 Income tax 2022-2023, what's new? Let's do some wealth preservation with some tax preparation. Most of this information can be found on the Form 1040 Tax Year 2022 instructions at the IRS website, irs.gov, irs.gov. New stuff. The Form 1040 has a few new lines that we'll be looking at. Schedule one has some new lines as well. The filing status name changed from qualifying widow, widower, to qualifying surviving spouse. We now have qualifying surviving spouse. So due date of return. File Form 1040 or 1040 SR by April 18th, 2023. Once again, April 18th, 2023. The due date is April 18th instead of April 15th because of the Emancipation Day holiday. So if you're a tax preparer, you're almost surely gonna be asked this question over and over. When are the tax returns due? When's the end days? You're gonna say April 18th. They're gonna say, why not April 15th? And you've got a nice little talking point there. You can say, well, it's the Emancipation holiday that we get in the District of Columbia. And for whatever reason, that means that we get an extra few days as well, even though they don't recognize like my personal holidays or anything, but that's okay, whatever. So even if you don't live in the District of Columbia, that's the rationale. Filing status name changed to qualifying 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. Surviving spouse. So the filing status qualifying widow slash widower is what we used to basically call it. So you've got the single filers, you've got the married, you've got the head of household, and then you've got the more rare status, hopefully it's a rare status for most of our clients. We don't see it happening all the time on a year by year basis, but the qualifying widow widower now is being called qualifying surviving spouse. So the rules for the filing status have not changed. It's just basically a name change. We got to change the name of everything these days. You know how it is. So the same rules that applied for qualifying widow widower apply to the qualifying surviving spouse, just don't say the wrong name for stuff or bad stuff will happen. You'll get Twitter bombed or something. So C qualifying surviving spouse later. So we'll take a look at the filing statuses and more detail in presentations in the future. Standard deduction amount is increased as has been expected, of course, because the standard deductions typically will go up with inflation and inflation has been going up. So we would expect the standard deductions to rise with it. So for 2022, the standard deduction amount has been increased for all filers. The amounts are now the single or married filing separately, 12,950. We'll talk more about the filing, the standard deductions later, but the general idea is that these are gonna be the deductions that everyone would get. And then you can choose between having this deduction or the itemized deductions only choosing the itemized deductions. If they're larger than the standard deductions, the standard deductions having been increased substantially a few years ago in an attempt to simplify the tax code, therefore most taxpayers are probably taking the standard deduction. The easiest way to kind of memorize the standard deduction is to basically think, well, I'm first just gonna try to memorize what the standard deduction is for a single filer. And then I'm gonna assume that if you're married that we don't wanna dis, or disincentivize marriage. So you would think you would basically be doubled the amount of the single filer because at this point in time, if you have two people that are married, then it's likely that you're not still in a one income household. Oftentimes you might have two people basically working. So you would think the standard deduction would be doubled. So you've got the 12,950 for single times two would be that 25, nine. So if you memorize the single filer, then you can kind of double it for married. And then the head of household is the weird one which you would expect would be somewhere in the middle. Typically you need a qualifying dependent for the head of household status. Therefore you would expect it to be above the single but below the married single being the worst filing status with regards to the tax taxes generally. So new lines 1A through 1Z on form 1040 and 1040 SR. This year line one is expanded and there are new lines 1A through 1Z. That's exciting. So some amounts that in prior years were reported on form 1040 and form 1040 SR are now reported on schedule one. You can see even as we've talked about our thought process in terms of learning the formula to memorize versus the actual form 1040 tax return that if we were to construct this from scratch, the tax code from scratch, the forms from scratch at this point in time, it would be similar to us doing an Excel worksheet for most people, right? We would have the first 1040 actually be just basically a summary page, everything else being on schedules. And you can see they're kind of leaning towards doing that more and more. So we've moved some stuff from the face first page of the form 1040 to schedules. Why didn't they do that before? Because the tax code used to be more simplified. It used to be had to be done by hand. You used to have to actually go get a physical paper tax form and it was then thought easier rightly so at the time to try to get everything on one page. That was the point. So then you can have different tax returns that are just on the same page or two pages or something like that. That's no longer that important at this point because we file electronically and we can have a different tab on anything we want. No big problem. So now it kind of makes more sense to try to say let's try to trim the taxes down to the 1040 just down to a formula and put more stuff on these related schedules. So people with more complex tax returns can just have more complex schedules. People that easy tax returns can use the same form 1040 but have less schedules would be the general idea that I think they're kind of going towards these days. We'll see more of that. We'll be able to conceptualize that when we make our Excel worksheet and that'll be great. So scholarship and fellowship grants that were not reported to you on form W2 are now reported on schedule one, line eight R, pension or annuity from a non-qualified deferred compensation plan or a non-government section 457 plan are now reported on schedule one, line eight T. Wages earned while incarcerated are now reported on schedule one, line eight U. So then we've got new line six C on form 1040 and form 1040 SR. So a checkbox was added on line six taxpayers who elect to use the lump sum election method for their benefits. We'll check this box. You can see line six C later if it's applicable to you. Non-taxable Medicaid waiver payments on schedule one formed for 2021, non-taxable amounts of Medicaid. This is Medicaid, non-taxable Medicaid waiver payments. Schedule one. So for 2021, non-taxable amounts of Medicaid waiver payments reported on form 1040, line one were excluded from income on schedule one, line eight Z. For 2022, non-taxable amounts will be excluded on schedule one, line eight S. So non-taxable combat pay election. For 2021, individuals elected to include their non-taxable combat pay and their earned income when figuring the earned income credit, that's the EIC by reporting it on form 1040 or 1040 SR, line 27. So for 2022, they will make this election by reporting non-taxable combat pay on form 1040 or 1040 SR, line one I. We might dive into this one a little bit more when we get into like the earned income tax credit calculation, which is a quite complex calculation. And when you're talking about combat pay, oftentimes like military pay, people in the military have kind of like special rules given the fact that they're serving in the military and whatnot. And you're trying to get a benefit from being able to include income or not include income. So if you usually it's a benefit to not include income or have income that's not taxable because income is bad for taxes. Therefore, if you can exclude it, that would usually be good. But with the earned income tax credits, your income actually goes up to some degree with more earned income. So you can actually harm somebody tax wise by telling them that you have a non-taxable income source when you think about the earned income tax credit. So sometimes they might give you the best of both worlds with like combat pay. You might be able to have it not be taxable maybe or something like that, but still be able to include it when you calculate the earned income tax credits. We might dive into that in more detail like I say in future presentations. So credits for sick and family leave for certain self-employed individuals are not available. Self-employed individuals can no longer claim these credits. So that's gonna be the credits for sick and family leave. Now notice when you get into the self-employed kind of situation, what often happens there is that basically the government is taxing sole proprietorships on a Schedule C with regards to payroll taxes in a similar way as like an employee would be paying basically payroll taxes because you have to pay self-employment tax which includes the Social Security and Medicare employer and employee portion. So what often ends up happening, and we saw like a lot of examples of this during the whole COVID thing when they changed the tax code a lot trying to incentivize people or employers to keep people on working is that they made some adjustments to like employee benefits and things like payroll taxes and whatnot. And that kind of confuses things because then when you look at the self-employed individuals it's like, well, hey, wait a second you're treating self-employed individuals as in essence employees of themselves at least with regards to the application of the payroll taxes which are the Social Security, Medicare and the form of self-employment tax. So that means that they often have to make a tweak to the law every time they do something with payroll taxes or employees for the sole proprietors and whatnot. And so those things go back and forth and whatnot. So we might dive into that more with the Schedule C Health Coverage Tax Credit is not available. So the Health Coverage Tax Credit was not extended. The credit is not available after 2021. So that one had a date of termination and was not extended. So credit for child and dependent care expenses. The changes to the credit for the child and dependent care expenses implemented by the American Rescue Plan Act of 2021. The ARP were not extended for 2022. So the credit for the child dependent care expenses is non-refundable. So again, a lot of the stuff that they were trying to do in response to COVID, at least it originally was in response to COVID, right? They had, they shut everyone down. They shut down businesses and whatnot. And then they gave out the stimulus payments and that. So you can argue whether the shutdown was a wise move and then, but once they shut you down, you can say, okay, yeah, that would make sense that you'd need to pay people possibly to do these weird things with the payroll taxes and the stimulus payments and all that kind of stuff. After it became clear that reopening, it seems to me would be the wise move and then trying to work through how you can mitigate the effects of COVID after that point in time, after the hospitals aren't overwhelmed and all that kind of stuff. Then it became fairly apparent that they were kind of seems to me my interpretation that they're holding on to the idea of an emergency so that they can score political points by making more and more just giving money out after that point in time. So you can see some of these other credits that kind of extended maybe beyond the emergency point. And so now at some point, we can't keep doing that because if they were to keep doing that, you would think we would overextend and either cause inflation or have a substantial increase in the debt, which is basically just pushing the problem forward to the future generation. So they have to stop it at some point. And so now they're kind of rolling back on some of these laws. Now, some of the laws were basically saying that when you talk about the credits, they could increase some of these lower income credits and then they can make more of it a refundable credit. A refundable credit means, and we'll talk more about this when we get to the credits, but it basically means that your tax liability can go beyond zero so that you're not only not paying taxes, but you're getting money, which they still call a refund, but it's not really a refund. It's a benefit program beyond the taxes. So at most credits, they don't do that because they say that the credit is supposed to lower the amount of tax you owe. It shouldn't take your tax liability below zero unless we specifically put it in there as like a benefit or welfare program as opposed to like a standard tax credit kind of thing. So we'll talk, again, we'll get more into that. There's been a lot of changes in the last few years with regards to those kind of credits and the refundability of them. And now they've got to roll it back at some point in time. So it's kind of an interesting timing that they had to basically roll it back at this point in time as well because obviously we've got elections coming up and stuff. So it's interesting the way this is all kind of rolling out. So the dollar limit on qualifying expenses is 3,000 for one qualifying person and 6,000 for two or more qualifying persons. So the dollar limit for qualifying expenses is 3,000 for one qualifying person and 6,000 for two or more persons. We'll get into the more details of that when we get to the credits. So the maximum credit amount allowable is 35% of your employment related expenses. So for more information, you could see instructions, 2441 in publication 503. Child tax credit and additional child tax credit. Many changes to the child tax credit, the CTC implemented by ARP were not extended for 2022. So here's another area where they really overextended the child tax credit like a lot. And you can see that this was their, like after the stimulus payments, they couldn't get the further stimulus payments to go through even though they were kind of, it seemed like they were kind of extending the COVID emergency to try to spend money to look to me like they're doing a political thing, grandstanding, just because it looks good to give people money, right? They couldn't do that anymore. So they basically then increased the child tax credit was the next thing that happened. And the child tax credit is a credit we've always been familiar with before, but they did this thing which was similar to the stimulus payments where they increased the credit and then they took part of that credit and they basically wanted to give that out in an advanced payment, which again, so they can give money out like sooner. So it looked kind of like a stimulus payment, but it was tied to the CTC. Again, that couldn't really be sustained at that level of the credit. So now it's got it, they couldn't really keep it going. So it's gonna have to at some point go back to something to what it was basically before. So that's what they did so they couldn't extend it. So the initial credit amount of the CTC child tax credit is 2000 for each qualifying child. So the amount of the CTC that can be claimed as a refundable credit is limited as it was in 2020, except the maximum additional child tax credit, the ACTC amount has increased to 1500 for each qualifying child. So part of what they did was they tried to increase the credit and then they tried to make more of it refundable and then give more of it out sooner in an advanced payment. So now of course they're not doing the, they have to roll back the whole advanced payment. They gotta put the child tax credit back to basically what it was. And then we have this issue of the refundable portion of the credit, they can take you below the tax liability below zero versus the non-refundable credit, we'll dive into that more, do some practice problems with it when we get to the credit section and see how that works. A child must be under age 17 at the end of 2022 to be a qualifying child. Bonafide residents of Puerto Rico are no longer required to have three or more qualifying children to be eligible to claim the ACTC. Bonafide residents of Puerto Rico may be eligible to claim the ACTC if they have one or more qualified children. For more information see the instructions first for schedule 8812 form 1040. So changes to the earned income credit. So the enhancements for taxpayers without a qualifying child that applied for 2021 don't apply for 2022. This means to claim the EITC without a qualifying child in 2022, you must be at least age 25 but under age 65 at the end of 2022. So the earned income credit, the earned income credit is another credit which is aimed at the lower income individuals and is a quite complex credit. We'll talk more about it when we get to the credit section and we'll dive into it in more detail but obviously that's another area where you would think they would target if they're trying to basically increase the amount of money that they're giving out, right? So that same thing basically happened with it. They gave off a stimulus payments, they extended the kind of emergency threshold so they can try to make changes then to the child tax credits and the earned income tax credits. And now they're basically kind of rolling back those to some degree to where they kind of were before that point in time. The earned income tax credit is a complex one because it has, income has to be earned and the credit actually goes up as earned income goes up up to a certain threshold and then it goes back down. Economists like that generally because it's an attempt to give kind of a benefit to the people that need it without crushing them by forcing them not to be independent by not being able to work because then if people go to work they lose the credit and that becomes a problem. So you don't wanna actually have the benefit program incentivizing people to not look or seek to be dependent. You wanna teach a person to fish, right? It would be the idea. So that's what it's trying to do but in doing so it's quite complex because now you've got these different income thresholds and it also ties in the number of children that someone has as well which could incentivize you would think from a tax standpoint, people having children to get tax benefits which seems like a counterproductive kind of thing that doesn't seem like the rationale for having children to get tax benefits seems like a weird kind of incentive structure but that's the way it is right now. So in any case, if you are married and filing a joint return either you or your spouse must be at least age 25 but under age 65 at the end of 2022. So one of the issues with the earned income credit is they're kind of concerned with lower income individuals or I'm sorry, lower aged individuals because they might still in essence be dependent on their parents at that point in time and that's becoming kind of like more normal. It takes longer for people possibly to become independent at this time. So they're trying not to, so that might be some rationale for the age at 25. So it doesn't matter which spouse meets the age requirement as long as one of the spouses does. So reporting requirements for, so then of course, if you have married individuals then the question you got this age requirement but the ages could be different for the two people filing the one married filing joint return. So reporting requirements for form 1099K. Form 1099K is issued by third party settlement organizations and credit card companies to report payment transactions made to you for goods and services. So note that if you're a sole proprietor if you're doing gig work or something like that if you have your own business and you work for like another business the business has to give you a 1099 because remember how the income taxes work they, the tax IRS has incentives to pressure the person that's paying in a business transaction to tell them who they are paying because they want the deduction for the money that they paid so that the IRS can go after the person who received the money which is the person that has to report income. So that means that if you're working as a business as a sole proprietor for another business you're doing a job for a business then they're likely to give you a 1099 form that's how it generally works. Now with gig work they kind of messed up the IRS's whole kind of oversight thing because now you've got these platforms and these payment platforms such as a PayPal's and whatnot and like these gig work platforms such you can go on the Uber's and that kind of thing so that in essence you have your own business and you're not actually doing work for another business you're just doing work for a customer but you're being connected by the flat platform it's kind of I think of it as like a new silk road type of thing connecting people that can trade and do business that were not connected before opening up new markets that we did not have before but the government you can see why they wouldn't like these kind of industries as well because they're kind of like cash based industries they're like hair salons they're like restaurants they're like massage parlors and with the nails things the manicure places and whatnot because those individuals the IRS is notoriously not really liked because they get paid not by a business but by the end user by a customer and you can't force someone who gets their haircut to rat out the person they paid to the IRS and give them a 1099 so the IRS doesn't know how much money these people earn which is why I think they were the government went after them during COVID because they don't like them anyways but that's just my conspiracy theory but in any case the gig work is the same way so you can see what they're gonna try to do is force the middle person like the silk road they're gonna put an ogre under the silk road to force a toll like right that that means that they're gonna try to force the payment platforms like the PayPal's and the credit card companies and whatnot or force the Uber platforms or whatever the platform is that's making the connection to issue the 1099s which will probably be depressing or crushing the actual growth of the industry so the pie will be smaller will produce less stuff but the IRS will get their piece more likely to get their share you can see how it works there so you must report all income on your tax return unless excluded by law whether you receive the income electronically or not and whether you receive a form 1099k or not so obviously if you don't get a 1099k then you still should report your income if you don't have a 1099 for it but the IRS doesn't trust that that will happen consistently that's why they're trying obviously they wanna try to look over everyone's shoulder which they have some justification for that it's quite likely that people don't always report their income if they don't receive a 1099k there's just the question of how should you address that should you address that with more audits that are random audits kind of like traffic tickets on the road or should you be a lot more intrusive and possibly destructive to the industry in and of itself by forcing these 1099 reportings and third party platforms and whatnot or forcing people to work as a W2 employee as opposed to their own business or that kind of thing so that's the questions that we're dealing with these days so the box one A and other amounts reported on form 1099k are additional pieces of information to help determine the correct amounts to report on your return so if you receive form 1099k that shows payments you didn't receive or is otherwise incorrect contact form 1099 issuer so note that any form that you get that is incorrect at 1099k or otherwise miscellaneous whatever or a W2 if it's not right then you can't really go to the IRS and say hey look this form isn't right I've reported it correctly on my form 1040 because the IRS is gonna go by the form now if there's no other way to fix it then you might have to do that but what you wanna do first is try to go to the issuer of the form 1099 and say hey look you gotta fix this because the IRS has it and if I report something different if I report the correct amount which is not the amount you reported on the 1099k the IRS is gonna ding me for it and they're not gonna give me the you know they're gonna try to make an adjustment so the first step try to go back to the issuer of the 1099 if you can't do that then you're gonna have to deal with the then you're gonna have to report it the way you're gonna report it and then you'll have to deal with the IRS which is a much more burdensome process so don't contact the IRS the IRS cannot correct an incorrect form 1099k if you can't get it corrected or you sold a personal item at a loss see the instructions for schedule one lines 8z and 24z later for more reporting information all IRS information about form 1099k is available by going to irs.gov for slash 1099k