 Income tax 2022-2023, items that are not income. Let's do some wealth preservation with some tax preparation. Most of this information comes from the Tax Guide for Small Business for Individuals Who Use Schedule C Publication 334 Tax Year 2022. You can find the IRS website, irs.gov, irs.gov. We're focused on line one income. Remember in the first half of the income tax formula is in essence an income statement. However, just an outline of scaffolding other forms and schedules, rolling in, flowing into these line items. That being or one being the Schedule C, business income having in essence an income statement in and of itself, business income minus business expenses. The net then rolling in from Schedule C to line one income of our income tax formula. This is the Form 1040. We're focused down here on Line 8. The Schedule C would flow into the Schedule 1, which would flow into Line 8 of the Form 1040. This is a Schedule C profit or loss from business where we can see the income statement formats of income minus the expenses. Okay, we're focused on the income side of things for the Schedule C business income. We talked about the things that are included in income because in noting that from the IRS perspective, they think of everything as in essence income unless there's an exception from it having to be included in income. So when we think about income, oftentimes the questions are, is this something that is income? Is it exempt from income? If it is income, is it going to be business income? Something that's going to be on the Schedule C or possibly income that needs to be reported in some other location? Now we want to think about those items that are not income. The exceptions to the rules, the ones that the IRS are going to say there's some kind of exemption too. So items that are not income. In some cases, the property or money you receive is not income. So we have appreciation, increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. So when property value, for example, real estate is a common property value situation where over time it's not going to go down in value, but hopefully go up in value which is different from most other business property that you will have because most of the other business property is likely equipment. Equipment will generally go down in value. It will depreciate in value as there's wear and tear on the equipment. Buildings in real estate then could go up in value. The building still has wear and tear, of course, but just the value of the property could go up. And then the question is, well, if something goes up in value, do I have to record that as income? And the general rule is not until you realize the increase in the value, meaning you actually sell it and at that point in time you've realized you've gotten the actual money or equivalent something other than money in payment for it. And part of the rationale for that kind of accounting method would be that if, say, a building goes up in value, for example, if you don't realize it by selling it, then you haven't really actualized. We don't really know exactly how much the building went up in value for and it could go back down with market swings as market swings basically go up and down. If they charged you the income when the building or asset went up in value, then they would be charging you income when you didn't actually get any money for it. And that could result in situations you can imagine where someone has a tax bill that they can't pay because they charged them taxes on income that went up that they didn't actually realize so they don't have the actual money because they didn't sell the asset in order to pay the taxes and that's not the situation that we want to see. Also, of course, the increases and decreases in the value of property are just estimates. If we see something like a building, it's unique in nature. There's no other building that's exactly the same. We could try to estimate what the value of the building is, but until you actually sell it, we don't really know what the value is. Alright, you've got consignments. Consignments are merchandise to others to sell for you are not sales. So the title of merchandise remains with you, the consignor, even if their consignee possesses the merchandise. So this is a situation where you have inventory, but you're going to give your inventory basically to someone else, not for them to own and then resell as their inventory, but in essence you still own it as the inventory. So like artwork, for example, if you were to give that to a museum or give it to even like a restaurant or something for them to display, but you still own it because you're basically using that facility, that area to demonstrate it for sales. So they're going to try to facilitate a sale in that way, then that's the situation. So therefore, if the ship goods on consignment, you have no profit or loss until the consignee sells the merchandise because they're selling it in essence on your behalf. Merchandise, you have shipped out on consignment is included in your inventory until it is sold. So even though it's not in your warehouse, it's in another restaurant or a museum, it's still in essence your inventory because they're acting as kind of like your store for you to sell the merchandise on your behalf in essence, taking a fee of course for that. Do not include merchandise you receive on consignment in your inventory. Include your profit or commission on merchandise consigned to you and your income when you sell the merchandise or you receive your profit or commission depending upon the method of accounting you use. In other words, if you're the one that's receiving someone else's inventory and you're the one that's going to be selling it on consignment, then again, it's not your inventory in that case. If I have a restaurant and I'm going to display paintings in the restaurant that someone else owns, then I don't really own the paintings in that case. I'm trying to sell them by displaying them possibly in a museum or whatever, something like that. Okay, so construction allowance. If you enter into a lease after August 5th, 1997, you can exclude from income the construction allowance you receive in cash or as rent reduction from your landlord if you receive it under both the following conditions. So under a short-term lease of retail space for the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. That's a pretty special kind of situation for a special industry.