 Income tax 2021-2022, software example, other income part one. Get ready to get refunds to the max, diving into income tax 2021-2022. Lassert tax software, you don't need access to any tax software to follow along. You might want to have access to the Form 1040, which you can find on the IRS website at irs.gov, irs.gov. This is going to be our starting point, the single filer, Adam Smith living in Beverly Hills 90210, wages income at the 100,000 standard deduction for the single filer, $12,550 to get to the $87,450 taxable income, which we're mirroring on our tax formula in Excel with the 100,000 standard deduction, $87,450 taxable income, letting the software calculate the tax on page two, which is this 1515. I'll put that into our formula 15015. That's our starting point. Now, if I go back on over, we're going to open up the window here. We're looking at the schedule one, and we're looking at other kind of income items. So if I scroll down into other income or down here, note that when you're thinking about the other income items, these are items which oftentimes will not have the self-employment items related to it. So if you have some form of income, which is kind of a miscellaneous type of income, and you're saying like it's a 1099 or something, and I'm thinking, do I have to put it basically in other income, or possibly should I be putting it on a Schedule C? Something you want to keep in mind is if you put something on a Schedule C as another business, it's not only going to have the federal taxes, the federal income tax, but possibly social security related to it as well. So that's why it's important to note whether where it goes is it subject to social security or not. So for example, if I took like $1,000 and I said, okay, there's $1,000 that I have in income. If I was to make a Schedule C type of income for it and say, okay, let's put it into the income line item down here, income, and then I'm going to go back on over to the forms. So now what has happened, if I go to the form 1040, there's the $100,000. There's the $1,000, but all this other stuff kind of took place as well. So I'm at the $101,000 now. But I can see then I got this deduction on the adjustments to income. And I also see on page two that I'm going to have this tax right here for the other taxes. That's going to be the self-employment tax. It's calculated down here, social security and Medicare. That tax is often, if you're not dealing with business income a lot, then you might kind of, the other taxes, social security and Medicare, which are kind of equivalent to payroll taxes in essence, if you were an employee are things that people don't think about all the time and they can really make things a lot more complex in that case. So the question then is, do I have to put something on the Schedule C as income? If I do, then you're also going to have to deal with the self-employment tax. The benefit of having a Schedule C is that then you possibly have the capacity if it's a business related item to have expenses. And at that point, if you could even have a loss and a loss would be beneficial for taxes, because you might be able to take the loss and pull it over to the first page of the 1040 and work it out that way. So just realize that if you have some other kind of income taken to consideration whether the self-employment tax is going to be impacted or not. So let's go back on over and back to our original scenario, removing the 100,000 back to our starting point then here. Now the next thing you might have is an NOL, Net Operating Loss kind of situation. So let's go back and this often happens once again with your Schedule C type of business. So let's go back on over and let's basically do that scenario again. Let's say in the current year we had like a 100,000 or $1,000 income and then we had down here we had 5,000 for the expenses that results in a loss. So if I go back to the forms up top and I go to the Schedule C, now I have a situation where my income on the Schedule C is less than the expenses that I have I got this $4,000 loss. Now the IRS is going to be skeptical of losses because what they want you to do is make income so they can take some of it. If you have losses they don't want to share in the losses, right? So they're skeptical of losses. So the question is can I take this loss against the income on the form 1040? So if I go to the 1040 then you've got this loss that's being pulled over that's reducing my income on the total income to the 96,000. You can kind of mirror that over here on your tax forms for example by saying that if I had my Schedule C and I had income and just summarizing it of 1,000 and expenses of 5,000 there's going to be that $4,000 loss which is pulling to the first page of the 1040 giving us the 96,000 as we see here the 96,000 we still have the 12,550 for the standard deduction giving us the taxable income of the 83,450 and so we've got the 83,450 and then the tax calculated by the software then is going to be on page 2 of the 14113. So 14113,14113. So that could be a beneficial type of situation. Now what if you don't have for example anything on the first page of the 1040 however to net out your loss against? So for example if I didn't have any income up top and I said okay I don't have any W2 income all I had was my business income and we lost money now I've got this 4,000 that I didn't really get to take any benefit from at that point in time and there's often a question then in terms of well shouldn't I be able to get some benefit from it because often times businesses do businesses will have losses up front and then in the following years hopefully they're going to generate revenue from the initial investments that they put in up front so you would think then you would say well and you should be able to take those losses against the future income because obviously you had to expend that money in the current time frame and you didn't get any tax benefit in order to generate revenue in the future and the revenue generated in the future is not going to be taxed without the benefit of the investment that you put in in order to help generate the revenue so in that sense it would make sense for us to be able to take that loss and try to apply it out against future revenue now they change sometimes you got to make sure you got the current the laws with regards to the care there used to be more of a carry back versus the carry forward in other words you need to match it often times to some other income to get a benefit from it so generally we can think here it's a little bit easier at this point in time because often times you have a carry forward type of situation which is often a little bit easier on the tax preparer than carrying it back and basically redoing or applying it to prior years after those prior years have already basically been filed but in any case if you're carrying it forward then it's useful to have the tax software to help you out to do the carry forward calculation and there could be some complexities with regards to the carry forward so if I look for the NOL worksheet down here below you can see we have the computation of the 2021 net operating loss we've got the 2021 net operating loss gain or loss and in the general information we've got this carry forward information here so again anytime you have kind of a carry forward situation something from the prior year that's going to impact the following year and that could be something like you had itemized deductions and you got that state tax refund for example we looked at in a prior presentation or any carry forward related to an operating loss or something like that that makes the tax return more complex and I would recommend at that point then if you're picking up a new client for 2021 and they possibly had an NOL carry forward from the last period then you might want to enter the data into the last prior year software in 2020 mirroring what you have possibly in the paper return and then pro forma that in whatever software you're doing to 2021 so the software can take care of that carry forward situation since you did both years in the current software obviously if it's a continuing client the software will help you with that carry forward information and so if I go back on over for example and I put the wages back up to the 100,000 and I go to my schedule C let's remove the schedule C and I'm just going to delete the schedule C here and I go back up to the forms and I go into the little tag right here and we're going to go into schedule one then we could have the net operating loss information that would be carried forward here so if I jump to the data input we've got the NOL information which we can put the prior year here and the amount of the loss let's say it was 2020 initial loss let's say it was 20,000 now it's confusing because the AMT loss could differ and they carry forward available to 2021 20,000 I'm going to say 20,000 and the 20,000 so then if I pull that on over now we've got that 20,000 that's pulling over here and the brackets which is pulling in to the page one so again those carry forwards get a little bit more complex however so you probably want to use the software to help you out with the carry forward alright let's bring it back to the original point again so here we are and so now let's go into the schedule one and let's go into we've got gambling winnings now this is something that could come up just depending on the type of clients they have it could be a regular thing or it could be just a one-off gambling winning item that you might get a W2G for for example W2G and so then you might say okay what if they got a thousand dollars of gambling winnings they could have withholdings on it this would be the similar thing as with the W2s it would be on the second page for the withholdings if I pull that on over so now we've got our gambling winnings populated here note that it's important to put them here on a schedule C for example because if you did that then they would have to pay Social Security and Medicare you might say well they're a professional gambler so it should be on a schedule C but even if they did that because then you say then they can deduct the losses but if they had more losses than income the irises most likely going to call it a hobby right not like a career most of the time and if they had income they'd have to pay Social Security and Medicare so in any case generally you'd be putting it here they'd have to include the income but you don't have the Social Security and Medicare on it that of course pulls in to page one of the 1040 now we're at the 101 you can mirror that in your software over here by saying schedule one income and you might have gambling winnings and let's say the 1000 I probably I totally spelled it wrong I could tell I can even tell that's not spelled right let's review it let's say gambling okay I think I fixed it let's make this blue I'm going to make this blue and put a bracket around it bracketized and then we can sum this up looks good that pulls into page one of the 1040 which also has our schedule C stuff in it which I need to delete so now we've got the 101 the 1250 getting us to the 88 450 here so if I go back to the 1040 we're at the 88 450 page two now at the 15255 so let's put this at the 15255 on that one now you're going to commonly get questions on gambling losses which could possibly be something that you could deduct on the schedule A which is the itemized deduction but you'd only get the itemized deductions if you're not taking the standard deduction and it's still going to be severely kind of limited in the amount of deductions often times you might be able to get because they're itemized as opposed to deductions you might get and if it was like a business where you basically get to match out your deductions to the income so we might talk more about those in future presentations when we get to the itemized deductions but again just realize that you'd only possibly have that benefit if you were able to itemize and weren't taking the standard deduction as we basically currently are at this point then we have the cancellation of debt so cancellation of debt so if I go back on over take out the 1,000 go back to the forms we're looking at schedule one now and the next one is cancellation of debt this doesn't happen that often and if it does happen it's often because the client or the taxpayer is in some kind of financial problem or hardship which may mean that you have some kind of exception to having to include the debt in income but you might get a 1099C for example and then your question is well do I have to include this in income or not in that situation the 1099 indicated that you may if you include it in income then you want to make sure you're not paying social security on it and Medicare the self-employment taxes so it would be going into here and that once again of course feeding in to the 1040 on the page one to get us back up to that 101 on the income and you could mirror this back on our formula over here schedule one you could have cancellation of debt cancellation of debt maybe I don't need the space between all these just like one line items pull these up I don't need these spaces give me some more room give me a little room would you some elbow room so I can move my elbows I need some elbow room my elbows are stuck and so I'm going to put here okay so that would be that one and so that's the gambling winnings next we have that the foreign earned income exclusion note that if you are tax preparer then this is one of those areas where this could be something that certain clients will have all the time and your question will be do you want to be doing a working with clients like what's your practice focused in on are you picking up clients that are going to be having a tax return more complex are you picking up tax returns that have a schedule C that could be more complex higher income or you focusing on tax returns that are going to be less complex and trying to do more of them at lower profit margins is your question so you might then just keep that in mind we might look into that in more detail and go into the details for the instructions to the form 2555 so I won't go into it much more detail here but to dive into that further you can look at the instructions on form 2555 which you can find on the IRS website next we have the health savings accounts here which could possibly be taxable again the health savings accounts are kind of a topic in and of themselves so we could we might spend a little bit more time on them in a future presentation but if you want to take a look at more information on the health savings accounts you can take a look at the form 889 instructions which you can find on the IRS website and the form 8853 is for the Archer MSAs