 Income tax 2022-2023. Ira deduction tax software example. Let's do some wealth preservation with some tax preparation. Here we are in our example form 1040, populating it with LISERT tax software. You don't need tax software to follow along, but if you have access to it, it's a great tool to run scenarios with. You can also get access to the form 1040 related schedules and forms of the IRS website irs.gov, irs.gov. Our starting point as normal single filer, Mr. Anderson no dependence, 100,000 W2 income. We got the 12,950 for the standard deduction, getting us to the taxable income 87,050, mirroring that over here on our worksheet in a formula. The format, the 100,000 income, 12,950 and the taxable income 87,050. Letting the software do the tax, getting us to that page 2 of 14774, 15,000 on the withholdings brings us to the 226 at the bottom line for the starting time. Let's go back on over and now we're thinking about the IRA deductions. So we're starting off with the single filer. Normally the IRAs are going to be fairly straightforward if someone doesn't have access to another type of retirement plan would be the general rule then we can deduct 6,000 or 7,000 depending on if we're younger or older age 50 the rules get more complicated when we're moving to possibly a married filing joint return and if we have access to or if our spouse has access to a K plan 403B or other type of retirement plan. So that's the general idea. Remember also that when we're looking from a tax planning standpoint and a tax preparation standpoint the IRA is often times the last thing that we can do. We can't do it from the extension point meaning we have to be putting money into an IRA by the time we file the deadline, April 15th, generally or April 18th, 17th or whatever we have to put it in by that point not including the extensions but if we're a support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. Able to get to say a client for example and do their tax return before the deadline we want to be able to advise them that hopefully they can have some cash on hand that could possibly put into an IRA and we can determine at that point in time the maximum amount that they can put into the IRA which is great because if they can put money into say a 401K plan or a 403B plan the idea would be maximize those out if you've got the cash flow to do it generally and then after the year has ended we might still be able to do some last minute tax planning not for the 401K not for the 403B because you have to put that money in by the end of December but we might be able to do some last minute planning for the IRA. Alright that's the general idea here so let's say single filer a lot of software will allow us to kind of jump to the IRA to do the calculation and also give us some information let's go to page 2 of this item in the diagnostics to see if we can still put money into the IRA so for example this software if I say I want to put the maximum in so let's say I've completed the tax return and I said I want you to put the maximum IRA contribution in that's the number 1 then it's going to max out the contribution which in this case is the $6,000 because the W2 income I put over here notice I indicated that it's not we don't have access to a 401K plan at all to take that kind of off the table so if I go back into my wages this box right here for the retirement plan is important to check off or not check off when you're trying to figure out whether or not you could put money into the IRA and that would be indicated on the W2 so now we've got the $6,000 that's being put in place on the schedule page 2 right here and of course that pulls over to line 26 which pulls in to page 1 of the form 1040 and there's the $6,000 above the line deduction bringing the AGI the adjusted gross income to $94,000 the $12,950 for the standard deduction gets us to the $81,050 I can mirror that over here in our tax software looking at the adjustments to income and go on to the adjustments to income tab do I have anything for an IRA I've got an IRA deduction up here with one line so I'll just say $6,000 pulling that over to the first page $100,000 minus the $6,094,000 minus the standard deduction $12,950 gets us to the $81,050 and that matches what we have here $13,454 let's plug that in here $13,454 and that gets us to the $1,546 at the bottom so there we have that so now let's assume that the taxpayer does have access to a 401k plan through their work now note if you have access to a 401k plan through the work it's similar in concept to an IRA but you don't have to do anything on the tax return because box one of the W-2 will be decreased already so you kind of like already got the deduction it being deducted from box one of the W-2 therefore it's deducted before it even reaches in essence the tax return so for example if I go back on over here and I say I'm going to say that they have access to the retirement plan then down below here's the 401k this would be the amount you could put in for the amount that goes into the retirement plan that would be shown there on box 12 I think box 12 and the software is disallowing the IRA now because I had access to the 401k plan so I believe the general rule would be if you have a 401k plan or other retirement plan at work you could take the full deduction if you're modified AGI is $68,000 or less right so let's bring this down to $68,000 and see if the software populates it so we'll go ok let's bring this down to $68,000 and so now the $6,000 is back right so there's our kind of income threshold because I had access to the 401k plan even though I didn't put anything into the 401k plan now if you go between $68,000 and $78,000 then it's going to start to phase out so I'm going to say let's go to like $70,000 and then it starts to phase out now I only get $4,800 notice the nice tool here in that I told the software to maximize the contribution so it's basically if I populated everything properly hopefully giving me the correct result in terms of how much I can put into the IRA and then if I go up to let's say $70,000 let's go to $80,000 well let's just do $78,000 it should be gone again $78,000 and it has now disappeared once again alright so now it gets messy with a married couple so let's change it to a married couple now so I'm going to go back on over and say they're married now it's important when doing the data input when married to indicate that this is the spouse right so that you have to be able to apply it out so the software knows that they can apply out the limits based on each individual spouse and these of course are in the order of the first one being the taxpayer the first one you enter into the software the taxpayer the second one that you list is going to be the spouse right so you got to get that straight so that it can do the proper calculation let's say that they both have let's say the second one is $50,000 and they neither of them have a retirement plan let's imagine so neither of them have a retirement plan to start with I can then maximize the contribution and I could say well if they're married the max is not $6,000 it should be twice that and I'm going to go back on over to page 2 and I can jump to the data input and say let's say number one for both of them saying maximize for each of them so now it comes up to $12,000 of course now the max contribution could increase if they're older than $50,000 as a general rule so let's do that let's change the age so I changed the age for just one spouse and now you've got $13,000 which was the $6,000 for one and the $7,000 for the other so let's bring it back I'm going to bring it down to so they both get the $6,000 so they're both under $50,000 and now let's say that one of the spouses let's say the first spouse on their W2 has a retirement plan so now they've got a retirement plan which would be indicated on the W2 and so I'm going to go back on over and say now it's been limited to $6,000 because it basically said well the other one it got removed on the other one which is kind of what you might expect right you'd say okay well if they had access to the 401k but there's an income threshold so if I bring the threshold back under like $109,000 I believe so notice my total income right now is $150,000 so let's bring it down let's bring it down to under $109,000 so let's say this is like minus $40,000 which we'll bring it down to so let's check that out so $140,000 I meant to say $40,000 so I brought it down to $109,000 that's what I was trying to do so $109,000 and so now it's at the $12,000 again so it's been basically allowed even though we had the 401k so we have both of them in place if it's between $109,000 and $129,000 so let's increase it a little bit let's say I increase it by like $5,000 so now it's at $114,000 so if I go back on over now it's it's phasing out one of them right so it's basically phasing out one's spouse is at $6,000 the other's at the $4,500 and then if I go up above ground I believe $4,500, then it'll be removed once again now what if we have a situation let's concentrate on the other spouse and let's say our income for this spouse that has a retirement plan is quite high $200,000 the second spouse doesn't have the retirement plan but they only made $50,000 so and they still could be limited to this situation due to the first spouse having such a high income so if I go back on over now we see as we max out the retirement plans that we don't have anything so the general rule there is if married filing jointly and your spouse has a 401k you can take the full deduction for your IRA contribution as long as your modified adjusted gross income is less than $204,000 it's got to be less than the $204,000 so that gets a fairly relatively high threshold but you can see how those kind of rules start to enter play they get quite complex actually when you get into the age limitations all the combinations that you could think of you've got the age limitation so usually you'd want to be memorizing that you can have the $6,000 if you're older over it goes up to $7,000 if you don't have any other 401k or someone else has access to the 401k and wage limits but if you have access to a 401k then there's going to be limitations in terms of how much you might be able to deduct and if married even if your spouse has access to a 401k that still might limit each spouse's access to being able to deduct depending on the income threshold which you would probably be dependent to some degree on the software to help you calculate which you can calculate as a last minute kind of tax planning thing therefore the general strategy would be max out your 401k plans before 2022 has ended because you can't put any more in there for the tax year 2022 or whatever tax year you're talking about until after that date and then we can see if we can maximize any added amount with the IRA and use the software to do that calculation obviously in order to take advantage of any kind of deduction related to an IRA or retirement plan you need to have cash flow available to be putting the money into it.