 Income tax 2022-2023, pension and annuities software example. Let's do some wealth preservation with some tax preparation. Here we are in our example form 1040, populating it with LASERT 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 forms and schedules at the IRS website, irs.gov, irs.gov, starting point, the standard starting point, single filer, Mr. Anderson. We've got no dependence up top 100,000 in the W-2 income. 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. We've got the 12,900 standard deduction getting us to the 87,050 of the taxable income, mirroring that over here on our tax worksheet. So we have the mirror in our tax formula page too then, giving us the tax calculation, the 14774, which we're going to plug in here. And then we had a 15,000 withholding we are imagining getting us to the tax refund of the 226 mirrored in our formula. Okay, so now let's imagine that there's going to be income from the pension and annuity, which was going to be down here on line 5A. So typically the form that would be received would be a form from a financial institution, which might not look exactly like this, but it will have the relevant boxes for it. And it should say somewhere 1099 are distributions from pension annuities and so on and so forth. We're typically focused on box one and two gross distributions and then the taxable amount of them. And then oftentimes we're focused on box seven, of course, which will tell us if it's a normal distribution or if there's some other code related to it. If you don't know what that code means, then you can check your software will often help. Or you can go to the instructions that are actually on the form. If you don't have it in your documentation that you're looking at, you can go on the IRS website and look up this form and look at the number of codings on the right. So typically we would expect if someone is in the area of retirement and normal distribution and meeting they're old enough to be able to pull out the distribution without like a penalty. Or if they are not in that timeframe, then you might have an early distribution and then another common code would be the rollover type of code because it's going into because you're rolling over from one pension to another. So that would be the ones we want to kind of test out here. So let's bring it on back on over. Let's I'm going to imagine now that Mr. Anderson is in the retirement years. That's when we would most expect to be receiving money from these 1099 Rs. If you're dealing with someone that is past their working years and then we'll run some scenarios where they are before the working years and have some penalties applied. Okay, so just note that I'm in the same data input screen as we were with the IRA. So the only difference really here is going to be from an IRA to a pension and annuity. It's going to have this box checked off or not. So I'm not going to check it off this time. And then we're going to say that the distribution code. Let's start off with a normal distribution, which would be a seven in our code here. And that would be represented right there in the distribution codes. And then I'm going to say that the gross distribution was a thousand. Let's say a thousand and the taxable amount is a thousand. Meaning we had a thousand in box one and generally box two. And that would be what we would typically expect because it is going to be taxable. The fact that it's a normal distribution should mean that we don't get hit with the penalty on top of the tax. We're going to be paying. All right, jumping back on over. Now I'm in the tax form 1040 SR because they're in the retirement years. But I like to still kind of look at the 1040 sometimes just so we can see the same format. So I'm going to look at the 1040. It says we're single. Now we've got Mr. Anderson and here it says born before January 2, 1958. And then I still got the 100,000 that I kept in the W2 income for now. And then I put a 10,000 down here. I'm going to put 1000. Let's change that to 1000 1000 and pulling that on over. So now it's all going to be a taxable. So it's in line five B that increases the taxable. The total income. And so then we have the standard deduction has been increased because their past retirement aged at the 147. Let's mirror that over here. So I'm going to say, all right, we've got the 100,000 and then on the second page, we have the IRA distributions. Let's add some more rows here. I'm going to say insert and say this is now sometimes you could put the IRA distributions and the pension and the same data input area. If you want to, or you might want to break it out. If you break it out, it's kind of nice because you can see it in the two separate lines on the form 1040. But but sometimes if you put them together, that's how it's showing on the data input field. So sometimes that makes it easier that way as well. But I'm going to break them out here and I'm going to say this is going to be then the pension and annuities. Let's say pension and annuities. There's no way I spelled that right. There's no way I did maybe. I don't know. It says it's not giving me a whatever font. I'm going to say this is going to be black and white. Now we could have a few of these 1099. So I'm going to just leave some space, make some blue areas down below, dropping it down blue. I'm going to go if you don't have that color, you can go to the more colors standard and hit. That's the blue I'm going for here. You don't have to use that blue. You can use other colors. You can use green if you're comfortable with the standard spreadsheet green. And then the total pension and annuities is on down below. So this is going to be 1099, 1099, R1, right? The first form, R10, R10, R2, D2. This is going to be then 1000. Total, I'm going to sum up down below equals the sum of these. And that should then be included in my total down here. So I'm just going to drag that on down, boom. And there's the 101 pulling into line one of the 1040. So that matches out. My 12,009 has to be increased now by the fact that it's going to be another 1,750 because they're over 65, I believe. And then we're going to say we've got the 86,386,3 matching right there. So that looks movie B to the end. Movie B in page to 14609, 14609. Let's put that here. 14609. And then we still have the 15,000 on the withholding, bringing us down to the 391. Okay, so there is that one. That's the first scenario. Let's change it up and imagine that all of their income is coming from a pension and or annuity instead of having the 100,000 up top. And I'll also break it out so we have, we could see the distributions from an IRA versus a pension now this time. So if I go to the first tab, I'm going to say no more W2 income past the working years. So they don't have W2 income anymore. That's what we would expect from older taxpayers, right? And then I'm going to say new tab. Let's make this one just 100,000, 100,000, 100,000, 15,000 on the withholdings now. So remember, if someone's in their retirement years, then you have to deal with their withholdings because some of their items might be taxable because they're coming out of retirement plans, which they got a tax benefit when they put the money in. So then we have to try to get the withholdings correct for the money that they take out and or make estimated tax payments so they don't get hit with penalties and interest. So let's say this was 1099R number two, the second one, but this is an IRA one. Let's say it's a normal distribution number seven, but I'm going to just check it off as an IRA distribution and say this was usually a smaller bit for the IRAs, right? It's usually a lesser amount because the major one might be from their 401K plan or whatever. And then you might have another like an IRA, which is usually a lesser amount and then you might have multiple of them, right? So in any case, I might not have any withholding for the IRA. Let's say it's taxable. And then I'm so I'm going to go back on over here. So now that first one would be represented 100,000 here, 100,000 here. And then box seven, a normal distribution code seven and then nothing's checked off. And that second one I had, what was it a 1000 that I put? I had 2000 here and this box and this box and then distribution code normal distribution. And this time this one was checked off. So you can see why like if I look in my data input and I tied this out to what I had in my forms. That's why I said it's kind of nice to have it all in one area because then you can add them up in your data input. But when they pull over to the form 1040, now they're going to be broken out in the two areas. I'm going to keep this at 2000. I said of the 2000 1000 was taxable. Let's make it 2000 and 2000. So now you can see they're broken out over here in two separate line items, right? So that and that can kind of mirror. So if I was to mirror that on my side, I could say, okay, the IRA, what IRA had 2000 in it and this one had 100,000 100,000 in it. And then the withholdings then are not coming from the W-2 income, but rather from the 1099 R of 15,000. And I just, yeah, I just put them all in one that time. Okay. So now we've got the 202, the 147, the 202, the 147, the 202. Okay. So all the 100,000 needs to go from here. That now we've got the one or two, the 147 gets us to the 87, three 87, three boom. And then page two, we've got the 148 29. I'm going to plug that in 148 29. And then I had this other taxes here. I'm going to have a penalty for an early distribution. I'm going to remove that because I'm going to say that they don't have a penalty because we'll deal with the penalty in a second. And so there's that one. And then that gets us to the 171, 171 on the bottom of the line, the bottom of the line. Okay. So now let's run a scenario where they had, where they're in their working years and they made the decision to pull the money out of like a 401k and they weren't in the retirement years. And therefore we have a box one check off, which is going to be, you get hit with the penalties, interest, and having to pay the taxes. So I'll reformat that. Give me a sec. Okay. So we're back to our normal starting point. Single Anderson, 100,000 W2 wages, 12,950, 8750 here. Now we're going to add the fact that they got money out of their pension plan because they changed jobs. And they're just like, I'll just pull the money out then because I don't need it in my 401k plan and my old job. And so I'll just pull it out and it's like, okay. And then we're going to say this is going to be 1099R. And let's say that it was a distribution code one now. And let's say they pulled a significant amount out this time. Let's say they pulled out, let's say they pulled out like 35,000. Yeah, I'll just go to the Bahamas with the 35,000 after going because I don't need that job, man. I don't need that job. And then you're like, okay. So now they pulled it out before the retirement because it was distribution code one. So that would be 35 here, 35 here, distribution code one here. And then we're going to go, let's see what happens. So now we're going to say 35,000 and now we've got 35,000 in income. And they're going to get hit with a penalty on it, right? That's where the real kicker is. And so, and they're going to be in their working years. So if they're still making a decent amount of income, then they got hit with the income on top of that. So that's going to be taxed at a higher tax bracket than possibly in their retirement years when maybe they're not going to have to report 135,000 of income because they're just going to pull out what they live on. And maybe they don't need to pull everything out of the retirement plan that's taxable at that time, right? So in any case, now we got the 135. Let's mirror that over here in my worksheet. So we're going to say boom, income. And we've got the distribution, I'm going to say is 35,000. Nothing on this one up top. We've got the employer 1,100,000 with regards to the withholdings, W2 withholdings instead of the withholdings here, W2 withholdings, bringing that back on over to page numero uno, 135,147. This is back down to just the 12,950 standard deduction. Okay, one, two, two, zero, five, zero. So that's going to be one, two, two, zero, five, zero. Mui B to the end, second page calculation, 23128 on the tax. So we'll go 23128 on the tax. And then, and then we've got this 3500 ouch. Where did that come from? Page two, schedule two. And we see that we have this additional tax on IRA or whatever distributions, 3500. So that's going to be down here in our worksheet added tax, other taxes. Let's jump on over there. And this is coming from the additional tax. Let's just say on 1099R instead of, so this is a 1099, 1099 number one. I'm just going to say this comes from equals the form here and the tax is 10% times 0.1. There's the penalty. Boom. So that gets pulled on over. And so then, so it's a pretty hefty issue. That's the point. You don't want to have to pay taxes on it in your working years when you're at your higher rates of tax brackets and then get hit with a 10% penalty on top. That's the point that we're trying to make here. So tell people not to do that. What do you do instead? You roll it over. Over. Rolling, rolling, rolling. Keep those doggies rolling. Rolling, rolling, rolling. Rolling, rolling, rolling. Raw hide. 359. Sorry about that. I got excited. 359. That brings us to the 11987. Okay. So then you roll it over. Don't do that. Don't do that. That's what we tell them. So we say, what do you do? Well, you go to the new place and whoever you want to roll it over and make sure you can roll it over. So the distribution code doesn't say one, but instead says G or something like that, which is a direct rollover. So if it was a direct rollover, then we would expect something to be in box one, but not in box two. Distribution code telling us it's a rollover. So then I'm going to say, now I've got box one, but not box two, not taxable, scrolling back on over. You would expect something like this then. And you'd say, whew, 100,000 W2 income pension, 35,000 here, but it was rolled over. Don't tax me on that poor five or it's not included in the taxable income. Therefore we're back to the starting point. What's the moral of the story? Don't be stupid or, you know, meaning in this case, don't roll the money. Roll it over. Don't take it out. If you don't need it because that the whole point of putting it in there is you're trying to avoid the penalties and interest in taxes and whatnot.