 Income tax 2022-2023. Who qualifies as your dependent tax software example? Let's do some wealth preservation with some tax preparation. Here we are in our example Form 1040. We're using LASERT tax software to populate it. You don't need tax software to follow along, but if you have access to tax software, it's a great tool to run scenarios with. You can also get access to the Form 1040 related schedules, related forms at the IRS website, irs.gov, irs.gov. Our starting points gonna be a single firewaller here, Mr. Anderson, we've got no dependence to start off with on down below. And then we've got our 100,000 at the W-2 income for a nice round number. We've got our standard deduction at the 12,950, and that gives us our taxable income at 87,050. If I jump on over to our tax equation, the 100,000 we're pulling in from the W-2 income, the standard deduction we're gonna pull from our table down below for the single firewaller that gets us to the 87,050. I'm gonna depend on the software to double check the second page, which is the 14774. That's the tax that's being calculated. There's the 14774 I plugged in. And then we had withholdings we're saying of 15,000. Support accounting instruction by clicking the link below, giving you a free 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. To get to the refund of the 226. So then we've got the 226 on down below. So now let's say that there's gonna be a dependent involved. So we're gonna add the dependent. That's our point of focus right now. And it will touch on some things that we've looked at before, some things that we're gonna look at later, including if I go from a dependent at a single status that might move up my filing status, most likely will from single to head of household. That's most likely going to be the case. That'll be one change that will happen. We'll have then the dependent that will be listed down here. The dependent then will either qualify for a child tax credit usually or an other dependence credit usually. And that then will have implications possibly here if there was a change to the filing status and that on page two, we could have a change to the tax tables being applied if there was a change to the filing status. And then we could have a change in the child tax credit, that being the big one. And if we were in a low income situation, you could have a significant effect on the earned income credit, which we'll talk about in the future. So therefore we note that there's a lot of different kind of factors involved with regards to taxes and children. And therefore it could be a sticking point in terms of if there's custodial issues and whatnot. And we wanna make sure that we can come up to any kind of agreement as clearly as possible, because as we can see here when we list the social security number for dependent, we can't list that on multiple returns getting the benefits of one dependent generally on multiple returns is the general rule. Okay, given that, let's add the dependent. So I'm just adding it in here into the software just to see the data input on the software. And I'm just gonna say the son for now, these are the relatives that could qualify. And that's gonna be here. And then I'm also gonna go back and change the filing status from single to head of household, which will typically be the case. So now this should line up. If I go back to the software, we've moved up to the head of household, we've got Mr. Anderson here, and then we've got our dependent listed on down below. And there's the social security number, the relationship, and then whether or not they qualify for the child tax credit. Remember that the general rule when we think about this is, are they a qualifying child? And if they are a qualifying child, do they qualify for the tax credit? Meaning there's gonna be age tests, oftentimes and dependent tests with regards to that. And therefore we would pick up the child tax credit. If they don't for whatever reason, then can we still get the other dependent credit? If they're not a qualifying child, then the only credit we might be able to get is the other dependent credit. That's the general rule. If I scroll down, you can see here, we did have an impact changing from the standard deduction that was for the single to the head of household standard deduction. That would only happen if you're in that weird situation where the dependent will have an impact on the filing status. So if I reflect that in my software here or in my worksheet, I would then say now we're moving up to the head of household, and that will then take our taxable income to 80,600. So there was the 80,600 here. Page two calculates the tax, which will now be different because the taxable income is different and possibly because the tax tables being used might be different due to the fact that now we're using a different filing status. Now calculated at the 11,855, which I'm gonna type in here, 11,855, depending on the software to calculate that. That's an average rate of the 14.7%. And then we're still saying that we paid in 15,000 to get us to that 3,145, but we're gonna have another credit, right? Because now we've got this credit for the child tax credit. So let's add that to our worksheet. So I'm gonna put it up here in the other credits. So I've got another page on over here for other credits. And this is the other taxes. I'm looking at other credits. There's the child tax credit. I'm just gonna plug it in at the 2,000. I'm not gonna get into a lot of detail in terms of recalculating the credit at this point. Again, you could make your worksheet to be more or less detailed, having phase outs and whatnot and accounting for refundable and non-refundable. We'll talk more about that when we get into the child tax credit in more detail. Right now we're just focusing in on the qualification of the dependents just to note where the other kind of places where that dependent might have an impact. And by the way, I might wanna do it this way instead of I'm gonna say a child tax credit. I'm gonna delete this. I'm gonna move this one down by selecting some rows and insert. And let's actually make this, let's make this black and white and then I'll leave some space so I can have multiple children that we might apply out and I can kind of list them out and then I'll have the total child tax credit credit. And I'll indent that one like so and then I could say this is child number one, 2000. And I'll sum this up in the outer column equals the sum up here. And then this one I'm gonna sum the outer column so that when I add other credits, this will be the total of all the other credits that's gonna pull into my tax form right here. So we'll get more into the credits later. It gets a little kind of messy when there's phase outs and refundable or non-refundable stuff. But for right now, we're just gonna say there's the child tax credit. And so there it is. So that gets us to the total tax of the 9855. So there's the 9855 we paid in 15,000. We're saying on the W2. So that gets us to the tax of overpaid 5145. So there's the 5145. So we can kind of mirror what is happening. We'll get into some of these other line items in more detail later, but just to get an idea again of what's impacted when we have the dependent. Now, if I add another dependent, what is gonna be impacted? Well, I'm not gonna have another different impact on the standard deduction here because it's not gonna move me up to married. Married? Yes. Or anything from head of household. And I'm not gonna have another impact on the change to the tax in terms of tables, although the tax, but I will have an impact on the child tax credit here if it was another qualifying child. So let's go back on over and say let's add another one. So now you can see, now we've got two down here, Sam and Jane, social security numbers. We're saying they both qualify for the child tax credit. And then we're still at the head of household, right? Because there's no other place we can go. We're not gonna go to qualify, right? Widow, widow, we're, so it's just that, so we're not always gonna have a situation where the change in the dependence is gonna have an impact on the filing status. So down here, there's no change on the standard deduction. The taxable income is still at the 8006, but on page two, we would then expect the tax is now 11, eight, same. But now we've got this 4,000 in the child tax credit, right? So I'd have to go back on over here and say my other credits, we've got child two, child number two, and another 2,000, that brings us up to 4,000. So the 4,000 pulls over here, total tax at the 7855 and then 7145 over here. So there's 7855, withholding brings us to 7145. So you can see it, we'll get into more details on phase outs and that kind of stuff later. But now let's just think about, well, what if the income was below a certain threshold just to see the other big impact, which is often gonna be the earned income credit, which usually impacts lower income individuals, right? So if I said, what if I drop the income down to like 20,000, and then my withholdings were like 4,000? Let's say then now you've got the same head of household status, we've got the two dependence incomes at the 20,000. The standard deduction is at the 19,400. So if I go back on over here and I changed my income line to 20,000, now I've got that that means only 600 of taxable income. That means the tax on page two is only at $61, right? So I've got $61 down here at the tax being calculated. And so the child tax credit or credit for other dependents then is now at 61 because that's all that's needed to bring the tax down to zero. And that's what we get into with this when we talk about the refundable versus non-refundable credits. But then down here, you've got the other parts of the credit, you've got the earned income credit, which is 6,164 now. So that's a huge credit that's dependent in part on the children. And then you've got the additional child tax credit, which is 2,625. And that is the refundable portion. That's why you don't have the 4,000 up here because you have that portion of the credit when we look at our form over here, we've got the portion of the credit, credits that are the non-refundable credits that can't take the liability below zero. And then you got the credits that are refundable down here. So I'm not gonna rework my worksheet right here to kind of dive into that because we'll get into more of that when we start to focus on the credits themselves. My main point right now is to just point out that the other big impact could back beyond the earned income tax credit. And just realize that if I go back on over here, we talked about the idea of going from single to married, if you're in the middle income status and you don't have these refundable credits, which are significant, then it's likely getting married is probably gonna be a benefit because married filing joint has the doubling of the tax tables and the doubling of the standard deduction, which is usually a beneficial thing. But if you're on the low income side of things and we're dependent on these credits, then that's where the marriage thing can be a disincentive the way the law is structured because again, you could imagine situations where someone was subject to substantial refundable credits, non-married, and if they got married, they might lose access to the credit. So that's where you get into that weird situation where again, we'll talk more about that in future presentations. Okay, let's go back to the point we were before and let's say that we're in a married situation. So now our starting point is gonna be married filing jointly, but now we've got Mr. Anderson and Mrs. Anderson, they got married, which is nice. So then we're gonna say, okay, the 100,000, we're back to the 100,000. We've got no dependence to start out with and that means that the standard deduction is gonna be at the 25, nine and the 74, one. So let's just mirror that and our worksheet over here. We're just gonna say, all right, standard deduction jumped up to the 25, nine. The income let's say is 100,000, 100,000. We don't have any child tax credits at this point. No children to start off with. And we had that 71, four, 71, I mean 74, one. You got it backwards, you idiot. Okay, there's no need to get. And then 84, 84. And so let's say this is gonna be 84, 84. And that brings us to the 6516. Now, if I change and I add a dependent now, it's not gonna change the filing status, even the one dependent, because it's not going from single to head of household. They're already married. So we already, the married is basically the highest filing status you can get when married as opposed to non-married. So if we add a dependent then, we still have married filing joint, no change there. But now we have the dependent in place and we're gonna say they're a qualifying child. So nothing really changes on the first page. We're still have the same standard deduction. That's the big point that one dependent's not gonna change the status like it could on a single status. If I go to the second page, the tax is still at the 84, 84. But we now have the child tax credit. That's the big benefit, of course. And I can go into the other credits here and say child number one. We've got the child tax credit pulling that over. And there's the 2000. So that gives us our 6484 on the tax. And then we've got the 15,000 to get us to the 8516. So there is that on that one. Now, if I added another child, we'd have a similar situation. If the income was below a certain threshold, you could also have the earned income credit factored in when married. It's not like that goes away when married. But when you have different income amounts, when single versus married, that the benefits of those refundable credits could be different, which again, we'll talk about in the future. So now you could imagine situations where the dependent wasn't a qualifying child or possibly they're a qualifying child, but they're a full-time student, let's say. So they're over the threshold to get the child tax credit. So in my data input, I'm gonna say that this one is still the son, so still the child, but they're gonna be a student age 19 to 23. And of course, I changed the birth date to put them in that range. So then if I go back up, I'm gonna say, all right, well, now they're still a dependent, but they're not gonna be qualifying for the child tax credit. They're still like a qualifying child in that they were a child qualifying for a dependent as opposed to a non-child qualifying for a dependent, but they don't have the qualifications in terms of age and whatnot to qualify for the child tax credit. So then the question is, do you get the credit for other dependents? Which of course is substantially less, right? So there's no change on the first page here. The second page, we've got the change from the 2000 to 500. So if I go back on over and I look at my other credits, so now let's add another column down here. I'm gonna insert another rows, not columns. These are rows. These are rows. Whatever, dude. Anyways, I'm gonna copy this stuff and put that here. And this is gonna say other dependent credits. And this is dependent one, which happens to be a child, but we'll just say dependent. We might actually put their name there in practice. And so now I'm gonna say, I don't have these two, but I have this other dependent, 500. And that's pulling into the total, which we'll pull into the first page. There's a 500. There's the total tax, seven, nine, eight, four. So the seven, nine, eight, four, 15,000 withheld gets us to the seven, oh, one, six, seven, oh, one, six, boom. So there is that. And so there's the general rules. Now, obviously if they're not, you can see kind of like with the data input, you can run different scenarios, all those kind of strange kind of scenarios. So you can see here in the data input, we have the adopted child, aunt, brother, child, daughter, father, grandchild. Remember, there's a little bit different rules for whether they live with you or not when you're talking about parents versus other dependents and whatnot. The test could be a little bit different there. So keep that in mind, niece and so on and so forth. And then I'm gonna say months lived at home. So I'm gonna say 12 here, a child living with the taxpayer versus child not living with the taxpayer, dependent other than a child. So I'm gonna say this is a dependent other than a child, let's say. And let's say they're gonna be not a student, but we'll say child tax credit when applicable, but they're a dependent other than a child. So it's not gonna be applicable there. And then the child tax credit when applicable or you could force it to suppress and the dependent claimed by the taxpayer or the spouse. So if you had a married situation, you might be saying, okay, the dependent is being claimed by the spouse, dependent not claimed this year. So you can check that off if you had the information in, but possibly you have a custody agreement where possibly the dependent's being claimed by one parent one year or custodial person one year and one in the following year, for example, and so on and so forth. So all those kind of gray area situations you should be able to populate kind of in your data input forms here. And then when you pull it over, you should be able to kind of have an idea of the rules in your mind and see if the rules are then populating as you would think. So once again, if they're not a qualifying child, if there's some other kind of dependent that qualifies the main benefit would be not the child tax credit, which is usually the big one, but the other credit for other dependence typically would be the general rule. So once again, same kind of scenario here without 500 credit instead of the 2000 credit. So I won't go into basically every other kind of scenario that happens here, but I just wanna get a general idea for now what the impact of having a dependent could be in the different areas. And we focused more in prior presentations on the filing statuses changing, which could change in part to the dependence. So some of this stuff is interrelated. We talked about a change to the filing status possibly having of course an impact on the standard deduction. We talked about the change to the filing status possibly having to change to the tax brackets that will be applied on the tax tables when we do the actual tax calculation. We talked about the dependence. Usually the big thing that comes to mind are whether they qualify for the dependent credits, child tax credit being the bigger one or the other dependence. That's the first thing that comes to mind, although again, the dependence could have a significant impact on some of the refundable items, which means part of the child tax credit could be refundable and the earned income tax credit could be again, a really big significant item that take into consideration if people are in the lower income side of things that could have an effect on. And so some of those credits will focus in on the credit side again, later looking at it from the angle of the credits, which again, will tie back into the dependence but our focus in that case will be looking on the different ways these credits will be affected in those items.