 Income tax 2022-2023, moving expenses, deductible part of self-employment tax and self-employed SEP, simple and qualified plans. Let's do some wealth preservation with some tax preparation. Support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. First of this information comes from the form 1040 instructions tax year 2022 instructions for schedule one additional income and adjustments to income adjustments to income section you can find online at the IRS website irs.gov irs.gov looking at the income tax formula we're focused online to that being the adjustments to income remembering that the first half of the income tax formula is in essence an income statement although a strange one we've got the income minus the equivalent of the expenses those being the deductions getting us down to the equivalent of net income of that being taxable income the objective flipped on its head we want taxable income as low as possible in other words in opposed to or as opposed to normally where we want net income as high as possible so we looked at the income line in prior sections now we're focusing in on the adjustments to income which you can think of as kind of like an expense kind of like an adduction a deduction let's do deductions you might hear it called above the line deduction a schedule one deduction and you might say why does it say adjustment to income instead of a deduction and you could think of it as a contra income account but it's basically decreasing the income coming to a subtotal to get us down to the taxable income the reason you might call it like a like a contra income account adjustment to income is because that subtotal is called adjusted gross income and that's an important subtotal because it allows us then to calculate the phase outs on deductions and credits usually based on this number as opposed to the top line number the income number also just remember the adjustments to income do not have that kind of threshold that we have to clear a standard deduction before they start to benefit as with the itemized deduction so if we qualify for the adjustments to income then we typically can take that adjustment although there's somewhat more limited than the itemized deductions okay so here's the schedule one we're focused on the we're focused here on the moving expenses the deductible part of the self self employment tax and the self employed set so let's just give a quick recap of these and then we'll dive into the line by line instructions so the moving expense expenses for members of the armed forces you'd have to attach form three nine oh three the main thing to remember here is there was a big like restriction in the type of moving expenses that can be deductible you might have people asking you well I have to move I have to move for my job don't I get a deduction for that it used to be that you'd get more capacity for deduction for moving expenses for normal people the justification being that allowing people to deduct their moving will make it easier for them to be to be more flexible and be able to move from place to place as their jobs are needed which is a decent justification but in any case they they removed that and restricted it severely so that now you have the moving expenses for members of the armed forces which kind of simplifies the tax code and it kind of makes sense that they kept the members of the armed forces because the armed forces often have these special kind of tax provisions because of their particular situation and oftentimes the military moves and they might have to move suddenly suddenly so so it would make sense there but even then oftentimes the armed forces will reimburse them for the move and if that's the case then that you may not be able to take the moving expenses as a deduction because you already got reimbursed for the movie and that would be like a like a double dipping situation and then you've got the deductible part of self-employment tax so we talked a little bit about self-employment tax when we looked at the Schedule C income we'll talk more about it when we talk about Schedule C or business type of income on a Schedule C in future presentations it's kind of a complex scenario but the general outline would be remember that if you're a W-2 employee you're paying income tax and you're also paying Social Security and Medicare those are the the payroll taxes and your employer is matching Social Security and Medicare and having to pay those as well if you're a Schedule C person meaning you have a sole proprietorship then you have to pay your income tax but the IRS also wants to force you to pay the Social Security and Medicare kind of like the payroll taxes which they call the self-employment tax on in essence the net income of the Schedule C schedule C being the most common kind of form that we would think of subject to self-employment tax and so so then you have to calculate that but you might say why would we also get this half of it as a deduction or the deductible part of self-employment tax is typically half of the self-employment tax why would that be because they're trying to mirror a situation as if you were an employee of your own small business sole proprietorship because if it was a corporation then you would have withholdings as the employee but the corporation would also have to pay the payroll taxes on their half of Social Security and Medicare but they get a deduction as well for doing that so they actually get a tax benefit of the deduction so we should get a deduction if you're gonna treat me as a sole proprietorship as the employer and the employee of myself for Social Security and Medicare so but we can't take that deduction on the Schedule C because I needed to calculate the Schedule C to figure out what the net income was in order to calculate the tax in the first place and that would create a loop reference and therefore they have to put it over here on the adjustments to income so it's a bit messy we'll talk more about that later self-employment sep simple and qualified plans so now these are gonna be those retirement kind of plans situations so notice that if you're an an employee then you might have the capacity to invest in like an IRA or a 403 B type of plan which which is a great benefit because then it reduces your income because the the idea of all these types of plans is that you're gonna get a tax benefit typically when you put the money in unless it's a Roth or something but normally you get a tax benefit when you put the money in and you get to defer the tax that's going to be applied until the point in time that you take the money out say in retirement for example so if you're working for somebody else then they're gonna report that by reducing your income by the the non-taxable amount the amount that's been exempt from taxes on the W2 so line one of the W2 will be reduced for the amount that you put in to say a 401k plan or a 403 B for example now if you don't have any capacity to put money into a 401k or 403 B then you often think of an IRA situation which we'll talk about later so in an IRA you can't deduct the the amount from your W2 because it wasn't your employer that facilitated the IRA so therefore they have to put it in this above-the-line type of deduction in this kind of setting and then you could have situations where you're self-employed and instead of just sitting with an IRA you you would like to do one or both of two things I would like to put more money in than I can put in in a typical IRA and I have a sole proprietorship business like a Schedule C number one and number two maybe I want to have a benefit to my employees like a 401k plan or something like that but those and plans are too complex to manage for me and therefore I want a kind of more simplified plan and that's when you might put money into like a SEP a simple and qualified plans so these kind of kind of plans are a benefit to people that have once again a Schedule C business which we might talk about more when we get to the Schedule C stuff and that would be that I'm self-employed therefore I don't have any access to a 401k the benefit of the 401k plan if I was employed by someone else is that the the dollar amount you can put in is higher a lot higher than like like an IRA and you might have a matching kind of situation so if I'm self-employed how can I increase the amount that I can put in above the limit of an IRA at least can I do that well then you might be able to get like a SEP a simple or you can start your own 401k plan but that's more that's more cumbersome to do to manage it and then you also might be able to benefit your employees by allowing them to put money into these types of plans as opposed to them being restricted by just being able to put an IRA deduction in place okay that's the idea till line 13 health savings account the HSA deduction you may be able to take this deduction if contributions other than employer contributions rollovers and qualified HSA fundings distributions from an IRA were made to your HSA for 2022 so we've got the health savings account so for that if you've got the health savings account set up you can dive into that with more detail with the form 8889 line 14 the moving expenses you can deduct moving expenses if you are a member of the armed forces on active duty and due to military order you move because of a permanent change of station you could use tax topic 455 or C form 3903 for more detail line 15 deductible part of self-employment tax so if you were self-employed and owes self-employment tax fill in schedule SE to figure the amount of your deduction the deductible part of your self-employment tax is online 13 of schedule SE so in other words if you have a schedule C typically you have to have a the bottom line of the schedule C will be your net income you're gonna use that to calculate not only your income tax but also your self-employment tax social security Medicare and then half of that generally is the amount that might be an above-the-line deduction so line 16 self-employed set simple and qualified plans if you were self-employed or a partner you may be able to take this deduction see publication 560 or if you were a minister publication 517 so if yourself if you're self-employed soul proprietorship then if you when you start generating money if you have the cash flow then you might be saying hey how can I put money away for retirement and get more of a tax benefit than say simply putting money in to an IRA because that's a fairly low limit and you might then say for 1k plans are more complex and then you try to compare some of these plans like a sep and a simple and see what might best fit you and your business