Ep. 160 | Schedule 1-A (Form 1040)
Download MP3Hey, everybody, and welcome back to the Teaching Tax Flow podcast episode 160 today. We are diving directly into the IRS schedule one A. That's right. A new form for you to know about and complete in its entirety or as much as you can. So before we get into this one, as always, let's take a brief moment and thank our episode sponsor.
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John Tripolsky:Alright, everybody. We are back here again on the teaching tax flow podcast. And, of course, we like to come up with things, find things, and deliver them to you in a very simple, understandable manner, which is why we are bringing you, what I mentioned earlier, something new. So we're looking at that schedule one a. And, again, if you haven't heard about it yet, you're about to.
John Tripolsky:To be honest, I hadn't heard about it until recently, and I heard from this guy who's joining me as always, Chris Picchiro. Welcome. Good sir.
Chris Picciurro, CPA:Well, it's great to be back, and we are excited to talk about something new here. Remember, legally and ethically reduce the tax you pay in your lifetime is a goal of teaching tax flow. The IRS has its hands full with the one big beautiful bill act, o b three. We talk about it a lot here on the podcast, talk about it on our u the teaching tax on YouTube channel and our defeating taxes private Facebook group. But many times, what we don't consider is that whenever there's a change to the tax code, forms have to get updated.
Chris Picciurro, CPA:And that takes a long time and then software has to get updated. So we have a lot of new deductions with o b three that take effect in the 2025 tax filing year, and these are kind of unique deductions. You know, in the tax world, we talk about some deductions being above the line. What that means is that means that means that you're getting that deduction before we calculate your adjusted gross income, and you don't have to itemize your deductions to get that that deduction. Then there's deductions that are called itemized deductions or what we tell a lot of times we would call below the below the line.
Chris Picciurro, CPA:And now we have some deductions that we're calling I heard another tax professional say between the lines. It's kinda like coloring between the lines. Meaning, you they're not a deduction that you get before you calculate your adjusted gross income, but they're also not an itemized deduction. So you don't have to you could take the standard deduction as a taxpayer and still qualify for several new deductions. These new deductions are what make up the schedule one a.
Chris Picciurro, CPA:And just to give an idea of the of the magnitude of this, and and, again, thank you to our members of the defeating taxes private Facebook group because and I'll I'll well, I mean, John, we are getting so many comments on our YouTube videos. It's great. Why is it great? Because it tells us what taxpayers are looking for. And out of the about a 161,000,000 returns filed for the 2024 tax year, individual returns, it's estimated that about 30,000,000 to 40,000,000 of those returns will include a schedule one a for the 2025 tax year.
Chris Picciurro, CPA:So this is gonna affect I I think that number might be a little low. I've you know, somewhere between twenty and forty million tax payers most likely.
John Tripolsky:So It's big number.
Chris Picciurro, CPA:You're in the right place. And we always say, John, ideas are Cheap. Implementation is Valuable. Valuable.
John Tripolsky:So We should have done that. Like, we should have found a way to, like, make a jingle out of that where we're, like, singing it so it gets stuck in people's head. And you know what's really good about this too? Like, here we are talking about this form. I think I started off, and then you had mentioned too.
John Tripolsky:It's completely new. I absolutely love the fact that you you you explained why these come into place. Right? Like, they just don't pull these out of thin air and like, hey. Let's create a form today.
John Tripolsky:This really is the, the reaction, if we will, of changing something else. So even though this may seem like it's complex or it's adding complexity to something, it's a necessity, needs to be done. And then if anybody's listening to this or watching this, I mean, congratulations. You found this somehow or another, whether you're a subscriber or whatnot, but you're now gonna know about a form that you might be able to take to your tax professional next year and and see it and know more about it. And, you know, it might be new to them at the who knows?
John Tripolsky:Who knows how how in tune they are with some stuff? But what a what a great opportunity. Right? And and, Chris, so we don't have to dive into it, but I am gonna put some links in the show notes here referencing some previous podcasts we've done where we've talked more specific on types of deductions. So that way, people can go reference those as well.
Chris Picciurro, CPA:Right. You nailed it. And I was gonna mention that we have other podcast episodes on some of these topics. We're gonna have them all eventually. We have tons of YouTube content on these topics.
Chris Picciurro, CPA:So what does the schedule one a calculate? It's gonna calculate additional deductions for taxpayers on your federal tax return. Remember, if you live in a state that has a state income tax or local area that has a local income tax, you have to make sure or check to see if they are in conformity to the federal tax rules. And, like I said, ideas are cheap. Implementation is valuable.
Chris Picciurro, CPA:So you might hear, hey. I I heard there's an additional deduction for this. I heard that the tips aren't taxable. I heard this, but but what are the rules and how does it actually go from an idea to your actual tax return? So schedule one a starts with figuring out your MAGI.
Chris Picciurro, CPA:Now if you did all the nerdy things like I did when I was younger, you know, like dungeons and dragons and go to MagiQuest, a magi was typically like a magician type person, but Magi means a modified adjusted gross income. Typically, that's gonna be the same for the majority of taxpayers as your adjusted gross income or what you might hear as AGI. That number is coming from page one of your your personal tax return, and that's the the starting point of calculating all these additional deductions. So schedule one a, it's going to calculate up to four additional deductions. The first one's gonna be the no tax on tips.
Chris Picciurro, CPA:So remember, we we we've talked about that several times. This gets tricky. Right? There and and so I say there is absolutely no easy tax return. Absolutely no easy tax return.
Chris Picciurro, CPA:We we talk about that a lot because most of these deductions have what are called phase outs. Phase outs occurs when you start to lose that deduction when you hit a certain income level, and then it gets completely eliminated at a higher income level. Wouldn't it be nice if all the phase outs were the same? Of course, it is. It would be.
Chris Picciurro, CPA:But guess what? They're not. Every deduction has a different phase out schedule, and that's why things are so important. And and that's why the number one KPI for tax planning is your marginal tax rate, not your tax bracket because your marginal tax rate takes no account phase outs of credits and deductions. So schedule one a, the first thing it's calculating is no tax on tips in those qualified you know, we talked about in a previous podcast episode, I believe, what qualifies as a as a as a a tip to be excluded, what industries qualify, etcetera, etcetera.
Chris Picciurro, CPA:But assuming you have qualified tips either from self employment, I e, our friends driving that Uber, driving the Lyft, driving the DoorDash and all that jazz. You know? And if you have teenagers, you realize, you know, my kid really likes those Sonic slushies. They they've got a $2 Sonic slush and it cost them $8 to get it delivered. Whatever.
Chris Picciurro, CPA:But that's that's DoorDash for you. But you take these qualified tips, and you report that on part two of your schedule one a. John, I know you do an amazing job. Now, again, we I'm gonna have to find some acronyms because we haven't heard your jingle in a little couple episodes.
John Tripolsky:Oh, man. Well, you know, we'll we'll have to find a new suite of, of, sound effects. Let's put it that way.
Chris Picciurro, CPA:New debt new board. Well, OB three, which is an acronym, made this no tax on tips. And and yeah. So now you could deduct up to $25,000, but there's that phase out in this form will reconcile that deduction for you. So it'll calculate your no tax on tips.
John Tripolsky:And the one of the previous episodes we did not too long ago, just a couple weeks ago was the no tax on tip one. And that one, you know, again, we don't have to go into too much detail on it specifically, but if anybody's specific if that applies to you really or you're interested in it, go listen to that one because, Chris, if you remember on that, we we did a great job of really diving into how those phase outs work and what that actually what types of tips we should say, which is a surprise to most people, that actually applies to. Right?
Chris Picciurro, CPA:Absolutely. And and we're getting more guidance as time goes on. Yes. Now the second of four things, schedule one a calculates, no tax on overtime. So we're gonna dive into that even more in a future podcast.
Chris Picciurro, CPA:Again, there's information on a YouTube channel to figure out first up, what is qualified overtime? You know? And and how is that reported on your w two or your ten ninety nine? Believe it or not, self employed people, and this is gonna be really funky how this works, that are compensated for overtime can still get the no tax on overtime deduction. Remember when we're talking about the no tax, that means no federal income tax.
Chris Picciurro, CPA:It doesn't mean you're exempt from payroll taxes or self employment tax. So the no tax on overtime is also reported there. There's also a phase out for that. Now that phase is. Similar to the no tax on tips, so at least there's a little conformity.
Chris Picciurro, CPA:But, John, you could you could have someone think about this. You could have someone easily be compensated with tips and overtime in the same year.
John Tripolsky:Right. And and apparently and I didn't know this until you literally just said it, so I'm interested to hear about this whenever we come across that, how somebody who's self employed gets that. So in theory, you could be self employed getting overtime and qualified. Talk about a complex, not a situation, but I think I think that as a whole. Right?
John Tripolsky:And and specific to this form and other ones like it, I would almost say and, you know, not to speak for the masses here, but it I feel like now moving forward, if somebody doesn't have a tax professional, even if there's not somebody that does the returns for them, somebody they can consult with to make sure they're doing this right, maybe we're get maybe we're gonna get a little bit further away from the DIY platform. Who knows? Who who knows how this is gonna go. Right?
Chris Picciurro, CPA:It's complicated. And and so you could have someone you could have someone that is a server, married to someone that works in in the manufacturing. And let's say they do assembly in a factory, and they get paid overtime. Or maybe they're maybe they are a a carpenter, you know, and they get paid time and a hand. So remember that overtime the no tax on overtime is only it's only applicable to the overtime portion of your pay.
Chris Picciurro, CPA:So if you get paid $20 an hour and you made $30 an hour in overtime, you still owe tax on the $20. You just don't pay tax on the $10 of premium payer overtime. We're gonna get into that in in a future podcast episode. So but yeah. Yeah.
Chris Picciurro, CPA:So it's interesting because when you hear no tax on overtime, wouldn't you originally think, oh, that means I don't pay any tax on any of my overtime income? True. But we've got a only applicable to that overtime portion.
John Tripolsky:Right. And maybe what we'll have to do, Chris, you know, and I mean, not to say we're going to do this, but maybe we think about this over the next couple months I don't wanna throw you a curveball here because I've never asked you this. But, you know, maybe we do something where we take each one of these forms. We put it out, somewhere, you know, on our social media channels somewhere and and just open it up to our community. Right?
John Tripolsky:And, say, like, hey. What confuses you the most out of these? And let's dive into some specifics based off of what we know. Right? Because like you mentioned earlier too, it's we're still kind of early on in this o b three rollout, if we wanna call it that, where I feel like every week we're getting an IRS email or something from them that's trickling down into our inboxes even that we're learning little bits and pieces, attacked on top of something else, which Yeah.
John Tripolsky:Understandable.
Chris Picciurro, CPA:There's no time that kinda to your there are there are some DIY, you know, opportunities, but I don't see that there's gonna be a there there there's an a larger time for people to work with tax professionals. And I'm saying that as part of the tax professional community, to be very transparent, you know, a private CPA practice, we only really work with, like, 30 new clients a year. So I'm not sitting here trying to advocate for bunch, and you know those, John, more tax returns. That's a very small amount of tax returns that we we focus on the tax planning side. But there's gonna be a lot of people that should talk to a tax professional and and and and work with them.
John Tripolsky:And, again, speaking for myself. Right? And I I feel like a lot of people would fall into this. I mean, I I mean, you are working on something tax related every single day of the week. And we call each other.
John Tripolsky:We're just we're having, you know, distant coffee shop conversations. So I probably know way more about this than the average taxpayer by osmosis, and this still confuses the heck out of me in some regard. So I can imagine if somebody, you know, is self employed or just went into it. They're trying to DIY things. It's I mean, I would it's over and I would say it's over my head.
John Tripolsky:I just there's a lot more to it. A lot of components.
Chris Picciurro, CPA:There's a lot of components.
John Tripolsky:Yeah. It's confusing.
Chris Picciurro, CPA:Well, speaking of components, let's talk about cars. Right? The third of the three, no tax on car loan interest. So we have some content on that. I think we did a podcast episode on this.
John Tripolsky:We did.
Chris Picciurro, CPA:It's all It was a
John Tripolsky:good one.
Chris Picciurro, CPA:You know, when you've done almost a 160 of these episodes, it's like so schedule one a is gonna reconcile that. There's, of course, there's a phase out, and that phase out is different than, you know, tax on tips, no tax on overtime. But with the car loan interest deduction, remember, it has to you have to have qualified a qualified vehicle with qualified loan interest and a VIN number. But what's kinda cool about this is you might have a vehicle, John, that you have dual use in. You might use that vehicle for business and report it on your schedule c.
Chris Picciurro, CPA:You might use that business to operate your rental property on schedule e, or you might have a farm. So what what's happening is, let's say, John, you have a vehicle that's 40% business use, 60% personal. You're deducting 40% of that interest on your on your schedule c. Let's say you're self employed. That additional 60% now, assuming you have qualified interest is potentially deductibles and personal deduction.
Chris Picciurro, CPA:You can't double dip, and that would be reported here on schedule one a. So the no tax on car interest is gonna be reported there. Remember, make sure you have that VIN number ready, and the IRS will be checking that. That will get bounced because those VIN numbers are reported to the IRS. And when you try to electronically file that return, it'll get bounced if you don't have the proper VIN number.
John Tripolsky:Sure. And I'm sure somebody wanted sent me some spam email or some, you know, something in there. But I'm happy to see personally that they're asking for that VIN because, a, they do have to verify things, but it also kinda creates a little bit of a trail on you know? Because because there's we don't have to get into it, but there's the qualifications that we know that each vehicle has to meet in order to get this. So I think that will completely eliminate, mostly, any opportunity of things being, you know, double double recorded or anything.
John Tripolsky:There's really no way to cheat that technically because the VIN number is gonna tell you where it was manufactured and all that good stuff. So
Chris Picciurro, CPA:listen to that podcast too. Basically, the Social Security number for or or, you know, for the vehicle. The fourth and final deduction on schedule one a is our enhanced deduction for seniors. So that's gonna be people that are 65 years or older. Remember, that's up to $6,000 per senior, so up to $12,000 per year is an additional deduction.
Chris Picciurro, CPA:Now this stemmed from during the election, during that election time saying, well, Social Security shouldn't be taxed. Well, there that was that was gonna be very hard to get that passed. So this is a compromise. Of course, there's a phase out that's different than the other phase outs, but someone could, in all seriousness, someone could get all four of these deductions. Like, what if somebody is a senior citizen according to the IRS?
Chris Picciurro, CPA:I think 65 is a new 55. Right? They have an enhanced deduction of up to $6,000 per. They bought a new vehicle. One of them, maybe they work I hate to say the Walmart greeter, but maybe they work at a retail store during the holidays and and pick up overtime pretty easily.
Chris Picciurro, CPA:And the other spouse what if the other spouse does what I thought I would do when I'm retired? They're an usher at Comerica Park for the Detroit tigers, and they or maybe they're an usher at a concert theater or a or something where they get tips. It could very easily you could have all four of these. Pretty crazy.
John Tripolsky:It it is kinda wild to think about that, but it's not a far stretch, really, if you think about it. It's not I mean, that's very easy to do. It's not like you have to go out of your way to check all those boxes if you wanted to. But
Chris Picciurro, CPA:It could be easily done. So we'll have to figure that out, but the the opportunity with that enhanced deduction for seniors, I think we did some type of some content on it as I was talking to you. This is a deduction that's gonna be around for '25, '26, '27, '28, so for four years. So couples that are 65 or older could potentially based on but there are phase outs, recognize $12,000 worth of additional income and pay no tax. So if proper planning is done, that's moving on $48,000 of income from maybe retirement accounts that was gonna be taxable, and now it's not taxed, or maybe it's a capital gain.
Chris Picciurro, CPA:So just be thinking about this. If you think about the demographics of the tipped people in overtime, it's typically gonna be the younger taxpayers. Obviously, the enhanced direction for seniors. Anyone could buy a new vehicle, but this schedule one a spans many, many people. That's why I feel there's gonna be about 30 at least 30,000,000 of these of these filed, and and your tax professional is gonna work with you, or you're gonna do it on your own.
Chris Picciurro, CPA:You're gonna take the results of that schedule one a and put it on the new form ten forty. To wrap it up, remember, check with your state and local government on conformity for those deductions.
John Tripolsky:And, Chris, I love the fact that you you did kinda go full circle on it, which I plan on doing somehow at the end you did it for me, is that you started off with a very large number, right, into the millions of people that you're estimating on a conservative note that might that are likely to fill this out. But then you mentioned why. Right? Because there's so much in there that applies to so many people. So let's let's do this, actually.
John Tripolsky:We're gonna obviously post this podcast everywhere we normally do. I would say if anybody is confused on any of this or has anything to say about it, let's put all the comments on YouTube. And I'll we'll put the link directly to the YouTube channel in the show notes here. I might highlight a little bit more than usual. But put them on there, and let's see.
John Tripolsky:If we don't hear any comments, we know nobody's confused, and then we're gonna check back at the end six months when your head's about to explode, when this is happening, and and we'll do it all over again. But thanks for joining us everybody on this one again. Episode one sixty. We got a lot more coming down the pipeline. I did wanna reiterate to those resources.
John Tripolsky:Defeatingtaxes.com, private Facebook group, YouTube channel, subscribe to it. There's playlists if you did not know on the YouTube channel. Check those out. It breaks stuff down. We're constantly adding, constantly tweaking this out, all kinds of information on there.
John Tripolsky:I don't think there's any area that we haven't touched in one way, shape or form. And now with OV3, we're gonna keep rolling and doing revisions to add ons of stuff as we get more information as we started talking earlier. Check that stuff out. We'll see you again next week here on the teaching tax full podcast next week, different date, same day of the week, completely different topic. Have a great week,
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