 Income tax 2023-2024, methods and tools for learning tax law. Get ready and some coffee because we're setting our refund to the max with income tax preparation 2023-2024. Learning income tax law can be daunting, can be overwhelming in part because there's a whole lot of income tax law, because the income tax law is often written in confusing legalese type language which can be confusing to understand at first and because the income tax law is constantly changing. The tax law being a human construction that adopts over time in a similar way as a living organism adopts to the environment. So in other words, we're not learning something like in physics where we have a particular formula that we have discovered which will remain constant through all of time. We're working with something that's going to be changing as time changes and we can think of that as a bad thing but it can also be a good thing because once we understand the fundamental workings and conditions of the tax law we can adopt with it and if we can keep up to date with the tax law once we have a grasp of it then that's going to give us a little bit more job security and it can actually be an interesting thing to track over time. So what we need then of course is a strategy and approach to learning the income tax law and then of course a strategy and approach to be staying on top of the tax law as the tax law changes over time. One of those strategies as we touched on in a prior presentation is specialization. In other words, because the tax code is so large, what we want to do is pick an area where we want to specialize in and possibly grow from that area over time. Sometimes this happens just naturally by your work experience. In other words, you go work at a CPA firm or a tax firm and they start having you work on a particular type of tax return and that becomes your specialty. Sometimes you're more mindful about what that specialty will be. Oftentimes if you're trying to start your own business, this can be quite difficult because people try to basically take on too many things rather than specializing in a particular area and they don't have that corporate structure which kind of forces them to specialize in a particular area. So you want to know what you know, you also want to know what you don't know. You want to know which clients are good fits that you can pick up and which clients you really need to be able to say no to and have the rationale as to why you're saying no to those particular clients which for many of us is actually one of the most difficult types of things to do because you just want to be able to pick up all the clients. Just do all the tax returns. Just do them for free. It'll be great. But no, you don't want to do that. That's not the way to go. So we talked about some of the ways that you can specialize if you're doing tax preparation would be are you doing a whole lot of more basic type of tax returns in which case your profit margins will typically be lower. However, you're going to do more tax returns because hopefully they will be easier or do you focus in on higher income tax returns in which case you're going to have higher profit margins but do less returns and possibly make more money with tax advice type of things, tax planning type of work. Again, you can also specialize in business taxes versus individual taxes. This course is going to be focused more on the individual taxes to form 1040 but we'll touch on some of the business components such as having a schedule C for example and schedule E which is going to be a sole proprietorship and the real estate but you can also specialize in flow through entities, S corporations, partnerships for example or corporations and have that as your focus. If you're more accounting oriented then those might be more of a natural fit because they have more of the accounting system kind of incorporated within it. When you're talking about individual income tax returns data input into say the form 1040 oftentimes we don't have that double entry accounting system and therefore we need to come up with our own systems internally to double check that we don't have data input errors because if you have an accounting background we know that if you put stuff into a software we usually feel more comfortable with it if your accounting came from QuickBooks and they reconciled the bank accounts then at least they're using a double entry accounting system I have a little bit more confidence over it but with taxes even if you're doing a business tax return we might just be entering in essence the income statement so we don't have that double check of the double entry accounting system and we don't have the double check of the bank reconciliations so we want to put in our own like internal controls to make sure that we're inputting the tax return properly. So in order to envision the whole process of learning the tax return how can we give advice about taxes and answer questions and so on and then how do we get to the actual data input of the tax returns I would suggest that we approach learning tax law with three fundamental tools the first is going to be formulas in other words when we envision the tax return we're probably, we do not want to unless you have some strange skill that you can just visualize every line item on the tax return that's not typically what you want to do because the line items on the tax return often are more detailed than you really need to be to get a general idea of what is going on you're not going to memorize, well I add line one to line two and then I subtract line five from line four you're not going to memorize the lines what you're going to memorize is a general formula that you have in your head which will basically be a type of income statement because it's an income tax and then if you're answering questions that are just broadly people are asking that's the type of thing that you kind of want in your head if they're asking you a question you're like okay what's that going to impact is it going to impact income, is that going to impact a deduction what's that going to do to the bottom line and so on that's thinking usually in terms of a formula we will create formulas mainly in Excel so we can practice that and then you want to basically put that in your mind we can also use the formula to kind of double check our data input then we have the actual forms now the forms of course have the formula in it but the forms are going to be a lot more extended versions of the formula and put out in a much more formal way meaning it's going to say stuff like add box one and box three and blah blah blah but you're not really looking at it as like an elegant formula that you can understand you're just basically going through and adding the boxes so it's important to note the form to be able to visualize the form but it's probably not the thing that you're holding in your mind you were trying to answer some quick questions about possible scenarios that could happen under different circumstances and then we have the software so software there's a whole lot of different kinds of tax software but because the tax law has become so complex the software is vitally important so when you're discussing with people of course you can discuss and say well this is basically what I think is going to happen you know this is the gist of what will happen this scenario or that scenario but it's going to be the software when you actually plug it into the software that you would like to have to basically double check because the software similar to the double entry accounting system in accounting helps to give us a double check it's not perfect because it's still just a data input you don't have a double entry accounting system in the software but it helps you to have a double check that the software is doing some of the calculations and can give you diagnostics and stuff if stuff is off so for us these two are going to coincide with each other a bit because we're going to use the software to then create the forms but you can think about these things differently if you don't have access to any software and you want to just look at the forms you can look up the forms on the IRS website and you can follow along with just the forms we're going to create the forms with the software if you have access to software that is great it's a great tool to work with because then you can run scenarios really easily