 Income tax 2021-2022, software example, payments. Get ready to get refunds to the max, dive in into income tax 2021-2022. Lesser tax software, you don't need 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, Fireler Adam Smith, living in Beverly Hills, 90210, 100,000 W-2 income, 12,550 standard deduction, getting us to the 87,450 taxable income, mirroring that over here on the formula for our tax formula, 100,000, coming from the W-2 income area. We then have the 12,550 to get us to the taxable income 87,450. We're then gonna rely on the software to calculate the tax at the 1515, and then we're really focused down here on the payments. Now, remember that when you're looking at this formula, you would think the more complex area would be the top half, which is in essence an income statement to get to the taxable income, and then you calculate the tax on that, which is actually quite complex because as we saw in the past, it's gonna be a progressive tax system. There's deviations from that. That's why we rely on the software to do that calculation, oftentimes when we're double checking here, and then down here, you would expect that you would just have the payments, but as we saw, there's gonna be more complexity down here, and one being that we have the credits that are gonna be co-mingled with the payments. Credits are similar to deductions in that they're good, but one credit versus one deduction, the credit, I mean, one dollar of credit versus one dollar of deduction, the credits would be better or more beneficial because if the deduction was taken up here, it would just lower the taxable income, but if you get a credit, you might get the full amount of the credit in terms of a benefit, the full dollar of benefit. And then we've got the credits that are broken out between the items up here which are non-refundable, and the ones down here which are refundable, and so we'll talk about those credits more in a future presentation, but they're kind of co-mingled with the payments because they have a similar kind of benefit to us as the payments. That's why it gets a little bit more confusing down here in the second page of the return or the bottom half of the formula. We also have the other taxes which includes say self-employment tax down here that we have to add into place that we've talked about in prior presentations, and now we're looking at down here, the payments and refundable credits, but we're focusing just in on, in essence, the payments. The refundable credits are similar in terms of the effect on the actual tax equation. That's why they're kind of grouped together down here. So when we're talking about payments the first payment we're usually thinking of is going to be the withholdings, that's where we will start. If I go back to the tax return on the second page then, we've got the tax calculated, and then we're really kind of going down here to line 25 for our payment. So notice you've got a bunch of activity here. You've got the non-refundable child tax credit, we'll talk about that later, and then you've got the other taxes including the self-employment tax. So then we're going to be down here on the federal income tax withheld line 25 starting with the W-2s. So the W-2s is the most straightforward kind of withholding we're typically see during the working years. You might have a W-2 that would look something like this. We would have the income in line one withholdings then typically being in line two. The social security and Medicare also withholdings involved but we would be focused in on line two, the federal income tax withholding in general for the federal income tax calculation of course. So if I went back to my documents and we said that we had wages of the 100,000, let's just put in an amount that we'll just make up here for the federal income tax 20,000. We also might have state with tax withholdings but I won't get into the state at this point. So we're going to jump back on over and that of course would then be populated here at the 20,000. So now we've got then the payment of the 20,000 versus the tax of the 1515 which would have the difference of the 4,985 which we have the overpayment of. If I go back to my formulas here then we've got the W-2 withholding which would be calculated here and then I've got my payments which I put on the right hand side from W-2 which I said was 20,000. That would then pull back into the first page of our formula. And so now we've got the 4,985, in terms of the overpayment. Now of course you could have multiple W-2s. So if I went back on over here and I said, okay, I've got two W-2s, W-2, two. And then I said I had another 50,000 here and we had another, let's say, let's say 5,000 of withholdings. Then I can go back on over and I would say, okay, now my income is up to 150,000, 12,550 standard deduction. We're at the 137,450 for the taxable income. If I go back on over here, I could say, okay, I'm gonna add that to my formulas. Second one was 50,000. That brings us up to the 150. And then I'm gonna imagine in box two of my second W-2 that we had the withholdings of what did I say? What did I say? I can't remember what I said. I said something but I can't remember 5,000. 5,000 was withheld. So I'm gonna say W-2, 2, 5,000. That adds up to 25,000. That would pull into the first page of the form 1040 on the withholdings getting us then to the 10,878. So I'm gonna go back on over. That's not quite right because my taxes are different now. Taxes calculated at 2,7009. So we've got the tax 2,7009. And then I've got the other tax calculated here. Where did that come from? All right, I removed that. So we've got the 2,7009. That gives us the 25,000 on the payment. So now we've got amount 0,2009. So if I go back on over, we've got then the amount that is owed here, the 2,009. And we have an issue on schedule three because now we increased where we went over the cap for social security. So we got to deal with this 449 for the social security that was adjusted. I won't get into that now. We talked about social security in the past and there's a cap on it. So if you have two W-2s, it's possibly that you pay too much into social security. But we can have two W-2s is the general idea we're focusing in on here. So the total payments were the 25,000 at that point. So that's the W-2s. Now, if they were retired, you would expect they might have like 1099 hours, which might look something like this. So now we don't have the W-2 income. It's likely that if a lot of the income is coming from some time of pension distribution in retirement years, that this is where the withholdings would be reported on box four. You might have state withholdings. You'd have to deal with two depending on the state. So then I can go back on over and I say, okay, what if I had withholdings here? What if my 100,000 distribution code seven? We're gonna say that we got distributions of the 100,000, the taxable amount 100,000, and then the federal withholding 20,000 here. If I go back on over to the forms, I go to page one. So now we've got the taxable amount of pensions and annuities instead of W-2 wages. And then we get, we're down to this 87,450. Obviously we would probably have a difference in the standard deduction because they would be over the age threshold. So we could change the age there, but we're really just focusing in on page two here where we have the 15,15 calculated. And then now we've got the withholdings this time in line 25B instead of 25A, but it's a similar concept. Now obviously here you might have multiple 1099 hours as well with multiple kind of withholdings. So you gotta be watching out for that more, especially for of course people that are over the retirement age. So now let's imagine a situation where you had gambling winnings of some kind. So you got a gambling winnings, you got a W-2G for example, which might look something like this. So you've got the gambling winnings that are reported box four, the federal income tax withheld. If there's any withholdings on it, then you might report that or you should report that here. Let's say it was 10,000. So if I go back on over to the forms, page number one. So now I'm back to my 100,000 wages. I got 50,000 flowing in from the gambling winnings. And then on page two, I'm showing that 10,000 now in 25C, another kind of withholding. So any of those reporting documents that have basically income, you might, you could possibly have withholdings. So you wanna of course double check to see if there's anything in those related withholding and they would generally be here in 25AB or C. Now, if you have the schedule C type of business, you might not be able to have withholdings. So then you gotta get into the estimated payments. And the estimated payments are gonna be important for you to be able to report because they're not gonna get the documentation. You gotta get that from the client or from your records. You also have to kinda calculate and figure what the estimated payments will be for the following year, which software will typically help you on doing by basically using the prior year calculation to kinda project forward. But if there's substantial differences in taxes from year to year, then you might have to estimate what the estimated payments would be. So let's say, and also just realized that if there was an overpayment in the prior year that you had from 2020 and you make estimated payments, instead of getting the refund, you might have applied it then to 2021. So let's say we had an overpayment of 1,000 here and then we're making estimated tax payments. I won't put the date right now, but the date's gonna be, you wanna put the date of the payment here as well. Let's say they paid 2,000 per quarter, quarter one, quarter two, quarter three and quarter four. So then we got 2,468,9,000. So if I go back to my forms then, then I'm saying we got schedule C income of the 100,000 that resulted in all the other stuff we saw with the self-employment tax, the above the line deduction, 64,307 taxable income, page two. Now we have the 9,900 and we've got the other taxes, self-employment tax getting us to the 24,30. We don't have any withholdings, 25 AB or C, but rather we have the 9,000 in the line 26 that were the actual estimated payments, which of course isn't enough to clear the threshold here. So there is that, we can up it. Let's just pretend it was, we upped it by, let's say we made this, let's say we made this 5,000, 5,000, 5,000, 5,000, and let's say the overpayment was 7, let's say 10,000 on the overpayment. So that's 20,000. So if I go back on over, so what, no, it's 30,000, yeah, 30,000. So if I go back on over, now we have the tax for 24,30, we made estimated payments of 30,000. So we've got the overpayment down here of the 5,970, 5,970. Now just note that you might take that 5,970 then and say I want to apply the amount to 2,022. And that would mean that next year this would be part of your first quarter payment. Otherwise you could just get it refunded to you, you could just say no, I'm just gonna have it refunded to me to get the refund. So that could be part of your payments from one year to the other. So typically if you make estimated payments, you've got four estimated payments and then you've got the rollover from the prior year that could be part of the rollover estimated payment. And the last payment you make, for example, in 2021 might have been made actually in 2022 for the last quarter and applied to 2021. So you gotta get an idea of when those payments are made and that cutoff date can be a little bit confusing. So when you get that from your own records or from a client, you gotta make sure which tax year did this payment get applied to because you might have paid it in, for example, 2021, but it was applied to the prior year, 2020, you might have paid it in 2022, but it was still applied to the current year that you're working on 2021. So you gotta be careful on those cutoffs. Now then we have these items down here, the earn income credit. These are other re-credits that are refundable. And this is what I mean that by them being kind of commingled down here because these are refundable, that you could still get money even if you didn't owe any tax. That's why they're kind of commingled with the payments down here. So we'll talk more about them later, but just to point them out now why they're kind of mushed together in this calculation, earned income credit, the non-taxable combat, we've got the refundable child tax credit, we've got the American opportunity credits, we've got the recovery rebate credits, and then we're gonna be adding this up. So we've got the total other payments and refundable credits, now including that 30,000 payments that we made as well as some of these credits which we'll talk about in a future presentation.