 Here we are in our example, Form 1040 populated using LASERT tax software. You don't need tax software to follow along, but it's a great tool to run scenarios with. You can also get access to the Form 1040 related forms and schedules at the IRS website, irs.gov, irs.gov, starting point, single filer, Mr. Anderson, no dependence, no W2 income because we've got the schedule. See small business income rolling into line eight. Where does that come from? Schedule C, on the left, profit or loss from business. Basically an income statement, income minus expenses. The net income flowing into schedule one, line three, flowing into the Form 1040, which is on line eight. We also know there's self-employment. No employment, no enjoyment. Tax, that's gonna be the schedule C. Net income, 100,000 bottom line, flowing into the schedule SE self-employment tax calculated at the 14129, which flows into the schedule two of the 14129, which flows into the Form 1040, page two. Not the income tax, but the self-employment tax. That's what we're talking about here. And we know half of that is going to be an above the line deduction. So schedule C, flows in, net income flows in, to the schedule SE. And we calculate the self-employment tax and then we take half of it, 7,065, which flows into the schedule one, page number two. The 7,065, which flows into the Form 1040. So now we've got our income minus the 7,065 gives us the AGI 92935. We've got the standard deduction 12,950. And then we've got the qualified business income deduction that comes from Form 8995. We're going to dive into that possibly in a future presentation. And that will get us down to our taxable income, the 63988 in this example, page number two, calculate the federal income tax and add the self-employment tax we talked about before. That gets us to the 28821. And then we're going to say we paid 30,000 of estimated payments to get us to the 6,179. Okay, yes, that's our starting point. That's a long-winded starting point for crying out. I know, I know, but that's because it's a business income. So now we're thinking about the auto expenses. So if I go to the schedule C, then we've got our auto expenses and the car and truck expenses. Couple confusing things about the auto expenses. There's a couple of ways that we can account for them. We've got the direct method, we've got the mileage method. Also, that's going to mess things up when you get this information from a client. Because if you're dealing with a small business, they're often not great at bookkeeping in the first place. Sometimes they are, sometimes they're not. So we might not have, so they might have something on their car and truck expenses related to the gas or mileage that they paid and so on and the repairs and maintenance and whatnot, which makes perfect sense. But then the question is, well, how much of that information that they gave us is actually for business versus personal? And do I want to use the direct write-off method or do I want to use a mileage method in which case all the stuff that they gave me for the car, I might have to basically eliminate in essence and put in the mileage method if that's the thing, the method we think is most favorable to be using, which oftentimes it's like the easiest thing to do. So from a practical standpoint, then what are we going to do? We're going to try to take the income statement. We're going to try to look at all the stuff that's auto related. If it's the first time that we have this car on the books, then we might want to determine whether or not the mileage method or the standard method would be most favorable. In other words, which one, which method would lead to the highest deductions because we can't take both of them not only for the current year, but also for future years into the future. So let's think about how that might happen. Let's first just look at the standard mileage method because that's the easier kind of method to do when you do the other method, the direct method you might have to put the car on the books and depreciate it, which becomes a more of a complex process to be doing. So let's see if I can jump there. I can jump on over to the vehicle expense and we're going to say, okay, vehicle expense. So I'm going to say, see if I can go through this form. This is going to be a schedule C that we're going to be dealing with. And then we're going to say it's a vehicle information vehicle is used primarily by more than 5% owner. I'm going to say yes, vehicle is available for off duty. I'm going to say yes, no other vehicle is available for personal use. I'm going to say, okay, no evidence to support your deduction. I'm not going to, no written evidence to support your deduction. I'm going to stick there. And then we're going to say description of the vehicle. I'm just going to call it a truck and we placed it in service. Let's just say we placed it in service 010123. Obviously if you have this in service in the prior year, then it would be easier because if you're using the same software, it would be populated and you might have an organizer that can help you get all this information. Now the difficult part, the total mileage. So when you're talking to a client or something like that, you've got to think, well, what are the total miles? The total miles that you drove on the year, right? I'm going to say like 10,000. And then we might say, okay, well, how much of those total miles are going to be the business miles? Now this gets even messier because the business miles have a different rate for the first half versus the second half of the year. Due in part, I believe to inflation, right? So they had to increase the mileage rate in the middle of the year. So it might be something like, okay, 10,000 total miles. I think it was 80% business that we drove it. The more specific you can get on this, the better, right? I'm just giving some examples here. 80% business. And do you think we drove evenly over the first and second half of the year? I'm going to say, yeah, we'll say it's even divided by two. So let's say it's 4,000 for each. Now obviously if you're heavier weighted in the second half of the year, that would probably be more favorable because the rate was higher, I believe, in the second half of the year due to inflation. And then you've got your commuting miles which a commute for a business might be just your commute from the office to the business or something like that. So let's say that's 1,000 miles, right? Because if I drove 10,000 miles minus the 8,000 for business and then commuting was 1,000, I'm going to say, okay? And so this is just an example. Obviously the better you can track the mileage, meaning every time you go and drive, like if your business is that you go and drive to a client from time to time, you might want to map out the miles and see how many miles you drove for business related items. And that would be a lot more specific than just trying to say, oh, I drove, I think I drove about 10,000 miles and like 80% for business. And like my commuting, that would be more specific. So obviously the auto expense is a large expense oftentimes which means it's one that if you were to be audited, the IRS might question about what support I'm on. And so the more documentation you have on your miles, the better, the better to be able to say, you know, these are my total miles. And this is, I have evidence of all these trips that I took with a Google Maps or whatever that I took down and I logged down my miles that I drove because I know that this is going to be an issue with the taxes and I can't just basically track my gas spending if I'm going to use a mileage method and so on. So if I just pull that on over and say, okay, what's that going to do? And then we can come over here and say, okay, there's what threw down on line number nine, car and truck. Now note that of course is going to be different than what your client gives you on your income statement because they're not tracking their stuff on a mileage method, they're just paying, they're tracking on how much they paid for it. So you're going to have to make like an adjusting journal entry that's kind of like a bookkeeping thing. Sometimes there's a tap, you can use a tax worksheet to do an adjusting entry. I won't dive into that in a lot of detail here but we do have some courses on that. Maybe we'll touch on it later, but so that's going to be that. Let's see the calculation here. So then we've got the total mileage, the 10,000, the business, what business? This mileage here, this is the data input we put in place and then total miles. So the business use percent divided by line five, line two, 80%, meaning it's taking the 8,000 divided by the 10,000, that's the 80% business versus personal percent ratio. And then we've got multiply line three by the 58.5, that's the 4,000 up top, multiply line four by the 0.625. So notice the rate went up for the second half of the year. So if you drove more in the second half of the year, then you would want to make sure to wait the second half of the year instead of evenly 4,000, 4,000. You would want more on the second half of the year because the mileage rate is higher for the second half of the year. That gets us to the standard mileage rate of the 4,840. And that's where it pulls in here.