 Income tax 2022-2023, other income part number two. Let's do some wealth preservation with some tax preparation. Most of this information comes from the Form 1040 tax year 2022 instructions, instructions for schedule one, additional income and adjustments to income you can find on the IRS website, irs.gov, irs.gov, remembering 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. That when we're looking at our income tax formula, we're focused online, one being income, noting the first half of the income tax formula is in essence an income statement, although a strange one, income minus the equivalent of the expenses being deductions gives us the equivalent of net income or in this case taxable income, the objective being flipped on its head in that we want the taxable income as low as possible as opposed to typically in a normal income statement where we want net income as high as possible. That means when we're focused online, one as we are here, we need to determine if something is indeed income and if so, is it something that we can possibly have an exemption to so we don't have to include it in income for taxes. We're focused down here on line number eight of the form 1040 other income from schedule one and on schedule one, we're focused down at the bottom, these line eight with the other income. We did like half of them last time. We're gonna continue on to some of these more other income categories. Remembering that these are more of the kind of random stuff that stuff that you probably, you know, obviously it doesn't have a line item in somewhere else on the tax return, but because all things are income unless the IRS says otherwise, you can have a bunch of random scenarios where you might have income down here. So line nine, eight in section nine, five, one a inclusion. So you got section nine, five, one generally requires a US shareholder of a controlled foreign corporation include in income, it's pro-rata share of the corporation's sub part F income and it's amount determined under section nine, five, six enter online eight in from your form, five, four, seven, one the sum of any amounts reported on schedule I, lines one A through H and line two, remember to attach copies of your form, five, four, seven, one to your return. So obviously this would be one of those kinds of items that is not gonna be normal for depending on the type of clients that you have. It points out once again, the idea that when you're picking up possibly doing clients, doing tax returns for multiple people, you might want to determine where your specialization is. One of those specializations might be, do I want to work on people that have one place or location such as the state and or the country? And then if you have multiple, you know, locations in multiple different countries that usually is gonna add levels of complexity. And then what's the income level of the tax returns that I'm going to be dealing with? Lower income levels are less likely to have, you know, a situation such as this, higher income levels are possibly more likely to have a situation like this. And then of course the type of entities that you want to be dealing with, you want to be dealing with mainly individual income tax returns or business tax returns or a combination of the two possibly, also specializing by industry. Okay, line eight, oh, section nine, five, one A, A inclusion, section nine, five, one generally requires a U.S. shareholder of a controlled foreign corporation include in income as global intangible low taxed income. That's the GILTI, enter online 80 from your forms 8992, the sum of any amounts reported on part two, line five. Remember to attach copies of your forms 8992, caution. If you made a section 962 election and have an income inclusion under section nine, five, one or nine, five, one A do not report that income online eight in or eight, oh, as applicable. Instead report the tax with respect to the section 962 election on form 1040 or 1040 SR line 16 and attach a statement showing how you figure the tax that includes the gross amounts of section nine, five, one and section nine, five, one A income. All right, then we've got line eight P. We've got the 461 I excess business loss adjustment into the amount of your excess business loss from form 461 line 16. So this is gonna take into consideration again, what you might consider more of a specialized T area where you have the business component to the taxation and relation to a business loss situation. Note again that when we have losses that's where the iris is typically gonna be more skeptical very skeptical because the losses could actually be a tax benefit. So if you have business income, then obviously the iris is gonna want a piece of it. If you have losses, the iris generally doesn't want to be taking on the risk of the losses. So there's gonna be possibly limitations in terms of how much losses is you might be able to be taking line eight Q taxable distributions from an ABLE, A-B-L-E account. Distributions from this type of account may be taxable. If A, they are more than the designated beneficiaries qualified disability expenses and B, they are not included in a qualified rollover. So for more information, if you have the ABLE accounts, you can see publications 907 for more information. So just a general idea of an ABLE account, it would only be in a situation where a specialized situation, it's a tax advantaged savings account for individuals with disabilities. The general idea is kind of similar to an IRA. Most people have kind of a concept of an IRA, but with an IRA, you typically get a benefit when you put the money into the IRA and then you also get the gains of the IRA often in the form of interest and dividends, which are then deferred in terms of the taxes that you're gonna be pulling out at the end. So it's kind of more similar to like a Roth IRA type of situation where the benefit is that you could put the money into the account and then possibly not be taxed on the income of the account if you're using it in the way that the government wants you to use it. In the case of a basically an IRA or a Roth IRA, they want you to save for retirement. That's kind of the idea here. They want you to use the money for the purposes of disability savings. So if you use it for some other purpose, then you could be have an income triggering situation. And so if you said, if you had someone that set up an ABLE then, then the idea is that you typically wouldn't have income related to it unless distributions from this type of account may be taxable. If A, they are more than the designated beneficiaries qualified disability expenses, because that's the reason that you get to take the money out of that type of account and not have to have the tax triggering event, which could be then the recognition. Your reaction, one of recognition. Of the gains on the money that's been in the savings account possibly in the form of dividends, interest, capital gains and so on. And B, they were not included in a qualified rollover. So you have a similar kind of situation here. Now you have these investment tools, which are similar to investment tools. You might think of like an IRA or something in that they're not like new tools the government came up with. The government's just giving tax benefits on the tools. So you'd probably have the money in to say stocks and bonds or something savings account or something like that. And then if you wanted to roll it over, rollover, just like an IRA or something to another financial institution, you don't want to count that as a draw. You want to count that as a rollover kind of situation if possible, but you might have a tax triggering event in the event that you pull in the money out of the ABLE accounts. You got to be careful there. So that's why it says B, they were not included in a qualified rollover. So if you have the ABLE, you can look at publication 907 IRS.gov, IRS.gov, the IRS website caution. You may have to pay an additional tax if you received a taxable distribution from an ABLE account. So you could see the instructions for form 5329. So note that if you take advantage of some of these tax benefit types of savings tools, IRAs, the savings account, the ABLE account, the Roth IRA and stuff, and then you don't do the thing that you kind of committed to do in order to get the tax benefit, then you could have added tax, which are in essence penalties. So line eight, our scholarship and fellowship grants are not reported on form W2. Scholarship and fellowship grants are not reported on form W2. Now, this is kind of an issue with regards to the money that people are getting for higher education because the question is, well, is this something that I have to include in income now if I got money in order to be used for higher education? Now, obviously if the money came from like through an employer or something like that, then the employer would be the one that would be responsible and they would have to report it if they need to report it. I need to write a report. On the form W2. So if you got scholarship money that's not reported on the W2, then the question is, do you have to include it in like income? So enter the amount of scholarship and fellowship grants not reported on form W2. However, if you were a degree candidate, include online AR only of the amounts you used for expenses other than tuition and course related expenses. For example, amounts used for room, board and travel must be reported online AR. So the idea here being is, it depends on what you used the money for in order to see whether or not you have to include it in income. Remember the concept is, if you have it included in income, that's basically bad, right? So we want something to be getting income, getting this money for scholarship and whatnot and be able to exclude it from income. Now, the restrictions to do that, you might say, well, whatever I need to spend it on is kind of school related, but it's a little bit more restrictive than some other areas, possibly areas like credits, education credits, which we will get to later. So you wanna make sure that you're spending the money in an appropriate fashion to kind of maximize your benefits from that source of income. So lines 8S, non-taxable amount of Medicaid waiver payments included on form 1040 line 1A or 1D. So certain Medicaid waiver payments you receive for caring for someone living in your home with you may be non-taxable. If non-taxable payments were reported to you in box one of forms W2, report the amount on form 1040 or 1040SR line 1A, that would be the primary account when it probably first comes to mind or primary line first comes to mind when we're thinking about reporting income from the W2s. So if you did not receive a form W2 for non-taxable payments or you received non-taxable payments that you don't report on line 1A and choose to include non-taxable amounts in earned income for purposes of claiming a credit or other tax benefit, report the amount on form 1040 or 1040SR line 1D. Now this is kind of that weird type of situation where normally if you had some kind of income, the general idea is that it would be a benefit if you got to exclude it from income. So the idea would be, well, the government's gonna iris is gonna say some types of income we're gonna give a benefit to possibly more likely lower income people or people that they're trying to give an incentive to. So we're gonna say we're not gonna force you to include this income as income which should lower your taxes. However, we have these refundable credits now the primary ones being the earned income credit and the child tax credits but typically thinking about the earned income credit oftentimes which has a refundable component to it and the earned income credit actually goes up as you earn more money. So up to a certain point and then it goes back down again the idea being a reasonable from one from an accounting standpoint or economic standpoint I should say because it's an attempt to give people money to the people that need the money without trapping people in a situation where they're dependent on the government subsidies by incentivizing them to have earned income. However, it's quite complex due to that due to that little thing that they're trying to do there and you end up when situations were being able to report income might be beneficial because the earned income tax credit would be higher for example. So you have these situations where you might be able to choose if it wasn't exempt income to possibly include it so that it will increase the earned income tax credit. That gets a little bit messy and obviously especially for low income taxpayers which you would think that the tax return would be very easy and tax software hopefully can be helpful in those situations when they come up. So then on lines 8S enter the total amount of the non-taxable payments reported on form 1040 or 1040 SR line 1A or 1D in the entry space in the pre-printed parentheses as a negative number. So for more information about these payments you can see publication 525. Line 8T pension or annuity from a non-qualified deferred compensation plan or a non-governmental section 457 plan. Enter the amount that you've received as a pension or annuity from a non-qualified deferred compensation plan or a non-governmental 547 plan. This may be shown in box 11 of form W2. So this is usually a fairly straightforward data input point because it's not something you see all the time but you'll have it on the box 11 of the W2 which should make it fairly easy to populate into most software which hopefully will help guide you in terms of the population on the tax return. So if you receive such an amount but box 11 is blank contact your employer or the payer for the amount received. So line 8U wages earned while are incarcerated. So enter the amount that you received for services performed while an inmate in a PEDAL institution. So I have hopefully you don't have a lot of situations where that comes up but if you do 8U is where it goes. So and you may receive form or forms W2 or forms 1099 for that. So you got line 8Z other income. Use line 8Z to report any taxable income not reported elsewhere on your return or other schedules. List the type and amount of income if necessary include a statement showing the required information for more details. You can see miscellaneous income which is on publication 525. You can find out the iris website iris.gov tip. If you received a form 1099 K for a personal item that you sold at a gained don't report this amount online 8Z. Instead report it as you would report any other capital gain on form 8949 and schedule D. In other words, the iris is trying to crack down. Remember how this kind of works with the IRS to income tax system. They're gonna try to force the payer and any business transaction to kind of rat out or tell the income that they reported to the payee. The iris has the leverage on the payer typically because they're the ones that have a tax benefit and expense or deduction to tell them the IRS about the one that received. Now remember that in gig work it's kind of an issue for the IRS because now you've got people that are doing their own businesses with this new Silk Road which is the internet and these gig work platforms connecting people. So now you've got the iris is losing some control where a lot of people don't have this big corporation that they work for anymore for their entire life but they're doing their own business connecting with the platforms of this gig works. So the iris of course wants more control so they're trying to get more 1099Ks out there possibly forcing the platforms themselves the Ubers and that kind of stuff the gig work platforms or the payers of the platforms to be issuing that being the PayPal's and the credit card companies, the banks to issue the 1099Ks. And so it could be possible that you get a 1099K that's not like your business income but maybe it was like a schedule D type of thing that you sold and you got a 1099K for it. Obviously you have to report an amount equal or above the 1099K or else the IRS will probably come at you because they have the 1099K on their side. So if it's a schedule D capital gains situation then you could report on the schedule D if it was a schedule C income on the schedule C if the 1099K is just incorrect because it was actually a personal transaction of some kind, a gift or something then you have to go to the issuer of this 1099K and try to get them to fix it so that they can send that to the IRS so that you don't end up in a situation where you're reporting something lower than the income reported on the form 1099. If you can't do that then you can report the proper amount and if it's lower than the amount on the 1099 you're probably gonna have to deal with the IRS and try to explain the situation and that could delay refunds and whatnot. So examples of income to report online eight Z include the following reimbursements of other amounts received for items deducted in an earlier years such as medical expenses real estate taxes, general sales taxes and home mortgage interest see recoveries in publication 525 for details on how to figure the amount to report. So this is kind of similar to the state tax situation where we said that you might have to include it in income if you got a benefit in the prior year by deducting the state taxes which were now refunded to you you would think, okay, how do I deal with that? If I got a benefit last year for paying something and then they refunded it to me this year the options would be you would think to rectify that situation amend last year's tax return so that you lower the deduction that you got to the amount that wasn't refunded to you or the easier thing to do include the amount that you got refunded in the current year. So you got kind of similar situations here where you got these reimbursements of other amounts received for items deducted in the prior year. These are less common kind of situations than the state tax but a similar concept. So, Reemployment Trade Adjustment Assistance that's the RTAA payments. These payments should be showing in box five a form 1099G. So if you're in that situation you should get the 1099G and that should prompt you and you just got to find the proper location the data input form 8Z line on schedule one. So loss on certain corrective distributions of excess deferrals. So you can see the retirement plan contribution in publication 525 if that is applicable. Dividends on insurance policies if they exceed the total of all net premiums you paid for the contract. Recapture of charitable contribution deduction relating to the contribution of fractional interest in tangible personal property. See fractional interest in tangible personal property in publication 526. So that should be an unusual one but if you have that you can take a look at that publication interest and an additional 10% tax apply to the amount of the recapture. So see instructions for schedule two line 17G. Recapture of a charitable contribution deduction if the charitable organization disposes of the donated property within three years of the contribution. So again, you probably won't see that one too often but it has to do with some complications with regards to benefits on distributions to the charitable contributions. So I won't get into more detail on that. Now, taxable part of disaster relief payments. See publication 525 to figure the taxable part. If any of your disaster relief payment is taxable attach a statement showing the total payment received and how you figured the taxable part of it. So you can go to publication 525 if you got more detail on that if you need to dive into that. Taxable distributions from a Coverdale Education Savings Account, ESA or a Qualified Tuition Program at QTP. Distributions from these accounts may be taxable if A, in the case of distributions from a QTP they are more than the qualified higher education expenses of the designated beneficiary in 2022 or in the case of distributions from an ESA they are more than the qualified education expenses of the designated beneficiary in 2022 and B, they were not included in a qualified rollover. So you have a similar situation that we saw like with the ABLE accounts and with the like a Roth IRA situation where the benefit of putting the money into these types of accounts is that you get a tax benefit on the growth of them. So if they increase in dividends, interest, capital gains suddenly I have an opinion about the capital gains tax then possibly you don't have to pay on that if you use the money when you take the money out for the reasons that the government is trying to get you to spend the money on. So obviously the first one is an Education Savings Account so you gotta spend the money in that format or else you're gonna possibly have a taxable event and possibly penalties and interest or if you roll it over you gotta make sure it's still under the kind of like the threshold of that account and then the qualified tuition program. So that's more tax planning kind of situation typically situations for higher income individuals. So non-taxable distributions from these accounts don't have to be reported on form 1040 or 1040 SR. So if everything goes smoothly and then you shouldn't, you don't have to report them if they're non-taxable. So this includes rollovers and qualified higher education expenses refunded to a student from a QTP that were contributed to a QTP with the same designated beneficiary generally within 60 days after the date of refund you could see publication 970 for more information there caution. You may have to pay an additional tax if you received a taxable distribution from a Coverdale ESA or a QTP see the instructions for form 5329 meaning if you use the money that you got a tax benefit for by putting the money in there for something other than what the government gave you the tax benefit for you might have a taxable event as well as possibly penalties. Non-taxable income, don't report any non-taxable income online 8Z. Examples of non-taxable income include the following, child support. So we talked about that in a bit when we talked about like the alimony and child support. So the alimony remember with these divorce agreements like they kind of changed it. So if the divorce agreement was after the cutoff date then both alimony and child support generally are not included in tax for the recipient or deductible for the payer. But if you have those situations before the cutoff date then the child support isn't gonna be taxable to the recipient or deductible for the payer but the alimony could be. So you might feel like I got child support I have to include that somewhere you don't typically because it's not a taxable it's excluded. So this is the definition remember the IRS says everything's income unless there's an exception that we give that's an excluded item typically. So payments you receive to help you pay your mortgage loan under the HFA hardest hit fund or their homeowner assistance fund. So now again you've got money but obviously that was for a program designed to help lower income individuals. So they're saying it's exempt. So any pay for performance success payments success payments that reduce the principal balance of your home mortgage under the home affordable modification program, life insurance proceeds received because someone's death other than from certain employer owned life insurance contracts. That's one that comes up fairly often if you have these life insurance policies that comes up when they make the policy and it comes up when someone possibly is getting money from a life insurance policy you would think maybe that would be an income kind of situation but most of the time it's not unless you're in like a business kind it's like the business kind of situation would be a little bit different but most of the time the life insurance is set up to benefit the spouse oftentimes if there was a death of the primary wage earner and the money when the spouse gets it from the life insurance isn't usually a taxable event which is good. So gifts and bequests however if you received a gift or bequest from a foreign person including amounts from foreign corporations and foreign partnerships that you treated as gifts totaling more than 17,339 you may have to report information about it on form 3520 part four see the instructions for form 3520. So remember that most of the time if there's a business people receive money that it's a business transaction of some type unless it's a gift which typically would be in a family kind of situation gifting money from parent to child or something like that. Now in the gifting situation you still could have stuff you got to worry about with regards to taxes and that would be possibly the death tax or the estate tax as it's called the estate tax being when you die they might compile all of your assets together and if you have a substantial amount of assets and the amount of assets although fairly substantial does fluctuate up and down a lot and it used to be one of those taxes where it's like they didn't want to apply it to anyone unless they were really rich like you would think like billionaires right now but like all taxes the threshold tends to go down until it hits like day to day in you know normal individuals more often right. So the amount that could be subject to an estate tax fluctuates a lot and it could fluctuate from administration to administration quite drastically depending on the new laws that are put in place at any given time. Now obviously if someone puts a death tax meaning they're gonna when you die the government comes in and you know picks your corpse and whatnot you're gonna try to give away your money before you die that would be the typical strategy most likely to your relatives. So then in order to stop that if they want to hit you with an estate tax when you die they're gonna try to limit you from gifting money. So now you've got these gift reporting requirements that are tied to the estate or death tax trying to stop people from giving their money away before they die and that's what that is. So you can take a look at that it's a quite interesting area in and of itself. So in any case you got the form 1099K loss reporting if you sold personal item at a loss other report the loss on form 8449 or report it on line 8z if you report the line on 8z enter the amount of the sale proceeds from form 1099K on line 8z. So in the entry space next to line 8z write form 1099K personal item sold at a loss and also enter the amount of the sales proceeds. So you have a similar kind of calculation that you might see on like a schedule D type of situation because now you got this 1099 but you're saying it's a personal item that was sold so you want to be able to show the amount of the 1099 and the gain on it in essence. For example you bought a couch for $1,000 and sold it through a third party vendor for $700 which was reported on your form 1099K and the entry space next to line 8z you would write form 1099K personal item sold at a loss of $700. So you can see the instructions for line 24z. Tip, if you sold more than one personal item at a loss or received more than one form 1099K for personal items you sold at a loss in the entry space next to line 8z write forms 1099K personal item sold at a loss and enter the total amount of the sale proceeds on line 8z. Incorrect form 1099K. So we talked about this a little bit what if they gave you a wrong 1099K that causes a problem because the IRS has a copy of it and they're going to want you to report something on your tax return that matches the 1099K but the 1099K is wrong because the issuer messed up because it was like a gift or something. So if that happens if you receive a form 1099K that shows payments you didn't receive or is otherwise incorrect and you can't get it corrected enter the amount from form 1099K that was incorrectly reported to you on line 8z in the entry space next to line 8z write incorrect form 1099K and also enter the amount that was incorrectly reported to you. Notice when you get an incorrect 1099K of any kind the first thing you might do is go to the issuer of the 1099 or 1099 of any kind to see if they can correct that to get it to the IRS so the IRS has the proper amount or has the corrected amount on their end. Note once again with this technique the approach is I need to report something on my return to match the 1099K and I'm going to try to tell the IRS look this 1099K was wrong in such a way that it's not going to trigger an automatic kind of delay of the refund or a kind of correction item by not reporting an amount that's on a 1099K so now you've got this technique again where you've got the incorrect amount and then you then you fixed it so for example if you received a form 1099K that incorrectly showed 800 dollars of payment to you you would enter 800 dollars on line 8z and in the entry space next to line 8z you would write incorrect form 1099K negative 800 bringing it back down to zero why do I need to do that when it comes out to zero because you need to show that 800 dollars that ties out to the form 1099K so the IRS will be able to tie that out to their 1099K they got on their side so you can see the instructions for line 24z for more information there