 Income tax 2021-2022, tax software example, business expenses, car and truck expenses. Get ready to get refunds to the max. Diving into income tax 2021-2022. Lassert tax software. You don't need tax software to follow along, but you might want to have the Form 1040, which you can find on the IRS website at irs.gov, irs.gov, starting point single file or Adam Smith living in Beverly Hills 90210. We've got the Schedule C business rolling into page one of the Form 1040 line number eight. Let's see that rolling through. We're going to go over to the Schedule C where we have our business income on the Schedule C profit or loss from business. And we're going to say that we had 120,000 income. We've got the 20,000 of expenses to start off with. Here's the 100,000, the net then rolling in to Schedule 1. So it rolls into Schedule 1, additional income on line number three, which totals up down here down below line number 10. That rolls then in to page one of the Form 1040, which we could see on line number eight. Then we also have the self-employment tax we've got to deal with. So if we go to the self-employment tax, you'll recall that it's going to be calculated on the net income. This is Social Security and Medicare calculated at the 14,129. That 14,129 rolling in to the Form 1040 this time to page number two. That's not the federal income tax. That's the self-employment tax, Social Security and Medicare. Half of that amount you could see also calculated on the Schedule SE at the 7065. Half of the 14,129 is deductible above the line, which we see on Schedule 1 page number two. Schedule 1 page number two having 7,065. That pulls into the 1040 page numero uno. That's number one and that's here on the 7,065. That gets us to the adjusted gross income of the 92935. We've got the standard deduction for the single filer 12,550. And then we've got the business to qualify business income deduction, which we're letting the software calculate coming from Form 8,990 to get us finally to the taxable income. Let's just recalculate that real quick on our Excel sheet. So we've got the income that comes from the Schedule SE, Schedule SE, which we could recreate. I'm just going to put the recreation here. That's going to give us our 100,000 pulling in then to the 100,000 here. We then have the added tax, the self-employment tax. Let's take a look at that first, the additional tax. We did this calculation before. I won't go through it again, but we did this nice calculation that calculates it for us here at the 14,130. And that pulls on over to our formula at the added tax here. And then we get half of that that's deductible above the line in the adjustment, which we've got our automatic worksheet that just does that for us. We've automated that process as well, bringing it on in here. So there's the 92935AGI tying out to what we have here, 92935, 12,550 standard deduction. And then I'm just going to populate from the software at this point the 1677 for the qualified business income. So I'm going to say this is going to be 1677. That gives us to the taxable income 64308. Page number two, calculating the federal income tax, 9,900, 9,900 here. And then the 14130 for the Social Security and Medicare payroll tax or the self-employment tax gets us to the 2430 about, which is off by $1 of the 2429. So that looks good. That's our starting point. Now we're looking at the car. We've got a car that we use in the business. Two methods we can use for the deduction, actual method or the standard method. First year that you put the car in place, you want to try to project out into the future and see what your benefit would be if you were to take one or the other deductions, also noting, however, that if you use the actual method, then generally you can't jump back on over to the standard mileage method. The actual method is usually going to be a little bit more complex to calculate as well and you've got to have better bookkeeping for the actual method. But the mileage method, you just need basically the business miles and the personal miles, possibly the commuting miles as well. So let's do the mileage method first. So I'm going to go back on over, mileage method, a method that's done with the miles, hence mileage method. So we're going to go then down to the data input for the mileage method, which is 2106 form. And so I'm going to say that this is going to go to the schedule C. So it's going to be applied to the schedule C here. And let's scroll on down and say, I'm just going to put a generic name here. So it's going to be a truck. You might be more specific than that, a truck and possibly naming the actual specific truck because you want to make sure that you can check it out from the future. You might put the last four digits of the license place number or something like that, date placed in service. I'm just going to put 010122. Remember that if it's been in service for more than the current year, 010122, then you got to see if you need consistency with the method that was used in the prior year or not. So you got to take that into consideration. The first year you put it into place, then you want to possibly try out both methods if you have the available information to see which would be most beneficial, possibly not just in the current year, but thinking forward into future years. And so then we could say the total miles. Now, this is something that sometimes it's a little bit difficult to kind of get or get from a client or determine yourself and you might have some estimates of this, but you would want to make sure that you have this, the supporting information to determine how you came up with the total miles and how you came up with the business miles. And you might do that with kind of an estimate. So we might say, well, the total miles, let's say on the year were, let's say they were 12,500, 12,5. And obviously part of the way you could do this is just check your mileage at the beginning of the year and then check it at the end of the year and try to determine what the difference is. And we might say that maybe 80% of that we're going to say is business related. So I'm going to say then times 0.8. Now, if it was purely used for business, if this was your business vehicle, then it might be all business related. But I'm going to say that the 10,000 is for business, 80%. So we're going to say 80% business. And then the commuting miles, which are going to be part of the non-business miles, and let's say our total commuting miles, I'll just put 500 for the commute. Then we have up here, we've got the vehicle is used primarily by a more than 5% owner. So I'm going to say, yes, vehicle is available for off duty. I'm going to say it is in this case. No other vehicle is available for personal use. So whether that be applicable or not, no evidence to support your deduction. I'm not going to check that. No written evidence to support your deduction. I'll keep that the way it is. So then that's going to be our mileage information. Average daily round trip, number of months of business use, if charged from 100% personal use, parking and tolls. So you can also still add basically the parking and tolls here, even though you're using this mileage method. So maybe we say parking and tolls, we'll say 300, and there we have it. So let's pull it on over and let's see what happens on our form, shall we? So if we go back on over, we've got then our schedule C, schedule C here. And so now we've got this added line item for the car and truck expenses. Now note that the thing that you've got to be careful of here with your bookkeeping side of things is that the bookkeeping that you might then have might have some stuff that's in there for like gas or repairs or something like that. Which if you're using the mileage method, you've got to kind of remove it from there and then put it into the, and then use your mileage method in place of that. So it can cause a little bit of trickiness just with regards to the bookkeeping differences between what's on the bookkeeping side and the business side. And if you get a lot of differences like that, it could be useful to set up kind of a worksheet in Excel to basically see what those differences are and kind of account for those differences in the event that there's an audit or some questioning that happens later on. Or just to explain it to somebody, but I won't dive into that at this point. So then we're going to say that the other calculation for it, let's see the detail on it. There's usually a worksheet down here, vehicle expenses. So now we've got the truck. It was 10,000 business miles and then 80% the use for the business. So they just did the division problem here. So we said, okay, total mile or business miles, 10,000 divided by 12,580%. That's how we came up with the 10,000. We took the 12,5 times 80%. And then we've got then the multiple line three by 0.56. That's the amount they're going to give us per mile on the mileage method. That's why it's the mileage method because they give us that amount per mile. So we multiply that out. That gives us the 5,600. We've got the depreciation per mile, 26 cents, and the portion of mileage. So they broke out the basically percentage down here for the depreciation portion and the operating portion. So there's going to be the 5,006. If we scroll on down, we're going to also add in the parking fees and tolls because those we still get even though we're using the mileage method. Brings it up to the 5,9. The 5,9 then pulls into our car and truck expense here. Now we could also mirror that on our worksheet over here. You might then, you might actually add another schedule to calculate the mileage method, but it's usually going to be part of the schedule. See, what's this, we could add the other form if we wanted to. Maybe we should, maybe we should, we should do that. So the other form then was the, well, let's just put a schedule to call vehicle. So I'll add another one and I'm just going to call it vehicle or auto vehicle. And then I'll make this thing, I'll make this thing formatted right click. And I'm going to do this fairly quickly because it's not an Excel course, but we'll just show you the Excel thing here. I'm going to say brackets, no, and then get rid of the decimals for now. I'm going to scroll it in and then I'm going to first put the mileage method. And so let's do that. Let's make the whole thing bolden and bolden it. We got to be emboldened. And then let's make this, let's make this black and white, black and white as has been our custom for headers. That's not, where's the white part? I can't see the text. Okay, so then we're going to say, we're going to say business miles, which we put in was 10,000, 10,000. And then the amount per mile, so the rate, the rate in other words, that's what I mean by the amount per mile was, the rate was 56 cents. So 0.56 per mile. Let's bracketize, let's add some decimals to that one. Multiplying it out this times this. So there's our amount. So there's our amount. So let's call this a subtotal. And then we've got parking, parking and fees. I think it was fees that we can include still. Parking and fees that we could include. So parking fees and tolls, parking fees and tolls. Parking fees and tolls. Tolls. So that's going to be 300. And so that's going to give us the total mileage method, which is going to be equal to, let's say, the sum equals the sum of these items. So there we have it. Let's put that on the outside. Now let's put it in here. So we're going to then sum, let's make this blue. We'll make it blue and border it, borders. And then this one I'll keep white, but border. Because actually, no, this one I'm going to make white because that one's calculating there. And the subtotal, I can make that white. And then this one needs data input. So this one should be blue. And bordered. And there's our total, which is going to total up for us. So that 5,009, then I'm going to put over here in the Schedule C, auto is going to be equal to the vehicle stuff over here at the 5,9. So that's our starting point. That brings us then to the 94, 100. 94, 100. If I go to my Schedule C, that gets us to the 94, 100 that pulls into the first page of the 1040, 94, 100, pulling in to the first page of the form 1040, 94, 100. I won't go into the rest of it right now because we're focusing in on the miles. OK, so now let's say that we want to test out the actual method. So let's delete this one here. Let's do it a different way. Let's say we go into the depreciation stuff, depreciable thing. It's going to be a truck again, truck. So we're going to have to calculate the cost of the depreciation then, so category. And this is going to go into the form. This needs to be going into the form. I'm going to take it to the Schedule C. And then I'm going to say that the category is this time going to be an automobile. And the date, place, and service 010122 will say the cost. Let's say it was a $50,000 automobile. And then the method we're going to use is going to be make sure you've got the right makers method, which is an accelerated method. But we could have a cap on the luxury autos. So I'm going to say five-year makers with the auto limit supplied. And then I'll keep the 179 and so on if applicable. So that looks good. And then we could jump down to the automobile stuff. So I'm going to go to the vehicle stuff down here. So listed property, NOVA evidence of support, no written evidence, sport utility, reduced SE. If the vehicle improvement additions, use of vehicle, vehicle is available for off-duty. I'm going to say yes. No other vehicle is available. So I'll check that off. Vehicle is used primarily by more. I'm going to check that off. Now, we also could have a situation where not 100% of that would be personal, as we're indicating here. But let's keep it easy right now and keep it all personal. We also have this idea of the sport utility vehicle, which could adjust the cap that might be on the vehicle and basically adjust the method that we might be using. But we won't get into that now. I'm going to keep it there for now. So now, if I pull on over, then go into the Schedule C. So now on the Schedule C. And there's nothing there. I think I put it in the future. I figured it out. So I'm going to go back. It's got to be in the current year. There we go. In 2021, now I'm going to go back on over. And so now we've got the information not in the car and truck, but down here in the depreciation and section 179 expense deduction down below. So we've got the item of the depreciation being calculated. And then we've got the depreciation schedules on the calculation as well. Let's go to the regular one where we've got the cost, the special depreciation being applied or allocated here. And this instance is pulling in to the Schedule C. Now we might have other expenses that would be applied here. So if I went back on over and we go to the automobile information. So now we've got that stuff. And then we have the actual vehicle expenses. So we might still have the parking and tolls, for example, that would still be applicable under possibly either method that we saw 300. And then the gasoline and whatnot could be on top of the depreciation. So let's say this was 150 repairs, is 200 tires is going to be 30 insurance. Let's say is a thousand or something like that, right? And these other things could be applicable if we're using the actual method as opposed to the mileage method. So before I jump over, I'm gonna assume still that we're using it 100% this time for business. So I put 10,000 in the total miles and then 10,000 in the business miles so that if I pull then back on over to the Schedule C, now we've got the depreciation and we also have the car and truck, which is related to the same thing, depreciation on the car and the car and truck expenses here. If I then go into the vehicle worksheet, then we could see the information that's doing the same calculation here and it's pulling over the actual expenses, which are coming out to that 1,680, the 1,680, which consists of the gasoline, the repairs, the tire insurance, and then also this $300, the parking and fees, which would be applicable under either method that was used that that's then pulling into the Schedule C. Now, if we had some kind of allocation, let's say that 80% of the automobile was used for business, let's say, so now I can go back up and say, okay, well, I can't take the full depreciation, then I have to have some percentage that we're going to take. So in the additional information, so I'm gonna say the percent used for percent of business use, we'll say was 80%, so that's gonna restrict the depreciation amount and then when I go to the automobile information down here on the actual expenses, what did I have it before? I had it at 12, 12 something, let's say it was, let's say it was 1,200 or 12,000 miles, 12,000 miles, and let's give it the 80% 12,000 times 0.8, which would be 9,006, 9,006 here, 9,600, and then we've got our items then on down below. So now if I go back on over and see what we calculate for it, we're at the 14,560 on the depreciation. If I go to the depreciation here on the schedule and look at the regular depreciation, so now we've got the 80%, we've got the 14,560 on the special that's pulling in then to schedule C. If we look at the vehicle information then we've got, this is a little bit tricky, we've got those same items for the full amount, the 150, the 200, the 30 plus the 1,000, and I'm gonna multiply that times 0.8, that gives us the 1104 and then add the other, the 300 here plus the 300 plus 300, that's what gives us that 1404 that then pulls into the schedule C that they're pulling in here. Now again, you can put both of these methods kind of together into the system. So notice that I have the system calculating basically the two methods here because I got the total, the mileage method that's calculating up top, as well as the actual method that is up top here. So you can basically, it'll take the larger of the two methods given the fact that I've got the information for both methods in place. Now you might end up in a situation where you try to do that, but maybe you still wanna force one method or the other in the first year because you also kind of take into consideration the following years where you're not gonna have like the advanced depreciation in the beginning of the timeframe. So the fact that we took more depreciation in period one could have an impact on the following years. So you might say, well, I'd still wanna force the standard mileage rate, for example. So if I was to say, I wanna force the standard mileage rate, then if I go back on over and look at the schedule C, now we just got the 5,676 in line nine, and we're not taking basically the depreciation here that has been calculated. And so, and then on the vehicle worksheet, if we were to take a look at it, we have the same calculations up top between the two methods, but we're now gonna be picking and taking the mileage method, which came out to that 5,676, which pulled in to the schedule C. Now just realize if you were to try to mirror this on your Excel worksheet over here, then if you were doing the vehicle, you're probably not gonna recalculate the depreciation methods, so you're gonna rely on the software to some degree to help you with the depreciation methods to determine which would be the most beneficial method, most likely, and just kind of try to mirror that basically in your Excel sheet, and then that's what you could pull into your schedule C, but also just realize that the more complex your business is and the more of these complex items, you might put together a more complex worksheet to help you to figure these things out or see what the differences between the books are and the tax code, which could have differences that would result from things like using a mileage method, for example. Also note that if you're using the actual method, I'm gonna bring this back to the 50,000 and say we have 100% that will be deductible just to take a look at going back on over to the forms here and looking at our depreciation down below, you'll note that it's been put in here into the special depreciation, so you gotta keep in mind the qualifications for the auto limits that could be involved, you gotta keep in mind the special depreciation and the 179 depreciation, which is a whole other kind of topic in and of itself if you're getting into the depreciation methods, the special depreciation, the 179s are forms of accelerated depreciation, so you could have a situation, for example, it might not qualify for the special depreciation, then possibly qualify for the 179 depreciation in that event and if not, then you'd be kicked down to basically the current depreciation method, so just to take a look at that real quick, if I got the 18, 200 with the special depreciation applied, if we didn't qualify for the special depreciation, we could say, okay, I'm not gonna qualify for the special and then if I go back on over, it's gonna be at the 10,000 unless I do qualify for the current, so you might say I'm sorry for the 179 deduction, so I could go over to the 179 deduction here and say, okay, I'm gonna put the 50,000 into the 179, making that, so if I go back on over, that then is at the 10,200, so you've got the special depreciation to determine whether or not it would qualify for the special, if not, do you still qualify? Would it qualify for the 179? If not, then you would be taken the general double declining depreciation for the makers, which is basically a double decline, half year convention method as well, so I won't dive into those in too much more detail here, but we might dive into them in a little bit more detail in future presentations with regards to special depreciation, current 179 and then the auto limits that are combined in with those depreciation methods, which again is why, another reason why a lot of times the actual method is a little bit more confusing than of course the mileage method.