 Income tax 2021-2022, tax software example W2 income, get ready to get refunds to the max, diving into income tax 2021-2022. Here we are in the LASERT tax software. You don't need access to LASERT tax software or any tax software to follow along, but you might wanna have the form 1040, which you could find on the IRS website, irs.gov, irs.gov. The software making it a bit easier for us to enter the data, jump on over to the 1040 running different scenarios as we do our starting point, the Filer single, Adam Smith, living in Beverly Hills, 90210. We're focusing here on line one, that being the wages line, as we consider the data input related to a W2 type of situation. So the W2 form, you'll recall, will look something like this. So we've got the W2, it's fairly straightforward up top, where we've got the data input boxes, most software will then make the data input very easy because they'll basically follow the boxes line by line, although they can get a little bit more complex when you get items down here and say box 12, for example, which might have different lettering on the right-hand side. So you wanna be able to understand one, the data input, so that you could do the data input as easily as possible, but two, what are these different boxes kind of mean, so that you could double check your data input, see if the software is doing what you expect it to do, and so that you could explain this information, say, to a client if they're having questions about it, if you don't understand a particular box or something, then you go to the instructions for the W2, which can generally help out. So let's go on over to our, this is my mock W2, which is in Excel, obviously, and it's gonna mirror some of the items in box one through like 12 here, we'll show some examples. So the first one is just a very basic example, I'm not giving all the data for the employer data, the employee data, I'm just basically focusing in on the boxes for the data input here. Also note that you might have some software that you could do that's kind of automatically input the software and it'll pull it into the system. The more automated things get, that saves a lot of data input time, that's great, but it often makes people not even less and less aware of what is happening, so they can't fix problems because they just put the stuff into the software and the software's supposed to just do it, so that becomes more and more valuable, you'll be more and more valuable if you can actually explain what these different boxes are doing and what kind of problems are often gonna be resulting as you try to put this information in in whatever data input format you're using so that you could problem solve anything that's going on and explain what is happening to the client, which the client often wants to have some assurance that their data input person knows what is going on. So we're gonna go to the first tab, I'm just gonna call it a generic job one, notice you do need like the other information on down below to put the address and so forth, but I'm gonna focus just on the data input for the numbers. So we've got the spouse or the spouse now, notice if it's married filing joint, you could have some instances where it would be relevant or you need to basically apply if it's the, which spouse income you have there, so that if you have different limits in terms of like, how much you could put into like a retirement plan or an IRA or something like that, that could be applicable. So that's one thing to keep in mind, the retirement plan, it's gonna be indicated on one of the boxes over here in our data input as well. So we got the retirement plan, I'll uncheck it now so we don't have a retirement plan at this point, that's gonna be important because not only for the data input of these boxes that you're putting in place here, but the last things you'll often go over is whether or not they can put money into say an IRA account, an individual retirement account or plan or something and that'll be dependent upon whether they have access to some degree at least, we'll talk more about that later, whether they have access to a retirement plan and their W-2. So that's gonna be an important thing to check off. So I said 40,000 here, notice that the system will then automatically put 40,000 into the social security or lease-lessert will because it's gonna assume it's gonna be the same unless there's something else that will take place. Usually it's gonna be the same and one thing that it could also see just automatically is if you go over the cap, the cap on social security it'll cap it at whatever the cap will be. Medicare wages also is gonna default to the same here. Now the federal, so then you've got the withholdings, the federal withholdings, you're gonna have to do the data input because that's gonna be that complex withholding that you can't just have a flat tax on. So we're just gonna assume it was $4,000. That's the main one that's gonna show up on the actual form of the form 1040 and that's one we're most concerned with often when we're just doing W-2 type of income. Social security calculating automatically, that should tie out to what's on our form. So here it is on the form 2480. Notice I didn't put that in here because the system should be able to know it by saying it's gonna be 40,000 times 2.062 and there's the employee portion of the social security. So notice it's a flat tax, easy to calculate and so there we have it, 40,000 and then the Medicare also in essence a flat tax, easy to calculate unlike the federal income tax. So here it is on our form, the software already guessed and guessed correctly what it should be because it's gonna be the 40,000 times 0.0145 is gonna be that 580. Those are the two that basically we don't really think about as much because they're not federal income taxes but they're kind of double check numbers. Now notice you also need some of this data input to populate in order to process the return as well but I'm just gonna focus on the numbers here pulling that over to the form 1040. There's our 40,000 up top in line one and then we've got the standard deduction that I'm gonna assume is being taken. So that's gonna give us our 27450. I can double check that in my tax account, the software or my formula by saying I'm basically taking the 40,000 up top. I can see that on the W2. Pull that over to the first page. That's 4,000 not 40,000, 40,000. Pull that on over to the first page. We've got the standard deduction which I'm gonna say is equal to a single filer 12,550. And so now I've got the taxable income 27450, 27450 tying out to here. I'm gonna rely on the software to calculate the tax on page two which is gonna be 3098. So 3098, the actual tax, 3098. So there we have that. And then we also have the payments that were included as well. So the payments I can get from my W2. So for the federal income taxes that would be the 4,000 right here. So if I went to my formula, I could say okay that's gonna be in the payments line. That's gonna be down here. And so I go into my payments line item W2. I'm gonna say that was 4,000. I can go back then to page one and that's gonna be my calculation that I can kind of double check. So the thing that I'm not double checking really is the tax calculation given the progressive tax system. And then I can go back on over to my software to page two and say okay there's my payment. That I made the 4,000. Bottom line is the 902 and that's gonna be the refund that we have there. So that looks good. Let's go back up. That's gonna be the basic case and let's say okay well now let's say that we make a change here and a little bit more complex and say that the wages were 150,000 which is over the social security cap which is 142. So now you have a difference between the wages in box one and three which could cause questions from clients. They might say well which is my actual wages and obviously the higher wages is more what you actually earned but there's a difference here because you hit the cap on the social security wages just to emphasize that difference. So if you were to enter this into the data input 150,000 first tab I'd say let's put in 150,000 and so now we've got I'm gonna delete well the withholdings on the Fed side was 37.5 which I have to input 37.5 because the system's not gonna know that but the social security income notice it capped it at 142.8 because that's the cap. So that should mirror what's on the W-2 because you can't go over that amount because that's the cap on the social security. The social security wages then calculated automatically because it's a flat tax 142.8 times .062 and so there we have that. We've got the 8853. The Medicare wages is matching the 150,000 which I didn't have to do a data input on because it's pulling that over at the same as the Fox one and then the Medicare is gonna be calculated for us again 150,000 times .0145 that's gonna be the 2,175, the 2,175 there. So then if I go back on over to the forums we can say okay there's the 150,000 in line one we've got the 12,550 for the standard deduction which is gonna say for this example problem I can mirror that over here saying the income line is gonna be 150,000 back to the first tab. We're gonna say that the standard deduction is 12,550 that gives us our taxable income 137,450 137,450 matching what's on the tax form page two tax calculated gonna rely on the system the cert to do that 27,009. So we're gonna say all right 27,009 here and then we know that the other side, the payments I can also pull from my source documents 37,5 37,5 on the payments line 37,5 and go back to my first tab over here and say that means that my refund would be at the 10,491 in that case so I'm gonna say does that match line two 37,5 10,491 so that's scenario number two let's do another one little bit more complex I'm gonna say all right well let's look at one for example where box one is 140,000 box two or box three is 142 so now the social security is higher than box one and then the Medicare is at the 150 how did that happen? Well now box one is being lowered by the 10,000 down below so it's gonna be a lower amount due to the fact that we have this 10,000 so in essence we can think of which would be your actual wages in this case well the 150 would be the closest to the actual wages that you earned the 150 is being reduced for federal income taxes by the 10,000 bringing us down to 140 which is the tax that's being used to calculate the withholdings that added up to this 35,000 and then the social security is capped at the 142,000 still so now you got these three different reporting lines whereas there were all the same on the first W-2 example and this is just an example of how those can basically be different so if we go back on over we can say okay so now let's go back on over and say now I'm gonna say that there's a retirement plan so retirement plan involved here I gotta check that off because that's also gonna help me off to see if I can qualify for an IRA or something like that 150,000 here and so the wages in box one are actually gonna be 140,000 140,000 the federal taxes we're gonna put in place are 35,000 so we'll say 35,000 and then the social security is actually gonna be higher now it's at the 142,8 it couldn't guess it based on basically box one because this box down here threw it off 142,8 so I'm gonna say okay 142,8 social security and then being calculated automatically 0.062% 8854 so there's the 8854 and then the Medicare wages are going to be the 150,000 and the calculation to 175 automatically done which is 0.0145, 1.45% so there's the 2175 there then we've got this item down here which is in box 12 which we'll usually have a little letter next to it which if you don't know what that is you can go to the instructions and say okay box 12 had a letter next to it the letter being letter number D which says here electronic deferral to active 401k cash or deferral arrangement also includes deferrals to the simple and so on so then I can say okay so let's go ahead and go to box 12 and I'm gonna put the little D there and say that was the 10,000 and so there we have it so now if I go back on over I can say all right there's the 140 on box one because this is for federal income taxes and the other wages were for social security Medicare which we usually put in as data input but we don't think of them as our primary thing that we're looking into which is the federal income tax in the form 1040 unless we gotta deal with other strange situations like social unemployment or self-employment tax if I was to put this in our worksheet I'd say okay the wages are 140 so I go back on over here and say this is 140 and then the federal income taxes that were taken out are 35,000 this time so we're gonna say all right 35,000 35,000 back to page one so now we've got that's not 140 that's 14 there's a difference there's a zero missing fixed it 140,000, 12,000, five on the standard deduction gets us to the 127,450 I can match that over here say okay 127,450 looks good let's go to page two to see the tax calculation 24,609 so I'm gonna say all right 24,609 let's put that in manually 24,609 I can then say I put in my payments 35,000 I'm calculating 10,391 on the refund I could go back over here and say okay 10,391 on the refund so there we have that now you might have a situation where you've got multiple WTs so let's just do that real quick and let's say I had job one and then job two say job two and then we could have another job and let's put the 40,000 in here 40,000 this will be the first one we looked at 40,000 and then the withholdings were 4,000 so I'm gonna say 4,000 these calculated automatically should match 24,805,80 so there's the 24,805,80 so fairly straightforward I can jump over to the forum they're both gonna be included in line one now so there's the 180 I can populate that in my worksheet by saying okay this is gonna have the 140 and then I had a 40,000 and then on the payments I'm gonna take this for my source document I had 4,000 on the payments so there's 35 and 4,000 for W1 and W22 W21, W22 and then go back to the first tab and say okay there's the 180 I'm still at the standard deduction 12,550 that brings me down to the 167,450 the 167,450 here going to page two, calculating the tax at the 34,411 so there's the 34,411 and then the withholdings were the 39,000 so I'm getting the 4589 4589 on the bottom line and so something went wrong here hold on a second something is horribly, horribly wrong the withholdings were 39 the total tax was 34,411 34,411 and I see what happened here so notice that we have that this item then resulted and this is why it's useful to use your worksheet because now I can tell us what happened there well now I'm on schedule three say what happened with that thing and let's take a look at the second page of schedule three excess social security tier one and now how could that happen well notice that we capped out the social security down here so we capped out the social security on this W2 and then up top we add more social security because we had two employers so that could result in us going over the cap for the social security and kind of running into that problem with which again the software nicely saw that I didn't see that the software picked it up and I can go in and say oh yeah that you know I could see what happened there so if I was going to put that into my worksheet I might put it into like my payment line over here I might go into my payments on my worksheet for example and say that we had another item and I might name it something differently but down here somewhere but I would include it in there in someplace and say let's make another line for it just for the fun of it we're gonna say this is going to be then so I just added a line item and we'll keep on adding to this worksheet kind of as we go excess social security I just put one on the outside now we could actually do the calculation I'm gonna add that cell in to it to try to recalculate that added social security if we wanted to add more detail in our Excel worksheet as well I'm just gonna basically rely on the software at this point in time to kind of point that out so now we're at the 41, 480 if I go back to the first tab that's gonna be included in this line item so now we're at the 7069 going back on over to page two of the 1040 page two of the 1040, 7069 now the next scenario you could have let's say that these two were from a married couple now that had two paychecks so I'm gonna go back on over let's go to the first tab here and let's say they were married filing jointly so now you got Adam said to Eve hey madam, I'm Adam and then they got married so then you got that and then let's say that if we go to the income line item that we apply the second one you want to assign it to a spouse so and the tax software may not be as politically correct and insert because the spouse would be the second one that was reported on the, you know so you got some kind of but in any case that's kind of but you got to assign which spouse it's going to because then you could have some differences in terms of for example the caps with regards to the social security here as well as retirement plan types of things and whatnot which that might be relevant to put in place so if I go then back to the forms now I've got the 180 so if I was to go back into my check schedule over here I'd say okay so now I've got the 180 for my two workers which I might want to indicate if they're gonna be, you know which spouse the workers were in in that event but the 180 would be the same and so that is gonna tell it to the 180 and then we've got the 25 one over here so if I go back to my form and say the 25 one because they're married filing joint standard deduction has been changed to 25 one that brings us to the 154.9 for the taxable income so we've got the 154.9 checks out page two tax calculation 25 5 7 5 25 5 7 5 we'll put here 25 5 7 5 that we have there and then I'm gonna go back on over and say there is that and then the bottom line is going to be the 134.25 if I go back here say 134.25 that's because if I go back to my payments now this doesn't apply because now you got two W2s the cap only applies to each of the spouses so now because these were earned by two separate people even though they're filing the same return you don't have that same cap and there's the 134.25 so that's why that even though they're one entity for taxes the allocation of the spouses here could be important for a few different reasons so you wanna keep that in mind as you do the data input and that is the 134.25 and the 134.25 so those are just some examples so remember when it gets more complicated you might wanna look at the instructions on the W2 and just look at the box line by line instructions and then look at the instructions for example box 12 which could be quite, there's a lot of letters that can go into this box 12 that's where a lot of the unusual stuff can happen and it's useful to be able to explain that stuff so that your client doesn't think of you as just like a machine that's just inputting data that doesn't understand what's going on because you won't be able to do any planning or tell them if there's any problem or anything that way and so part of what you wanna do is be able to look this stuff up and explain it to a client.