 Income tax 2023-2024. Schedule C, what's new for 2023 and reminders. Get ready and some coffee, because although the best things in life are free, you know eventually the government will find a way to tax them. Most of this information can be found in Publication 334, Tax Guide for First, a word from our sponsor. Yeah, actually we're sponsoring ourselves on this one, because apparently the merchandisers, they don't want to be seen with us. But that's okay whatever, because our merchandise is better than their stupid stuff anyways. Like our Accounting Rocks product line. If you're not crunching cords using Excel, you're doing it wrong. A must-have product, because the fact as everyone knows of accounting being one of the highest forms of artistic expression means accountants have a requirement, the obligation, a duty to share the tools necessary to properly channel the creative muse. And the muse, she rarely speaks more clearly than through the beautiful symmetry of spreadsheets. So get the shirt, because the creative muse, she could use a new pair of shoes. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. This is for individuals who use Schedule C, tax year 2023, which you can find on the IRS website at iris.gov, iris.gov. Looking at the individual income tax formula, remember in the first half of the tax formula is basically a funny income statement. Most income statements having income minus expenses resulting in net income. Here having income minus deductions resulting in taxable income. The Schedule C self-employment income rolling into line one of the income tax formula, which can be deceiving at first because the Schedule C itself is basically an income statement having business income minus business expenses, otherwise known as business deductions resulting in net business income from the Schedule C, which will basically roll into line one of the income tax formula. This is the first page of the form 1040. The Schedule C income eventually rolling into line eight, additional income from Schedule One. This is the Schedule One additional income and adjustments to income. The Schedule C income eventually rolling into line three, which is business income or loss from the Schedule C. This is a Schedule C profit or loss from business, which has an income statement format income minus expenses. Okay, so let's look at the maximum net earnings. So the maximum net self-employment earnings subject to Social Security part of self-employment tax is 160,200 for 2023. So this number will typically increase from year to year with inflation. We'll talk about self-employment tax and a lot more detail in future presentations. But remember for federal income taxes, we usually think about or for funding the federal government, the type of tax we think about is income tax. However, we also have Social Security and Medicare, which are federal taxes, which are basically payroll taxes when we're W2 employee. We don't think of them as much even though they're being taken out of our wages as a W2 employee, because although they're reported on the W2, they don't typically have a big impact on the calculations on our 1040, which is basically going to be calculating our federal income tax and hopefully refunds related to it. However, when we're self-employed, then we're going to have to pay our portion of the self-employment tax, Social Security and Medicare. And so that calculation is going to be quite important and quite apparent. If we have income that's over this threshold, if it were W2 income, you would see it in that the boxes that represent income on the W2, box one, three and five, I believe, might be different. In other words, box one, which is subject to federal income tax, might be higher than box three, which is going to be subject to the Social Security, which could be capped at this amount, 160,200. When we calculate our self-employment for the Schedule C, if we have net income in essence on the Schedule C over this amount, then again, there could be a cap of that 160,200. We'll talk more about that later, but some people get in arguments in terms of why is there a cap. And part of the reason there's a cap is because the amount you put into Social Security will impact the benefits that you get out of it. And we can't decide whether or not Social Security is a benefit program or a safety net program. Is it Social Security for everyone? In which case, the more you put into it, the more you should get out of it, because it's like a retirement plan? Or is it a safety net for those that can't save for retirement? So that debate is kind of why we have a lot of complications with Social Security and why it's bankrupt and I wouldn't recommend depending on it. So there's no maximum limit on earnings subject to the Medicare part. The Medicare part, you can tell by the fact that it's a lot lower in tax rate, is designed more as a safety net program, and which kind of makes sense. But anyways, standard mileage rate for 2023, the standard mileage rate for the cost of operating your car, van, pickup or panel truck for each mile of business used during 2023 increased to 65.5 cents a mile due to the fact that the administration keeps on trashing our oil production and what not. You think that inflation and everything resulting in all that kind of stuff, that has to go up typically year to year to keep people from getting too upset generally. Now notice that that mileage rate is might be different than the mileage rate for other types of things that that they might have a mileage rate for such as if you're driving for medical expenses that could be reported on the Schedule A or charitable expenses. So when you're thinking about a mileage rate, make sure you're using the proper mileage rate that is tied to whatever you're thinking about in this case and in the one that's most likely adjusted year to year on a regular basis. We're talking about the business use mileage rate. Okay, redesigned for 1040SS. So for 2023, schedules C and SE form 1040 are available to be filled to be filed with form 1040SS. If applicable for additional information, see the instructions for form 1040SS. Bonus depreciation. The bonus depreciation deduction section 168k begins phase out in 2023 with a reduction of the applicable limit from 100% to 80%. So obviously depreciation is a huge topic in and of itself. If you deal with business entities, if they're just doing gig work or something like that, they might not have a whole lot of depreciable assets. But of course, if you're talking about a type of business where you're going to have to invest in long term assets in order to help you generate revenue, then you've got to deal with the depreciable assets that you're going to be putting on the books. And there's all these games that are kind of played in terms of allowing accelerated depreciation, bonus depreciation, 179 type of depreciation that are designed to possibly stimulate the economy in certain areas and whatnot. So we'll talk more about depreciation in a future presentation. So we've got the form 7205 energy efficient commercial building deduction. So this form and its separate instructions are used to claim the section 179D deduction for qualifying energy efficient commercial building expenses that are now reported on new 27B of schedule C form 1040. So you can see the form 7205 and its instructions for more information related to form 7205 energy efficient commercial building deduction, commercial clean vehicle credit. So business that buy a qualified commercial clean vehicle may qualify for a clean vehicle tax credit. So obviously they keep on playing with these credits that are supposed to be designed towards the green agenda and so on and so forth, which could have, you know, I'm dubious about the effects of them because I think really technology is going to be the thing that solves our particular problems, not, you know, basically tax credits and whatnot. And once the technology happens, then I think the economy and capitalism will fix it. But in any case, we have these credits attempting to incentivize it here. Some of the stuff that was passed in a kind of a deceptive way in a bill a while ago called called the inflation reduction act, which seemed to have a lot of this kind of stuff in it. But there it is. You could see form 8936 and its instructions for more information business meal expense. So there was a temporary 100% deduction for business meal expense, which has expired. So the business meal deduction reverts back to the previous 50% allowable deduction beginning January 1, 2023. So this is one that's that's probably more common to all businesses because they might have those meals deductions, which gets into the same questions that we have always happens, which is, should something be meals or should it be travel and categorization? And if it's meals, then how much can we deduct from it? Is it personal? Is it business? Is it 50% deduction or full deduction? So see meals and lodging later for more information. So we'll probably touch on that later. So what's new for 2024. So now we're looking 2024 just to get an idea of it. The maximum net earnings, the maximum net self employment earnings subject to social security part of self employment tax is 168600 for 2024. So 2024 remember, we're talking about tax year for generally focus on 2023. But if you're doing projection planning forward, you could think about 2024. I think it's also useful to look at 2024 to note those things that are typically going to be updated all the time, one of them being the social security cap, which is almost always something that you can basically count on being updated for cost of living and inflation, which again, we had a lot of inflation last time due to well, I would say policies, but standard mileage rate for 2023, the standard mileage rate for the cost of your operating your car van pickup or panel truck for each mile of business use is 67 cents a mile. So again, that's another one that basically you would think that they would tack up each time for inflation, meaning the decreasing value of the purchasing power of the dollar, which again, we've experienced a lot of because if they didn't do that, then you would expect people would be quite upset because that has a significant impact on profit margins of many businesses. So excess business loss limitation. So your loss from a trade or business may be limited. Use form 461 to determine the amount of your excess business loss, if any. So your excess business loss will be included as income online eight P of schedule one form 1040 and treated as an NOL net operating laws that you must carry forward and deduct in subsequent years. So remember the general rule with the IRS, you have a schedule C business. If you have a schedule C business, if you're doing business, even if it's illegal, even if you're you're doing horrible things, right, they might arrest you, people might arrest you or something. But if you're not arrested, the IRS still wants their cut, right, just like they want Al Capone's cut, right, they want their piece. So, but if you have a loss, that's when the IRS is going to be skeptical, right, because then you might take the loss against other income, like W two income, and the IRS is like, way, hey, hey, hey, hey, we only want a piece of the income action, not the losses, right. So they're going to be skeptical of that doesn't mean you can't take losses, doesn't mean you shouldn't take losses, doesn't mean you should be scared of taking losses, as long as they're legitimate, but you can imagine more scrutiny on the losses. And here we're talking about excess business loss limitations, limitations on how much of a loss you can possibly take. So for more information about excess business loss limitations, C form 461 and its instructions, we might touch on that more in future presentations. Qualified paid sick leave and qualified paid family leave payroll tax credit. So generally, the credit is for qualified sick and family leave wages as enacted under the family's first coronavirus response act. So here we go, still dealing with all the different laws and changes that happened during the coronavirus. So this the coronavirus really shows you how powerful the tax code is how how does the government manipulate behavior through the tax code, right. And you can see it all these different laws that kind of went into place with the coronavirus. So we're still seeing that kind of ripple through some of that you can agree with it, you might disagree with it, you know, whatever they did, but but a lot of changes happening during that time. And you could think or imagine that we're trying to revert back to normalcy at this point. So again, generally, the credit for qualified sick and family leave wages as enacted under the family first coronavirus response act, otherwise known as the F F C R A and amended extended by the COVID related tax Relief Act of 2020 for leave taken after March 31, 2020 and before April 1, 2021, and the credit for qualified sick and family leave wages under section 31313132 and 3133 of the Internal Revenue Code as enacted under the American Rescue Plan Act of 2021, the ARP in other words, for leave taken after March 31, 2021 and before October 1, 2021, have expired. That's a long periodic sentence right there. However, employers that pay qualified sick and family leave wages in 2023 for leave taken after March 31, 2020 and before October 1, 2021 are eligible to claim a credit for qualified sick and family leave wages in the quarter of 2023 in which the qualified wages were paid. For more information there, you can see publication 941 lines 11 B 11 D 13 C and 13 E form 944 lines 8 B 8 D 10 D and 10 F. So that's has to deal with the payroll situation. So you must include the full amount, both refundable and non refundable portions of the credit for qualified sick and family leave wages and gross income online three or four as applicable for the tax year that includes the last day of any calendar quarter with respect to which a credit is allowed. Okay, so note a credit is available only if the leave was taken after March 31, 2020 and before October 1, 2021 and only after the qualified leave wages were paid, which might under certain circumstances not occur until a quarter after September 30, 2021, including qualified quarterly payments made during 2023. Accordingly, all lines related to qualified sick and family leave wages remained on employment tax returns for 2023. So obviously that's somewhat of a specialty kind of area dealing with the payroll situation that's left over from the whole COVID thing, which we might touch on a little bit in future presentations. So reportable transactions, you must file form 8886 reportable transaction disclosure statement to report certain transactions. You may have to pay a penalty if you are required to file form 8886, but do not do so. You may also have to pay interest and penalties on any reportable transactions under statements. Reportable transactions include number one, transactions the same as or substantially similar to tax avoidance transactions identified by the IRS. So obviously the IRS looking for transactions that might be illegally trying to avoid taxes and usually that's not going to apply to most people. You're going to report the transactions, you know, properly and have an income statement that's reporting your proper income and expenses, but then you could have a reportable transactions in those situations, which again, hopefully is somewhat unusual transactions offered to you under a conditions of confidentiality for which you paid an advisor a minimum fee. Three transactions for which you have or a related party has contractual protection against disallowance of the tax benefits for transactions that result in losses of at least $2 million in any single tax year, $50,000 if from certain foreign currency transactions or $4 million in any combination of tax years. So these are usually more complex or high income type of transactions, which again, you would think for most small businesses that are reporting like on a schedule C might not, you know, be applicable. Typically transactions the same as or substantially similar to one of the types of transactions the IRS has identified as a transaction of interest, meaning you would think the IRS is looking in on those types of transactions. So obviously you can see the interplay that kind of happens between the tax payers and the IRS. You've got the tax law, which is basically outline what can happen. You've got the gray area and you've got the then the taxpayers coming up with basically certain types of transactions that might be designed in part to reduce the amount of taxes that they are paying, hopefully doing so legally. And then the IRS coming back and saying, Well, no, I don't think that is legal. I think you're misinterpreting the way the law is written and you're doing something that possibly is illegal in order to avoid taxes illegally and then possibly court cases happening, the IRS then trying to build up a case to go after types of transactions. And as they win cases, if they do win cases, then their stance in their position becomes stronger.