction of various business-related expenses that can significantly lower taxable income.

Jumping from a 9 to 5 job to running your own business isn’t just a bold career move—it also transforms how you handle your taxes.

Remember the dreaded Form 1040 from your employee days? It’s still a significant part of the picture, but now, as a small business owner, you have more control over managing your taxes through itemized deductions, potentially leading to substantial savings.

These savings are crucial because every dollar saved on taxes is a dollar that can be reinvested into growing your business.

So, how do you itemize deductions? With Schedule A (Form 1040).

What exactly does itemizing involve? It means listing out specific expenses you’ve incurred throughout the year—expenses like mortgage interest, state taxes, and significant medical bills that weren’t covered by insurance. By detailing these expenses on Schedule A, you can reduce your taxable income, which may lower your overall tax bill.

This guide will walk you through the essentials of Schedule A, ensuring you comply with IRS regulations and maximize your potential tax advantages.

What is Schedule A?

Schedule A (Form 1040 or 1040-SR) is an IRS form used by taxpayers who opt to itemize their deductions rather than taking the standard deduction. This form allows you to list and calculate eligible expenses that can be subtracted from your Adjusted Gross Income (AGI) ^[1] to reduce your taxable income.

What are itemized deductions?

Itemized deductions include a variety of expenses that can help lower your tax bill by reducing your taxable income. Itemized deductions include expenses like mortgage interest, state and local taxes, property taxes, medical expenses, and charitable donations. By itemizing, you list out specific expenses you’ve had over the year, which can often lead to greater tax savings compared to taking the standard deduction.

Standard vs. itemized deductions

Standard deductions are set amounts that taxpayers can subtract from their taxable income, varying by filing status and designed to simplify tax preparation. Itemized deductions, on the other hand, involve listing specific deductible expenses like mortgage interest and charitable donations to potentially reduce taxable income further.

The Tax Cuts and Jobs Act (TCJA) ^[2] brought significant changes to these options for both personal and business tax structures. Since the TCJA was enacted, the appeal of itemizing deductions has diminished for many due to an increased standard deduction, effective from 2018 to 2025.

Now, taxpayers must carefully evaluate whether to itemize or opt for the standard deduction, considering the TCJA not only raised the standard deduction amount but also altered what deductions can be itemized. Some deductions have been eliminated, while others, like the child tax credit, have been expanded, impacting a broader range of families.

This shift requires taxpayers to reassess their strategies to maximize tax benefits under the new law.

Types of itemized deductions using Schedule A

Here are the key categories of expenses that can be itemized using Schedule A:

Medical and dental expenses: Expenses exceeding 7.5% of your AGI can be deducted, including payments for doctors, surgeries, and certain medical devices. This does not apply to expenses reimbursed by insurance.

Long-term care premiums: These premiums are tax-deductible to the extent that they exceed 10% of the individual’s AGI. The deduction limit is based on the taxpayer’s age, and the insurance must qualify under specific criteria.

Taxes paid: This includes the deduction of personal property taxes, real estate taxes, and state and local taxes paid within the year. However, there is a deduction cap of $10,000 on these combined taxes until 2025. Foreign real estate taxes, however, are not deductible.

Interest paid: Interest is deductible on mortgage indebtedness of up to $750,000. For mortgages originated before December 16, 2017, a higher limitation of $1 million applies. Taxpayers can also deduct mortgage points paid during the year, which are reported on Form 1098 ^[3] received from mortgage lenders.

Charitable contributions: Donations made to qualified charities are deductible, with limitations depending on the type of charity and the property donated. Generally, up to 60% of a taxpayer’s AGI can be deducted for cash donations until 2025, with the ability to carry over excess amounts to subsequent years.

Casualty and theft losses: Losses incurred from a federally declared disaster are deductible. These losses must exceed 10% of the taxpayer’s AGI, minus $100 per loss event. Any reimbursement received in subsequent years for a previously deducted loss must be reported as income.

Other deductions: This category includes deductions for gambling losses to the extent of gambling winnings, losses from partnerships or subchapter S corporations, estate taxes on income in respect of a decedent (IRD), or impairment-related work expenses of a disabled person.

As a general rule for impairment-related work expenses, you can deduct expenses that are necessary and helpful for generating income. This includes deductions for individuals with disabilities for expenses required for them to work. Note that these impairment-related work expenses are not subject to the 7.5% limit that typically applies to medical expenses. Deductions may apply to various types of disabilities, including physical, intellectual, and psychiatric disabilities.

Individuals with disabilities who face challenges in seeking employment may find these deductions particularly beneficial. The Social Security Administration (SSA) provides a list of approved expenses ^[4] that are deductible for those receiving disability benefits.

How to fill out Schedule A

Schedule A is a one-page tax form from the IRS.

It’s structured into six sections, each corresponding to a major category of itemized deductions commonly reported on tax returns.

Once you’ve entered your name and social security number, you can proceed to fill out each of these sections:

1- Medical and dental expenses (Lines 1-4)

In the medical and dental expenses section, Line 1 requires you to sum up all your eligible medical and dental expenses. This includes premiums for medical and dental insurance (excluding life insurance premiums), costs for medical check-ups, treatments from acupuncturists, chiropractors, optometrists, and more. Make sure that you have not already reimbursed these expenses.

Lines 2-4 deal with calculations based on your adjusted gross income (AGI), which you’ll note on line 7 of Form 1040.

On Line 2, you need to multiply your AGI by 0.075 (7.5%). You then subtract this value from the total eligible expenses you recorded on Line 1. Essentially, the IRS allows you to deduct only the portion of your medical and dental expenses that exceeds 7.5% of your AGI.

2- Taxes you paid (Lines 5-7)

Line 5a: Here, you have the option to deduct either a) state and local income taxes or b) general sales taxes. Typically, if you reside in a state without a state income tax, you would choose to deduct state and local general sales taxes instead.

Line 5b: This line allows you to deduct real estate taxes paid on properties not used for business purposes. To qualify for this deduction:

• The taxes must be assessed uniformly at the same rate across all real property in the community.
• The taxes must be used for general community or governmental purposes.

Line 5c: Similarly, you can deduct taxes paid on personal property, such as vehicles or motorhomes, provided that the taxes:

• Are based on the property’s value.
• Are levied annually.
• Limitations (Lines 5d-e): It’s important to note that the total deduction for state and local taxes (SALT) in this section cannot exceed $10,000.

Line 6 – Other taxes:

This line is for recording taxes paid to a foreign country or the generation-skipping tax (GST) imposed on income distributions. These are less common but important for those who meet the criteria.

Each of these deductions has specific conditions and limitations, so it’s vital to ensure that all the requirements are met to claim them accurately on Schedule A.

3- Interest you paid (Lines 8-10)

Lines 8a-c: These lines allow you to deduct home mortgage interest paid on either your primary or secondary residence over the past year, as reported on Form 1098.

To qualify for this deduction, you must meet several criteria:

• You must be legally liable for the mortgage repayment.
• The loan proceeds must have been used to buy, build, or substantially improve the home securing the loan.
• For mortgages initiated on or before December 15, 2017, the total value of the mortgage(s) must not exceed $1,000,000. Interest paid on amounts above this threshold is not deductible.
• For mortgages taken out after December 15, 2017, the mortgage limit for deduction eligibility is $750,000.

After calculating individual amounts on lines 8a through 8c, sum them up to determine your total deductible mortgage interest amount on line 8e.

Line 9: This line is designated for deducting investment interest, which is any interest paid on borrowed funds that were used for investment purposes. The deduction for investment interest must be calculated using Form 4952 ^[5]. This form helps determine the amount of investment interest that can be deducted, considering various limitations and rules pertaining to the type of investment income against which the interest can be deducted.

4- Gifts to charity (Lines 11-14)

In this section of Schedule A, you can deduct donations made to various qualified organizations, such as religious, charitable, educational, scientific, or literary groups. For a detailed definition of what constitutes a qualified charitable organization, refer to the instructions for Schedule A.

Line 11: Enter any contributions made via check, cash, or other monetary forms. Ensure you have receipts or bank records to substantiate these donations.

Line 12: This line is for non-cash donations such as clothing, household items, vehicles, etc. These items should be valued at their fair market value—the price a willing buyer would pay a willing seller in a knowledgeable, arm’s length transaction. For smaller donations, you may estimate the fair market value based on comparable sales. For donations valued over $5,000, obtaining a formal appraisal from a qualified expert is necessary.

Line 13: Here, you report any charitable contribution carryovers from previous years. If your donations in a prior year exceeded the allowable deduction limit, you can carry over the excess to the current year, up to five years.

Deduction limits: The total deductible amount in this section typically cannot exceed 60% of your AGI. However, certain exceptions apply, and some types of donations have different limits. For comprehensive guidance on these limits, have a look at IRS Publication 526^[6].

Additional requirements: If your total non-cash donations exceed $500, you must complete and attach Form 8283 ^[7] to provide additional details about the donated property.

5- Casualty and theft losses (Line 15)

This section allows you to deduct losses from casualties or thefts that occurred during the year, provided these were part of a federally declared disaster.

To qualify for this deduction:

• Each individual casualty or theft loss must exceed $100.
• The total of all losses must surpass 10% of your AGI.

If you meet these criteria, you should complete and attach Form 4684 ^[8] to calculate your deductible amount. The total from line 18 of Form 4684 should then be reported on line 15 of Schedule A.

6- Other itemized deductions

This section encompasses a variety of deductions that do not fit into the other specific categories of itemized deductions. Included in this category are:

Gambling losses: Deductible to the extent of gambling winnings, which should also be reported on Schedule 1 of Form 1040^[9], line 21.
Federal estate tax: Relating to the income in respect of a decedent, which is the untaxed portion of the deceased’s income.
Impairment-related work expenses: For disabled persons, these are expenses necessary for maintaining employment that are not covered under standard medical deductions.

For a comprehensive list of all allowable deductions in this category, refer to page A-12 of the instructions for Schedule A ^[10].

Who can file Schedule A tax form?

Anyone who chooses to itemize their deductions instead of taking the standard deduction can file Schedule A. This option is available to all filing statuses, including single, head of household, and married filing jointly. For those married filing separately, note that if one spouse itemizes deductions, the other cannot claim the standard deduction.

Itemizing deductions allows you to detail specific expenses incurred throughout the year and deduct them from your taxable income, potentially lowering your overall tax liability and increasing your refund. While it’s a common misconception that only those with substantial expenses benefit from itemizing, many others can gain advantages too. For example, you might find it beneficial to itemize if you:

• Have significant out-of-pocket medical expenses,
• Made substantial charitable donations,
• Paid considerable interest on student loans or a home mortgage,
• Incurred large unreimbursed job-related expenses.

Typically, you should consider itemizing if it results in a lower tax bill compared to using the standard deduction, which is a fixed amount deducted from your taxable income. For instance, the standard deductions for the 2023 tax year ^[11] are $13,850 for single filers and married couples filing separately, $20,800 for heads of households, and $27,700 for married couples filing jointly. Evaluating whether to itemize should be based on whether your total itemizable deductions exceed these amounts.

How do itemized deductions lower your tax bill?

Itemizing your deductions can often reduce your federal tax bill, especially if the total of your itemized deductions exceeds the standard deduction.

It’s important to distinguish between tax deductions and tax credits. Tax credits directly reduce your tax bill dollar-for-dollar—a $500 tax credit means $500 less in taxes. In contrast, tax deductions reduce your taxable income, which indirectly lowers your tax liability.

For instance, suppose you are an individual single filer and earned $78,000 last year. This means that your tax bracket rate is 22%.

If you choose the standard deduction ($13,850), your tax savings would be 22% x $13,850, totaling $3,047.

However, if after itemizing your deductions, you find they total $16,000, your tax savings would increase to 22% x $16,000, or $3,520.

Thus, by itemizing instead of taking the standard deduction, you would save an additional $3,520 – $3,047 = $473.

Not bad, right? Perhaps you can use this money for much-needed repair and maintenance work or pay down loans and credit card expenses.

Benefits of itemizing deductions

Itemizing deductions can be more advantageous than taking the standard deduction if your total itemized deductions exceed the standard amount set for your filing status. It’s wise to consult a tax professional who can assess your eligibility for each deduction and help you decide whether itemizing or taking the standard deduction will save you more on taxes.

Here are some scenarios where itemizing could likely benefit you:

Large mortgage payments: If you have a sizable mortgage and pay a significant amount in interest, you may benefit from the mortgage interest deduction. This could make your total deductions exceed the standard deduction threshold. Note that for mortgages taken out after 2017, you can only deduct interest on up to $750,000 of the mortgage (the limit is $1,000,000 for older mortgages).

High property taxes: Don’t overlook property and sales taxes. Owning multiple high-value items like cars, motor homes, or boats can lead to substantial property taxes. If your combined local and state taxes are high, you might exceed the standard deduction.

Significant medical or dental expenses: Large out-of-pocket payments for medical or dental care can also make itemizing worthwhile.

If you find yourself in one or more of these situations, itemizing could be the right choice to maximize your tax benefits. It’s always a good idea to do a quick assessment or work with a tax advisor to make sure you’re making the most out of your potential deductions.

What changes have been made to Schedule A

The Tax Cuts and Jobs Act (as mentioned earlier) significantly altered itemized deductions on Schedule A. Several key changes impacted what deductions are available, particularly for small business owners:

• Deductions for casualty and theft losses are now only permissible in federally declared disaster areas.
• Tax preparation fees are no longer deductible.
• Deductions for state and local taxes are capped at $10,000.

Additionally, the law increased the standard deduction for single filers, making it more attractive for many taxpayers to opt for the standard deduction rather than itemizing. This shift has simplified filing for some but also limited deduction options for others.

The bottom line

Navigating taxes as a small business owner can be challenging, especially when it comes to understanding and managing all the different forms and deductions, like Schedule A. It’s not just about filling out a form—it’s about ensuring every aspect of your taxes is handled with precision to maximize your savings and keep your business running smoothly.

At CoCountant, we recognize that taxes can be a significant pain point for small business owners. That’s why we’re here to take the burden off your shoulders, handling everything from federal and state taxes to the intricate details of itemized deductions. Whether it’s helping you with Schedule A or providing comprehensive tax advisory services, our goal is to make your tax filing process as seamless and stress-free as possible.
Explore our range of services to see how we can support your business, or connect with one of our tax experts for personalized advice.

FAQs

How to get Form 1040?

You can obtain Form 1040 from the IRS website (irs.gov), your local IRS office, or through tax preparation software. Some libraries and post offices also carry paper copies of tax forms.

Where to find Form 1040?

Form 1040 can be found on the IRS website at irs.gov/forms. You can also get it from tax preparation software, local IRS offices, and some libraries and post offices.

Where to file Form 1040?

You can file Form 1040 electronically through the IRS e-file system or by using tax preparation software. If you prefer to file by mail, send your completed Form 1040 to the address listed in the form’s instructions, which varies based on your location and whether you are enclosing a payment.

How to fill out Form 1040?

To fill out Form 1040, start by entering your personal information, including your name, Social Security number, and filing status. Then, report your income, deductions, and credits in the appropriate sections. Use the instructions provided with the form to ensure accuracy. Finally, calculate your total tax, subtract any payments, and determine if you owe additional tax or are due a refund.

What does a Form 1040 look like?

Form 1040 is a two-page document divided into sections for personal information, income, tax and credits, other taxes, and payments. It includes lines for entering various types of income, adjustments, deductions, and credits, as well as a summary of your total tax liability and payments. The form’s layout is designed to guide you through the process of calculating your tax obligation step-by-step.

What items go on Schedule A?

Items that can be deducted on Schedule A include:

• Medical and dental expenses
• State and local taxes (income or sales taxes, and property taxes)
• Mortgage interest
• Charitable contributions
• Casualty and theft losses in federally declared disaster areas
• Miscellaneous deductions (e.g., unreimbursed job expenses, tax preparation fees) that exceed 2% of your adjusted gross income (note: many of these miscellaneous deductions were eliminated under the Tax Cuts and Jobs Act for tax years 2018-2025).

What is not deductible on Schedule A?

• Items not deductible on Schedule A include:
• Personal living expenses
• Political contributions
• Legal fees for personal matters
• Commuting expenses
• Funeral expenses
• Child support payments
• Capital expenditures

What is the difference between Schedule A and Schedule C?

Schedule A is used for itemizing personal deductions such as medical expenses, mortgage interest, and charitable donations. It helps reduce your taxable income by listing eligible expenses.

Schedule C is used to report income and expenses from a sole proprietorship or single-member LLC. It helps calculate the net profit or loss from your business activities, which then transfers to your Form 1040 to determine your taxable income.