Schedule A – Itemized Deductions on the US Expat Tax Return
Had a lot of deductible expenses during the tax year?
Well, you may be able to use Schedule A to itemize your deductions and get a better tax return than you would by claiming a standard deduction.
When you file your US expat tax return, you have the option of either claiming the standard deduction made available to you by the IRS or itemizing your deductions on Schedule A.
Some people do not have enough expenses to justify itemizing deductions, but that is not the case with many expats: individuals living and working abroad tend to have a lot more expenses than those living stateside.
What Is Schedule A (of Form 1040)?
1040 Schedule A is a form taxpayers use to figure out their itemized deductions if they opt for it.
Itemized deduction is a way to reduce your taxable income while filing a tax return. The alternative choice is to use the standard deduction that reduces your adjusted gross income (AGI) using a predetermined amount.
Schedule A tax form is used to claim multiple expenses such as medical, interest, etc. incurred during the tax year. In recent years, the Tax Cuts and Jobs Act introduced some changes and the following deductions were removed:
- Interest paid on home equity not used for purchasing, constructing & upgrading a home.
- Miscellaneous deductions such as unreimbursed expenses from employers.
- Losses resulted from casualty & theft in the areas not struck by disaster.
You are required to attach the IRS Schedule A with Form 1040 when you submit your returns either through mail or electronically.
How Schedule A (Form 1040) Works
IRS 1040 Schedule A allows you to claim expenses incurred during the tax years on an item-by-item basis as opposed to a fixed amount under the standard deduction.
Since the expenses you claim within schedule A are based on the actual amount, you need to ensure that:
- Your transactions are accurately recorded and classified during the tax year. This will facilitate examining which expenses qualify for itemized deductions. Complete financial records will make your tax preparation more manageable and you will not panic when the tax season arrives.
- You understand the tax regulations related to it.
NOTE! Figuring out each expense while decoding complex tax rules becomes quick and easy when getting help from a pro tax specialist.
Who Can / Needs To File Schedule A?
Most US taxpayers are eligible to file Schedule A itemized deductions and you might be one of them. Following are two types of deductions that reduce your taxable income which in turn lowers your tax liability.
1. Above-the-line deductions
These are the deductions you can claim directly on your tax return. You report your gross income and deduct expenses, such as contributions to traditional IRA, one-half of your self-employment taxes, etc., to arrive at your taxable income.
2. Below-the-line deductions
You can claim below-the-line deductions only if you itemize your deduction on 1040 Schedule A. These deductions will further reduce your AGI. Spouses may claim their portion of joint expenses on their separate returns.
NOTE! If one spouse itemizes the deductions and the other doesn't, the standard deduction amount becomes 0 for the non-itemizing spouse.
Itemized deductions require taxpayers to keep extensive records and evidence so you also have the option to claim a standard deduction, a fixed amount set by the IRS, directly on your tax return. The standard deduction’s amount varies depending on your filing status.
Every year the IRS amends the amount factoring in the tax inflation adjustment. The table below illustrates the comparative standard deduction amount for the tax years 2022 & 2023.
|STATUS||2022 (tax year)||2023 (tax year)||INCREASE $|
|For Single & Married couples
|Heads of Household||$19,400||$20,800||$1,400|
How To File Schedule A (Form 1040: Itemized Deductions)
When deciding between standard vs itemized deductions you need to figure out which of the prescribed methods will result in lower tax liability. This will depend on your specific situation.
For example, if your AGI is $48,000 and your itemized deduction totals up to $18,000 your taxable income will be $30,000.
Assuming you are married and filing your taxes for the year 2022 separately. In this case, you will be able to claim a $12,950 standard deduction and your taxable income will be $35,050. In this scenario, if you opt for itemized deductions it will provide you with more tax savings.
Once that is settled, you get to claim eligible expenses incurred during the tax year on the IRS Schedule A. There are 6 categories under which you can claim expenses (gifts to charity, taxes, interest paid, casualty and theft losses, medical and dental expenses, and other miscellaneous expenses) but not everyone will be relevant to you.
NOTE! Don’t forget to save your invoices and receipts just in case the IRS decides to audit you & requires you to substantiate the expenses you claimed.
What Can You Deduct From Schedule A?
The IRS instructions for Schedule A provide detailed guidelines on the following allowable deductions.
Medical and dental expenses
The deductions for medical and dental expenses are limited to 10% of your AGI. For instance, if your AGI is $48,000 you will be able to deduct up to $4,800.
You can deduct state and local taxes up to a maximum of $10,000, ($5000 if you are married and file separately). Let’s say all your taxes such as income, property, etc. adds up to $14,000. You can deduct $10,000 from Schedule A if you are single.
With the new tax law in effect, how much mortgage interest you can deduct will depend on when you took out the mortgage.
- A mortgage - after Dec 15, 2017: Interest on the first $750,000 ($375,000 if you are married & filing separately) is deductible.
- A mortgage - before Dec 15, 2017: The mortgage limit is $1 million ($500,000 if you are married & filing separately) for the interest deduction.
Gifts to charity
During covid19, the IRS temporarily suspended the limit placed on charitable contributions. It states that:
“In most cases, the amount of charitable cash contributions taxpayers can deduct on Schedule A as an itemized deduction is limited to a percentage (usually 60 percent) of the taxpayer’s adjusted gross income (AGI). Qualified contributions are not subject to this limitation. Individuals may deduct qualified contributions of up to 100 percent of their adjusted gross income.”
- You need a written acknowledgment from the organization if your charitable contributions exceed $250.
- For gifts over $500, you need to attach Form 8283.
- Any leftover contributions due to the placed limit can be carried over to the next year for itemized deductions.
Casualty and theft losses
If you suffered casualty and theft losses in an area that is federally declared as a disaster zone then you will be eligible to deduct them on Schedule A.
Also: What Can You Not Deduct on Schedule A?
In Schedule A form 1040 instructions the IRS specifically prohibits taxpayers from deducting certain expenses. Some of them are:
- Cost of diet food;
- Cosmetic surgery, except the amount spent to improve deformity related to:
- Congenital abnormality,
- Injury from accident,
- Disfiguring disease,
- Nursery care for a healthy baby - you may be eligible to claim it as a credit;
- Non-prescription medicine except for insulin;
- Illegal operations and drug;
- Imported drugs not approved by FDA;
- Funeral, burial, or cremation cost;
- Federal Income & most excise taxes;
- Social security, medicare, federal unemployment (FUTA) & Railroad retirement (RRTA) taxes;
- Custom duties;
- Value of your time and services to charitable organizations;
- Value of blood given to a blood bank.
Remember! While filing the IRS tax form schedule A, 2023 make sure you seek assistance from a tax professional, so that you don’t miss out on claiming any tax deductions you are eligible for.