 Income tax 2022-2023 Social Security Benefits tax software example, let's do some wealth preservation with some tax preparation. 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. Here we are in our example form 1040 populated with LASERT tax software. You don't need tax software to follow along, but it's a great tool to run examples and scenarios with. You can also get access to the form 1040 and related schedules and forms on the IRS website IRS.gov IRS.gov starting point as usual single filer Mr. Anderson no dependence 100,000 and the W2 income and then we've got the 12,950 standard deduction getting us to the 87,050 and mirroring that on our equation over on in Excel where we've got the 100,000 the 12,950 taxable income 87,050 depending on the software to do the calculation on page two that being 14774 so we've got the 14774 and then 15,000 withheld to get us to the 226 that's our general starting point we've been starting with. Now when we're talking about payments that are coming out of the social security normally that's going to be people that are in their retirement years. So I'm going to change the age here to put them into a timeframe where it's likely they're going to be getting social security benefits. That would be the normal expectation if they're in their working years you would expect most of their income to be coming from say W2 income if beyond the working years you would expect distributions possibly from IRS pension plans interest dividends and income type of sources and then possibly of course the social security our point of focus now. So now I've changed the income the age so so now it switched us over to a 1040 SR instead of a 1040 I'm still going to go back to the 1040 because I think that's just an easier format or a more standard format if you've been working on the 1040s for a while to get an idea of what's going on so it's a single filer we've got the we're born before January 2nd 1958 we've got the 100,000 that I left in the W2 income although if they were retired it's likely that they wouldn't have the 100,000 from here it would be in in ira's or pensions and whatnot but the basic idea is that if we have that income that's over a certain threshold then we're going to have some taxable portion of the social security benefits so if you're dealing with people that have significant amounts of income and they ask you what's going to happen to my social security benefit income well you're probably going to have to include it 85% of it in income so we have a hundred thousand dollars here social security benefits of 2000 the calculation is 0.85 and that's giving us the 1,700 that's going to be the taxable portion that's going to be the general concept if the income is fairly below a fairly low threshold then you might be taxed something or have include in taxable income something less than 85% now remember that 85% isn't the tax you're paying on it that's the amount that has to be included in taxable income in order to then get to the to calculate the tax on the taxable income and then we changed our standard deduction because we're over the threshold 65 so let's go back on over here and say all right let's say that we've got the income now and now we've got social security social security card income so that's like on page one so let's say that I'm going to add another line pension let's just add a few more lines here gonna insert some lines and then I'm just gonna call this what what should I call it social security benefits social security security benefits something like that that's close the spell check should be able to figure that out and then I'm gonna leave a couple spaces usually like two lines because you got husband wife is usually maybe we'll add an extra just in case there's some some weird scenario or something always weird scenarios these days I'll tell you what so we're gonna say social security benefit payment was 2,000 now you can kind of do the calculation here and say it's gonna be 85% so you might you might try to do like actually see the calculation so let's actually add a column I'm gonna add a whole column to this and push column C to the right by putting my cursor on column C right click and insert and then I'm gonna add another kind of calculation here so all this stuff doesn't need to be any special formatting down to here so I'm gonna say on on I'm gonna get rid of the colors on those but then down here I'm gonna add another column and I'll put like normally it's 0.85 85% 0.85 or maybe I put the 85 let's put the 85 like down here 0.85 0.85 and I'm gonna make that a percent and so that I'm gonna say this is gonna be equal to this times 85% and so this would normally be something that you wouldn't have to basically change but you might because they might be a rate other than 85 and in that case I'd probably be dependent on the software to do the calculation and so then I'm gonna say this is the total total social security benefits summing that up to the outside sum it up poor far bore there we have it let's do the spell check that can't be spelled right if there's something if the spell check doesn't say something wrong there's something wrong with the spell check social security okay so then that should be included down here so I'm gonna update that formula so now we're at the 101 700 pulling into page one boom this needs to be increased because they're no longer over the threshold to get an extra over the standard of the 1,750 there's that bam that gets us to the 87,000 87,000 over on the tax return is there page two doing the calculation is now at the 14763 so we'll say okay 1414763 is there and 15,000 gets us down to the 237 so there's the general idea okay so again it's more likely that you're not going to see the W2 income but the income coming from basically these other sources let's bring the income down below a threshold so so that now it might be taxed at a lower rate so let's say the let's say the income was only like like 20,000 or something so let's go back on over and let's imagine that that the wages income I'm gonna bring that down from here and let's say they just got some money from a pension plan or something like that so we're gonna say pension income and I'm gonna say this is 1099 are that they got and it's gonna be a normal distribution and let's say that they got like like 20 let's say let's say 15,000 here taxable amount 15,000 and then on the social security let's bump up the social security a bit social security benefits let's say they got 10,000 social security okay let's make it 5,000 5,000 okay make up your mind make up your mind okay that's what I want to do so now I'm still looking at the form 1040 although the 1040 SR would be like the form typically used over the threshold of 65 so we've got single we've got the born before January whatever and then down here now we've got our income coming from the pension and annuities and the social security benefits none of it's being taxable right and you can look at the worksheet right here that's because they're below the threshold and you can get an idea of of the income thresholds but that's gonna be and I won't get into the weeds on that but you can get into the weeds on that to see the calculation on how the worksheet is being put together so if I was to mirror that on this side I'd have to say okay income no W2 income they got an pension income that I said was 15,000 I think and then they've got the social security of what did I say 5,000 but now it's it's none of its taxable they're not taxed at the 85% so I'm just gonna rely on the software to say that zero of that is taxable and that's putting the zero down there so that gives me the 15 up top so the 15 15 brings it down to the to the 3 that the 300 so the 300 and so on so I won't go from there now now let's let's increase this a little bit let's bring it up to like 25,000 let's say this was that pension 25 25,000 let's say movie B to the end so now a portion of it is being taxed right 1,000 250 so now we're at 125 divided by 5,000 it's pulling in 25% right let's pull it up let's pull it up to let's pull this amount up to like 30,000 30,000 30,000 and see what that does going back on over now half of it right so it's gonna be 2500 divided by 5,000 what K the heck Paso divided by 5,000 50% and now let's bring it up to I think it's like 34,000 34,000 and so now it's still at 50% let's bring it to to to actually I didn't do it here 34,000 34,000 so now it's it's getting pretty close pretty close though to 100 to the full amount here 85% so now we're at 4250 divided by 5,000 85% so it's a pretty low threshold still right and then and then if I brought this as high as I wanted to it should stick at that 85% of the income right if I brought this up to 100,000 100,000 we're still sticking there and so that's the general kind of curve that you want in your mind so when you explain it to people you're like yeah you probably have to include an income like 85% unless your income is relatively low so 4250 divided by divided by 5,000 now if they were a married couple then of course you can you might have social security from two people right so then I could go back on over and say now they're married filing joint and then on the income side let's say we had the social security benefits 5,000 from one spouse and 5,000 from another spouse right and so now that's going to be pulling in to the the box of 10,000 and 85% is being taxed at this point if they were married then you can bring the threshold thresholds will be a little bit different to determine how much will be taxable so if I went back on over and I went to my pension income and I bring this down once again to 30,000 30,000 and I go back on over and say okay now only 1,500 is being taxable 1,500 divided by 10,015% the thresholds are a little bit different as you would expect from married filing joint if I bring it up to like 40,000 40,000 then now we're at the 5,850 divided by 10,000 which is 58% and then if I bring it up to like I think it's like 44,000 44,000 and pull it on over pull it on over now we're at that that 85% 85 so it's still a fairly low threshold but obviously the threshold differs for married filing joint versus the single threshold so there's the general the general idea that you want to have in your mind with regards to the social security so remember that you also kind of you probably want to get a general concept of what the social security is doing you're pulling it in from the W two when you pay it it's social security or payroll taxes different than basically the income taxes you're paying it in with your payroll taxes or with your your self-employment taxes and the amount that you pay in is going to be causing the amount or and contribute to the calculation of how much benefits you're going to get in retirement and then when you get the benefits in retirement it possibly could be included in income and generally will be included in income up to like 85% unless your income is taxable income you know is relatively low that's kind of the scenario you might want to have