 Income tax 2021-2022, software example tax line number 16. Get ready to get refunds to the max. Diving into income tax 2021-2022. Lassert tax software. You don't need access to tax software to follow along, but you might want to have the form 1040, which you can find on the IRS website at irs.gov, irs.gov, starting point single, Fielder, Adam Smith, Living in Beverly Hills 90210. We have the 100,000 this time at the W-2 income, 12,550 for the standard deduction. We then get to the 87,450 for the taxable income, mirroring that on our worksheet, 100,000 coming from our income or W-2 worksheet. Back on over to the main page, 12,550 standard deduction getting us to the 87,450 here. We're then going to let the software calculate the tax at the 1515, that's where our concentration will be this time. If I go to page two, we see the calculation online number 16 of that 1515. Now we talked about in prior presentations, the idea of a progressive tax system, which we have here, so you can go into that in a bit more detail if you want to dive into that a bit more. But the general idea is that the progressive taxes is more confusing than, say, a flat tax because there's going to be multiple rates that we will be used in order to calculate this 1515. And so that's not too difficult. Of course, if you have software to help you out with that calculation, but when you're doing projections into the future, you have to have that concept in mind to do the proper projections. And when you're talking to someone about their tax planning, you have to have a concept of those brackets as well. So in practice, when you're talking to someone, you want to know where the thresholds are or get an idea of what the progressive tax system does, which we talked about in a prior presentation. When you actually do the tax calculation, you could basically pull this information from a table of tax tables, for example, although the tax tables don't give you much idea for projections into the future. They're just going to help you to pull out that particular number for where you particularly stand. So you could take a look at prior presentations to dive into that in more detail, but just also realize that we have this difference between the marginal tax rate and the effective tax rate. These two rates being significant when you're trying to do planning into the future because the marginal tax rate is the highest bracket, and that's the one you usually will be using for tax planning because any change that you make will be on the margin as opposed to the average rate, which is a nice rate to kind of use to get the average tax rate that's being paid, but it's not going to help you out with the changes and the next thing that you're going to do from this point in time. So then if we're going to add a level of complexity to this, note that you also have different things that could be included in the taxable income that actually have separate or different tax rates such as qualified dividends, for example, and possibly capital gains. So those are other things that will confuse the calculation here on line 16. So just to get a feel for that, we can go on over and let's say that on the income side of things, let's say that we only had 90,000 here and we're going to include then in the dividends. We're going to say we had dividends of the other 10,000, and they were all qualified. So we talked about dividends in the past. I won't go into what qualified is right now, but the idea would be that we're going to have a favorable tax rate for the qualified dividends. Let's see if we can figure that or see how that works. If I take a look at this calculation, now we've got the 90,000. We've got the 10,000 for the qualified dividends. We're still at the 100,000. That gets us to the same 87,450 here. But if I go to page two, we have a different calculation. We've got the 14,293. And so before we have the 15,15. So that's just an example of, again, how that tax calculation can get a little tricky if you go into the worksheet here. You could get more detail in terms of the calculation that took place, but in essence, we're getting favorable tax treatment on the 10,000 because they're qualified dividends. So what you want to do in practice is, again, you'll probably be reliant on the software to do the calculations. You're probably not going to recreate that in a worksheet, but you want to be able to explain. Qualified dividends give you a favorable tax rate possibly because they're trying to incentivize the favorable tax rate. Therefore, you're not being taxed at the ordinary income rates. But at favorable rates, which you got to look, the software will give you a different set of tables so you can kind of explain that. If we go back to the original point and I say, okay, I'm going to go back to the original point and say we don't have these. And we're going to say back to the W-2 income, put that back at the 100,000, then go back to the forms and take a look at page one. We're at the same 87,450, but now it's all from W-2 income and we're back up to the 15,15 for the tax. So we could have a similar kind of thing could happen if we had dividends, I'm sorry, capital gains. So let's say we go back on over and say, okay, let's bring this back down to 90,000. And let's say we sold stock as part of our income. So we're going to say income and we're going to go to Schedule D distributions. And I'm going to say we sold stock and we acquired it. I'm going to say on 010100. So it's long-term stock, date sold 0615221. And the sales price, let's say, is 20,000. The cost is 10,000 so that the gain would be 10,000. If I go back on over to the information, we've got the Schedule D now, capital gains and losses. It's a long-term gain, 10,000. That rolls ultimately in to the form 1040. So now we've got the 90 plus the 10,000. Back to that 100,000, we've got the same 87,450. But now if I go to page two, we've got the 14293 as opposed to what we had before of the 1515. So that's another one where it's going to complicate the tax calculation. You could go into the worksheet and kind of check it out for those calculations. But that's another one where you want to have the general idea to be able to explain to someone, yeah, the capital gains is going to be possibly taxed if it's long-term at basically a favorable rate. And then you can have the software help you to calculate it and then possibly kind of deconstruct it so you can understand it and explain it. The software can be helpful to go back and forth and do that kind of figuring. Now, the other thing that's fairly common is you might have to file the form 8814 if, say, you had a dependent that had some income as well. And instead of filing a separate return for them, you might claim basically their income on this form 8814. So they get an idea. And obviously the government is a little bit skeptical if there's a lot of, like, say, interest and dividends of income for a dependent because how would they get that money? How would they get that income? They would have to have significant investments in stocks and bonds, most likely, which means that it looks like that might be done to try to basically get favorable tax rates, possibly due to the progressive tax system, for example. So you have to report that income, and then you might be subject to the tax rates that are the higher rates of the parents in that instance. So the question there would be, do you need to file a separate return for the child? And if the income is over a certain threshold, you would have to file a separate return. And you could take a look at the irs.gov to dive into this in more detail. But there's going to be basically different thresholds whether or not they just have the investment income versus active income or income that they got from like a job like W2 income, for example. And then you can look at those thresholds to see if they're required to file and whether or not you can claim their income here on basically like the parent return. And if that was the case, let's just imagine we have that income and we're going to be using this 8814 just to get a feel for that. We're going to say, okay, now we've got a dependent. Dependent is now on the books for Sam Smith. And so this is going to be a dependent that has income. So I'm going to go to the form 8814. And I'm going to say that they have interest income, let's say of 3,000. So again, this is a child dependent, a young dependent in this case. So you would think how they wouldn't really have, obviously the only way they have enough money that's in a savings account or something like that or bonds or something that earns 3,000 would be that the parent put it in there. So you would think that it would be fair kind of to have it flow through and be more taxed like the parent rates possibly. But in any case, if I go to the forms to take a look at it. So now we've got this adjustment that took place. We've got the form 8814. So we can go to the form 8814. That's the parent's election to report the child's interest. And then I won't go into this in detail, but and you can look at obviously the instructions for form 8814 to kind of dive into this in more detail if it's something that is applicable to you. So child's interest and dividends, we've got the 3,000 up top and then we've got this 200, which is the base amount to get to this $800. And then down below, we've got the amount taxed. So enter 1,100, subtract these lines, you get the 1,900. And then tax is the amount on line 14 less than 1,001. If it is enter 110, I'm sorry, no enter 110. And then we got to do to the instructions. If yes, then we would multiply it by 14 times that 10%. So what we're going to do is we're going to get the 110. And then the difference that $800 is going to be pulled into schedule one, which you could see here on schedule one, which is pulling into the form 1040. So now we've got the 100,000 and that added $800 on the form 1040 for the 108 to get us the 88,250. And that flows in then to page two. And we've got the added information here that we've got to be picking up that box, 8814 or the form 8814. So that can obviously add to some complexity with the tax calculation. Now the other form that you can kind of dive into to see if a child had to report income would be the form 8615. So I won't dive into that in more detail here, but you can look it up on the IRS website if applicable to do some more research. And that's form 8615, tax for certain children who have unearned income.