 Income tax 2022-2023. Business income or loss and other gains or losses. Let's do some wealth preservation with some tax preparation. Most of this information comes from the Forum 1040 Instructions Tax Year 2022. Instructions for Schedule 1, Additional Income and Adjustments to Income, Additional Income section. 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. You can find this at the IRS website, irs.gov, irs.gov. When looking at the income tax formula, we are once again looking at line one that being income, remembering that the first half of the income tax formula is in essence an income statement, a strange one. However, we've got income minus the equivalent of expenses. Those being deductions gives us the equivalent of net income, that being taxable income in this case, the goal being the opposite of a normal income statement. We want taxable income to be as low as possible, not as high as possible. So when we're talking about line one income, then the question is, is something actually categorized as income and is it something that I have to include as taxable income. So here we're going to be looking at and just touching on business income, often reported on a schedule C. And this is a good point for us to look at the situation where we might have deductions that aren't in essence part of this line item in terms of the deductions on the income tax formula. Because there's going to be deductions on the other schedule. So this gets a little messy, a little bit confusing, we'll dive into it a lot more in future presentations. Note that when you're dealing with clients, you probably want to try to categorize which clients you want to deal with. Now remember the general categorization is going to be, do I want to have fairly simple tax returns, lower income tax returns oftentimes being more simple tax returns, in which case the profit margin per return will be less, but I can usually do a lot more of them. Or do I want to have higher profit margin returns that are going to be more complicated. They take more time. They take more research about research research, but I have higher profit margins per return and I'll do less total returns then. And if you're doing higher complication returns, that usually means you're dealing with higher income individuals and or those that have their own businesses. So then the question is, do you want to be dealing with specific business type of returns? And you can think about industry and you can also think about the types of entities they have. Sometimes those two go together oftentimes, meaning are they in construction? Are they in real estate? Do you want to specialize in the industry that someone is in and what type of entity do they have? A Schedule C versus a Corporation, S Corporation, Partnership, LLC and so on and so forth. So those are some general type of things to keep in mind. Note that if I look at a Schedule C, this is going to go out to another schedule, a Schedule C, which will have another, in essence, income statement, one that makes a lot more sense if you've worked from a business standpoint, in terms of, accounting, where you can have income and expenses, the expenses then being those things that were consumed in order to generate the income. So on the Schedule C, we actually see them as kind of expenses, but they are basically deductions, right? Those are the business deductions for someone that has a Schedule C income. Why don't we have those kind of deductions, which seem like the most natural deductions for an income tax system on a normal income tax return with W2 income? Because the idea is that the employer is providing everything needed, therefore you don't have those normal deductions that you needed to generate the W2 income. And we instead just have all these kind of weird deductions, which is really the government trying to incentivize us, nudge our behavior through incentives on the tax code. So, however, note that the Schedule C's and other types of businesses, types in industries and so on, can get quite a lot of money. Partially simply because of the bookkeeping of putting together the books of an income statement for a business, and also in terms of the taxes related to them specifically. So we'll dive a lot more into a Schedule C in future, probably in the future. Okay, so if I look at the Schedule, the Schedule 1, then the business income is going to get a lot more money. So we'll dive a lot more into a Schedule C in future presentations right now. We just want to touch on it as an item that's ultimately going to be pulled into, in essence, the net income from the business into Line 1 of income. Okay, so if I look at the Schedule, the Schedule 1, then the business income is going to be pulling in right here. Now notice that the business income, where did my cursor go? My cursor has gotten lost. It's right there. The 20,000. Now notice that this is pulling in from a Schedule C. So the Schedule C is another income statement that's going to be pulling into the Schedule 1, which is basically our focus at this point in time. There will also be other consequences on the tax return from the Schedule C, which we'll touch on in the tax software example and we'll dive into in a lot more detail in a future presentation when we focus on the Schedule C's in general. Just realize here that a Schedule C adds a lot of complication to the tax return, more than you would at first glance expect because not only does the income statement have to be added on a Schedule C, but then you can have the net income has to flow over and then you also have self-employment kind of situations, possibly health insurance kind of situations, other things that might be deductible related to the business, like an IRA or a SEP or something like that, a simple could be on the business. You've got all these other kind of contingencies and you have the deductible portion of the self-employment tax, the self-employment tax, and then you've also got this qualified business income deduction, which is a kind of a mess in and of itself. So again, if you're doing taxes, you want to think, do I want to take on clients that have Schedule C's in what not more complex situations or do I want to specialize in a certain area? Remember that put your business plan together, scale your business plan and don't let the clients kind of bully you into taking them on when you don't want to take them on or something like that, right? You've got to say, no, this is what I'm doing. I have my business plan. You don't fall within it. I can suggest someone else to help you, but otherwise they'll just, you know, a lot of tax preparers actually don't make a lot of money because they don't specialize the way they plan to, or they don't plan to specialize in a way that works and then they just, you know, you get job creep. You end up doing more and more work. I'm doing more work. And so just be aware. So line three, business income or loss. So if you operated a business or practiced your profession as a sole proprietor, report your income and expenses on Schedule C. And then we also can look at the line for other gains or losses. And if you sold or exchange assets used in a trader business, see the instructions for form 4797. So now you're talking typically fixed assets that were sold where you might have another form involved. So we'll take a look at this in a little bit more detail in our example, just to see how this flows through on the tax forms. And then again, we'll talk about it in more depth when we talk about a Schedule C in general. Here's a quick glance at the form 4797, sale of business property.