Schedule A sales Tax when income is negative

[Bjorn]

A taxpayer had a big farm loss of about 50,000 and social security of 15,000.00. Nothing else.

I have two tax software programs.
One allowed the use of the table for sales tax

The other program did not allow the use of the table.

The table says at least zero, but.....less than 20,000.

One research service states you use zero to 20,000 even if the amount available for this purpose is negative. That sounds very odd to me.

I'm sure it would rarely make a difference, but here goes....

Does anybody know, for sure, if Ultra tax or H&R Block is right on this issue?

Mahalo,

Bjorn

[Roland Slugg]

On the IRS web site the online instructions for Schedule A have a link to a Sales Tax Calculator. If you go to that calculator, you will see that it is a little different from the printed sales tax tables. The tables start at $0 to $20,000, but the calculator's lowest income level is Less than $20,000. The latter, of course, would include all negative AGI amounts.

Based on that, I would use the $0 to $20,000 row on the chart. This makes sense, because people who lose money still spend money and incur/pay sales tax.

[iratax]

Question

If the taxpayer lost money, why do you care what the itemized deductions will be since the taxpayer won't have any taxable income to reduce?

[Burke]

I had the same thought.

[TaxGuyBill]

If the taxpayer lost money, why do you care what the itemized deductions will be since the taxpayer won't have any taxable income to reduce?

I don't do much with NOLs, but wouldn't the Itemized Deductions reduce the taxable Social Security (it reduces Line 41 on the 1040), and effectively increase the NOL? Or am I totally wrong about that?

[TAXNJ]

I don't do much with NOLs, but wouldn't the Itemized Deductions reduce the taxable Social Security (it reduces Line 41 on the 1040), and effectively increase the NOL? Or am I totally wrong about that?

Original post said only income was 15k social security. Do not see any mention of filing status.

From Social Security:

Must I pay taxes on Social Security benefits?
Some people who get Social Security must pay federal income taxes on their benefits. But, no one pays taxes on more than 85 percent of their Social Security benefits.

You must pay taxes on your benefits if you file a federal tax return as an “individual” and your “combined income” exceeds $25,000. If you file a joint return, you must pay taxes if you and your spouse have “combined income” of more than $32,000. If you are married and file a separate return, you probably will have to pay taxes on your benefits.

[Rapid Robert]

I don't do much with NOLs, but wouldn't the Itemized Deductions reduce the taxable Social Security (it reduces Line 41 on the 1040), and effectively increase the NOL? Or am I totally wrong about that?

Taxable amount of Social Security is determined entirely based on amounts from page 1 of Form 1040 only, so itemized deductions have nothing to do with how much SS is taxed.

I agree with previous comment that the sales tax safe harbor deduction doesn't matter for NOL. The only reason that itemized deductions are used in NOL calculation is that some of them might be considered business deductions. This might include some state income tax, but I don't believe the safe harbor sales tax deduction would be considered business-related.

From TheTaxBook, how to calc NOL:

Step one. Complete the tax return for the current year. If line 41, Form 1040, is not a negative amount, stop here, there is no NOL.

We can see that none of the SS will be taxable (based on facts provided), so even without doing Schedule A, we know line 41 will be negative. We can still possibly use some other items from Schedule A.

Also note following comment from TheTaxBook:

Farming loss. A farming loss is the smaller of the NOL for the year or the NOL computed considering only farming income and deductions.

This might further make Schedule A irrelevant.

[TaxGuyBill]

We can see that none of the SS will be taxable (based on facts provided)

Unless they are Married Filing Separately, you are right. I just had a brain-freeze and didn't think about that.


Under a hypothetical situation where the taxpayer is filing Married Filing Separately (and lives with spouse) and therefore DOES have taxable Social Security, wouldn't Itemized deductions reduce that, and effectively increase the NOL?

[TAXNJ]

By now the Original Poster has enough info to find the answer and as Poster said in Hawaiian "mahalo"