Schedule L and Schedule M – Not Just for Business!

Posted on January 12 2010 by admin

For those of us that have been around the federal tax forms for a long time – or even maybe just a wee bit of time – there was something that could always be counted on.  And that was if we were talking about a Schedule L, we meant the balance sheet of a business return (partnership or corporation), and when speaking of Schedule M we were talking about the reconciliation of book and tax income and the change in the applicable equity accounts.

But that has changed, beginning in 2010 with the 2009 federal tax forms for individuals.

Let’s start with Schedule L, which has the official title of Standard Deduction for Certain Filers.  Until the 2008 Form 1040 series, there were two separate methods of taking a deduction on your individual tax return to get from adjusted gross income to taxable income – you either itemized your deductions or your took a standard deduction.

Beginning in 2008, this was complicated somewhat by the 2008 Housing Act, which allowed up to $500 ($1,000 for married filing joint returns) to be added to the standard deduction for real estate taxes paid, that were not deducted any where else in the return.

Beginning in 2009, this has become even more complicated.  So much more complicated, in fact, that a new Schedule L needed to be added to the 1040 series.  Not only do the above real estate taxes get added to the standard deduction, but so do any amounts for new motor vehicle sales taxes and a net disaster loss.

If you itemize deductions on Schedule A – all three of the above amounts are included there.  So Schedule L is to use only for those taxpayers who otherwise do not have enough expenses to itemize their deductions.

Now onto Schedule M – at least this schedule is based upon completely new tax law.  It is for computing the Making Work Pay and Government Retiree Credits, both of which came into play with the American Recovery and Reinvestment Act of 2009.  Currently, the law is written so that this credit is only available for years beginning in 2009 or 2010, but Congress has been known to switch things around.  This form will need to be included in the tax returns for all individuals with wages and/or retirement benefits.

As you can see – Schedule L and Schedule M – they are not just for businesses any more!

By Donna H. Laubscher, CPA

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