 Income tax 2021 2022 tax line 16 part 2 get ready to get refunds to the backs diving into income tax 2021 2022 most of this information can be found in the form 1040 instructions tax year 2021 on the IRS website irs.gov irs.gov income tax formula we're down here on the tax line down below on the form 1040 we're on page number two line number 16 of the tax calculation so we're continuing on here we started this discussion in a prior presentation obviously the tax can be a little bit more complex than you would think at first given the fact that it's not just a flat tax that we're dealing with and that we have some other components that are going to be involved as well so just note that the tax software will of course be quite useful to actually calculating the tax for most people and most tax professionals do in part just to the complexity of the normal tax system which is a progressive tax system as we've talked about in prior presentations meaning that your taxable incomes could be subject to multiple different tax rates which is a little bit more difficult to calculate and therefore the software is useful to be able to calculate that we might have other components that are going to be feeding into the tax some components might be subject to different tax rates typically favorable tax rates based on other circumstances such as income that was for qualified dividends for example might be a different kind of progressive tax structure altogether as well as the capital gains I could have a different structure if it was long term capital gains so those are just a couple things that add to the complexity which you want to do most likely if your tax preparer or doing your taxes is used to software to help you calculate the tax but understand the progressive tax system that'll help you to budget that'll help you to explain to somebody else what's going on with the taxes and also understand where you have some of those differences within the tax rates such as qualified dividends capital gains so that once again you can kind of understand the calculation that's being made as well as explain the benefits and possibly be able to do tax projections more easily that way as well so now we're looking at the form 8615 form 8615 must generally be used to figure the tax on your unearned income over 2200 if you are under 18 and in certain situations if you are older so you must file form 8615 if you meet all of the following conditions number one you had more than 2200 of unearned income such as taxable interest ordinary dividends or capital gains including capital gain distributions now some of the rationale for this could be that let's because of the progressive tax system and you've got different different rates being applied to the same net income then it might be beneficial to basically have income not on a parent return but possibly on a child return because then then they would be at the lower tax brackets so if you have a child that has a significant amount of basically investment income then you would think that that might be trying to utilize that as a way to basically get access to the lower tax brackets in a progressive tax system and so it could be thought of from an iris standpoint as kind of an abusive strategy in that instance and so you could have you know tax you could see how the iris would be kind of skeptical of someone under 18 making a lot of unearned income such as interest and dividends which would be on things like stocks and bonds for example number two you are required to file a tax return number three you were either a under age 18 at the end of the year b age 18 at the end of 2021 and didn't have earned income that was more than half of your support and or c a full-time student at least age 19 but under age 24 at the end of 2021 and didn't have earned income that was more than half of your support you could see those those kind of qualifications kind of mirror similar qualifications to be basically being uh qualified as a dependent type of situation so the idea then here in my interpretation of it it would be that if you're still basically under the support of say a parent for example as a child and you have a significant amount of investment income from like dividends and interest then the iris is possibly suspicious that that's because the parent is trying to put that income in the name of the child in order to have access possibly to lower tax brackets from it so four at least one of your parents was alive at the end of 2021 five you don't file a joint return in 2021 a child born on january 1st 2004 is considered to be age 18 at the end of 2021 a child born on january 1st 2003 is considered to be age 19 at the end of 2021 a child born on january 1st 1998 is considered to be age 24 at the end of 2021 schedule d tax worksheet so the schedule d is going to be the calculation generally of your gains and losses for most individual tax returns that usually is like stocks that are being sold for example and that's where you have this long-term and short-term capital gains and the capital gains rates possibly being favorable rates in some cases to the ordinary income rates which complicates the tax calculation because now you have two sets of basically progressive tax systems two sets of different ranges of progressiveness divided on income level in the tax ranges obviously the ordinary income tax is more progressive and the capital gains if you get a favorable rate is designed to be beneficial a beneficial tax rate generally so use the schedule d to a worksheet in the instructions for schedule d to figure the amount to enter on form 1040 or 1040 s r line 16 if you have to file a schedule d and line 18 or 19 of schedule d is more than zero or you have to file form 4952 and you have an amount on line 4g even if you don't need to file schedule d but if you are filing form 2555 you must use the foreign earned income tax worksheet instead qualify dividends and capital gains tax worksheet use the qualified dividends and capital gain tax worksheet later to figure your tax if you don't have to use the schedule d tax worksheet and if any of the following apply you reported qualified dividends on form 1040 or 1040 s r line 3a you didn't have to file schedule d and you reported capital gain distributions on form 1040 or 1040 s r line 7 you are filing schedule d and schedule d line 15 and 16 are both more than zero but if you are filing form 2555 you must use the foreign earned income tax worksheet instead schedule j if you had income from farming or fishing including certain amounts received in connection with the Exxon Valdez litigation your tax may be less if you choose to figure it using income averaging on schedule j a specialized area of course foreign earned income tax worksheet so now we've got foreign earned income remember if you're a tax preparer then you've got to be thinking about do i want to be doing more complex returns and one of the complex returns would be do i want to be picking up returns where i have foreign source income that i'll be dealing with and or you might specialize in that area that's also an opportunity if you know a lot of people or segment that has the foreign income that could be a way to specialize do you want to focus on taxes that are in your certain state or that might have different state taxations which again could add a lot of complexity making returns more complex but also could be a specialized field where people can you know generate more revenue and get an area of expertise in so if you claim the foreign earned income exclusion housing exclusion or housing deduction on form 2555 you must figure your tax using the foreign earned income tax worksheet