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Schedule L and Schedule M – Not Just for Business!

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

Comments

  1. admin says:

    You are absolutely correct. Both of these forms for individuals are no longer applicable beginning with the 2011 tax year.

    Thank you.

    Donna

  2. Remy Papp says:

    Question : Do I understand correctly that both Schedules L abd M are no longer applicable for tax year 2011?
    Thank you
    Remy Papp

  3. admin says:

    The additional real estate tax that was includable as an addition to the standard deduction was for 2009 only, and was not part of the extender legislation passed in December 2010. In other words, you received an additional $150 in 2009 that was only available for 2009 and was not available for years prior to 2009, or subsequent to 2009. The Schedule L has been modified from 2009 to reflect the tax law in effect during 2010.

    Donna

  4. Maria says:

    Why have they removed the option of using a schedule L this year for real estate tax only? Last year I was able to have $1000 higher standard deduction because of my real estate taxes and schedule L. This gave me an extra $150 in the end. This year line 24b on 1040A does not exist. There is no option for me to do so unless I have bought a new car, etc…, and the schedule L says nothing about real estate taxes this year. Well, basically, my question is not why they have removed it, but is there another way to do that or do I just have to live with the fact that I will be $150 poorer this year because of it?

  5. Megan says:

    Does this mean I can choose to use Schedule A over the new Schedule L?

    • admin says:

      Normally, you are going to use whichever is giving you a higher deduction – so that would be either Schedule A or Schedule L. There is an option to use Schedule A, however, even if it is lower, if you are subject to alternative minimum tax and it would lower your overall tax liability. So, yes, you can choose Schedule A over Schedule L.

      Donna

  6. […] Jan.13, 2010 There is a new credit on the Form 1040 this year – computed on the new Schedule M (see prior post on Schedule L and Schedule M).  This credit is named the Making Work Pay and Government Retiree Credit and will be located on […]