 Income tax 2021-2022 tax software, HSA deduction, moving expenses, deductible part of self-employment tax and self-employed SEP simple and qualified plans. Get ready to get refunds to the max diving into income tax 2021-2022. Lassert tax software. You don't need access to tax software to follow along, but you might want to have access to the form 1040, which you could find on the IRS website at irs.gov, irs.gov. Our starting point being the single filer Adam Smith living in Beverly Hills 90210 100,000 on the W-2 income, 12,550 standard deduction, 87,450 the taxable income, mirroring that over here on our tax worksheet income at the 100,000 standard deduction, the 12,550, 87,450 taxable income, relying on the software for page 2 to calculate the tax at this point 1515, which we're mirroring over here the 1515. That's the starting point back to page 1. We're focused on at this point at line 10 the adjustments to income which comes from schedule 1 line number 26. Let's go check out schedule one line number 26 here schedule one looking at page number two. So part two, we're focused down here health savings account deduction. Now this might not be one that you see all the time and people might have this kind of tie to their employer situation in which case it might be basically taken care of hopefully by the the employer possibly with a reporting of the W-2. But if it is applicable and you have more questions about it, then you might want to go to the instructions for form 8889 which could find in the IRS website irs.gov. We could jump to that here I can say let's go on and jump on over. This is one you might not see all the time and sometimes there might be a health savings account possibly that's going to be tied to the employer situation as well in which case it might be something that's going to be taken care of at least in part with the reporting of the W-2 form. So if there's a question about this one you might want to look at the instructions for form 8889 general concept being an HSA allows you to make annual deductible contributions up to 3600 for individual plans or up to 7200 for family plans as of 2021 to help pay out of pocket medical expenses in the future. If you're age 55 or older you can make an additional 1000 ketchup contributions. So there's some restrictions however so not all taxpayers are eligible to have an HSA to qualify. You must be enrolled in a health savings plan that imposes high deductibles that meet or exceed IRS required amounts. So some general general ideas about that you could go into the instructions for the form in more detail and kind of start your research if you've got questions about it. I'm going to jump on over there. Let's do a jump on over and I'm just I'm going to say it's a family plan and you'll note that if I max out the family plan up top. Well let's say let's call it a self only plan to start off with and if I max it out I'm going to max it out and then go on over to the forms. That's going to give us that 3600. So the 3600 if I scroll down populates down here it's going to pull to the first page of the form 1040. So now it's in the first page of the form 1040. We also by the way have the form 889 the health savings accounts which you could do more research on the instructions for that form. And then on the first page of the 1040 we got the 3600 the total income is going down by the adjustments we made 3600 to the 16 to the 96 400 which we can mirror over here on our tax formula 100000 adjustments is going to be in the second tab. I've got the HSA contribution so we're going to say it's going to be then for what I say 3600. And so if I go back on over to page one 100000 minus 3600 the 96 400 12000 550 on the standard deduction gets us to the 83850 bringing that over to the page one 83850 on the taxable income. Page number two calculating the tax at the 14201 now. So if I go back on over this is going to be 14201. So there is that if I go back to the software and I was saying it was a family plan that I maxed out I'm saying I want you to take the max. Then I can see that on schedule one page number to 7200 pulling over to the 1040 the 1040 there's the 7200 to get us to the 92 81200 550 still in the standard deduction getting us to the 820050. Okay let's go back to the starting point I'm going to go back on over and remove that remove that going to go back to the forms back to the forms going into the schedule one page number two schedule one page number two adjustments to income. Next we have the moving expenses. This is one that's very much more like unlikely that you're going to see unless you're working with members of the armed forces and even then they're often they're oftentimes going to be reimbursed for moving expenses. The government's usually fairly good about that. And so they might even be applicable at that point everything should be taken care of through the reporting by the in essence the employer on the W2 in that instance it used to be that you had moving expenses if you changed jobs which was more likely so so again less likely to see that if you do then you could go on over here and you might get questions about what it was in the past and you say well yeah they restricted that changing jobs. You don't have the same kind of deduction that you had in the past restricted to basically military members. So I'm going to say armed forces move due to permanent change so that's going to be the And then you've got the different items that might be applied to it you could have a mileage type of calculation that you might need to go into but I'm just going to go lodging and travel for now and then go back to the forms if applicable then it's going to be populating here on the schedule one. You can also have another schedule that is populated and it's feeding into the schedule one the three nine oh three which if you wanted to look in this into more detail if you think it might be applicable and you're not sure you'd want to look at the Instructions for form three nine oh three that's probably the first place to go to do your research on that that feeds into the schedule one page number two the one thousand one thousand feeding into the ten forty ten forty now having that one thousand bringing the AGI down to the ninety nine thousand twelve thousand five Fifty still on the standard deduction getting us to the eighty six four fifty we can mirror that on our worksheet saying we have the adjustments over here let's add another adjustment and we're going to call this one what can I call this one page number two we're going to say moving expenses armed forces moving let's say armed forces will kind of abbreviate it did I spell it right did I spell it right this time it's like the first time since I've been doing these if I did I did spell it right even even I get it right once in a while one thousand and we'll delete this one we'll make that blue blue and bordered and then some this up so I picks up that so pick that so pick it up and then we're going to go back to the first tab so one thousand subtracted ninety nine thousand five fifty standard deduction getting us to the eighty six four fifty eighty six four fifty tying out to the to the ten forty page two then calculated the tax at the fourteen seven seven five fourteen seven seven five so there is that one let's go back on over let's go back to the to the first one this one's going to be kind of like the more complex one where we're going to change our income levels to self-employed so I'm going to go back on over let's take this one out back to the starting point and so now let's say I'm going back in schedule one page number two and we want the the self-employed let's let's start off with the deductible part of the self-employment tax so that usually is going to be applicable if you're obviously if you're paying self-employment kind of taxes which is normally or self-employment income that you have if you have a schedule C business that's the most common type of example so so if I go back up to the page one I'm going to say what if my income is not from W two wages but from a schedule C let's make that change and we'll see all there'll be a whole bunch of different adjustments which we'll get into more with the business income but just to get an idea of this now let's say that we don't have any income here but we have a sole proprietorship business and so we'll put it that into the schedule C business income I'm just going to just for the purposes of the example we'll just put a hundred thousand here and obviously we would have deductions and whatnot but I'm just going to say a hundred thousand keeping it simple going back to the forms so now all this other stuff happens right so for example I've got the income here of the hundred thousand flowing in from the schedule C so so we'll talk more about that later because that's not where our focus is where focus is on the adjustments and then we've got this adjustment now where did that come from like I didn't put anything into the adjustment here and if I go into the schedule one page number two that's where our focus is the deductible part of the self-employment tax but to understand that we got to know well what is self-employment tax and why am I getting a deductible part of it that'll make any sense so notice that what they're trying to do is if you go into the self-employment tax over here the schedule SE this is the self-employment this is basically the equivalent of social security and Medicare if you're an employee so if you're an employee then you pay half a social security and Medicare the government pays half a social security and Medicare they report that and do the withholdings of it the employer does and then they report it on the W2 doesn't normally have an impact so much when we do the data input to file the return because it's a flat tax therefore easy to calculate and we already paid it so it's just an informational type of thing if however you're in a schedule SE business then when we actually do the tax return we not only have to consider the calculation of the income tax but the self-employment tax the equivalent of the self-employment that the IRS wants to hold you responsible for which if you were W2 employee would have been taken out of your income by your employer not only that but the self-employment tax usually has an employee portion and an employer portion in other words you working for an employee an employer as an employee results in them having to not only take your self-employment tax out of your wages and pay to the government but also to pay their own half of self-employment tax so now the problem is for the IRS well what if you're a sole proprietorship then you're not paying any self-employment tax or payroll taxes so that means we're going to charge you the self-employment tax and you would think well then it would be fair then maybe to only charge me one or the other maybe like the employee portion or the employer portion but no they basically charge you both they say any net income on your schedule SE business is basically kind of like you are the employee of your business and the owner of the business therefore you're paying both kind of like the employee and employee or portion of self-employment tax we'll talk more about that later but that's the general idea so you see that then on page 2 of the form 1040 so and this is what you always have to keep aware of when you're talking to clients they're going to say there's an income tax but then there's this other tax that's on the books which is self-employment tax which is huge right that could be a very significant tax very burdensome tax that we have there and it also flows through to you know to schedule to here where we have the other the other taxes for the self-employment tax so then and that's that schedule to is flowing into the form 1040 page 2 and that's adding adding to the tax but let's say you were a schedule like a like a C corporation a normal corporation you would have you would have that tax applicable but you'd get to deduct the employer portion of it normally because you deduct the portion of taxes that was your employer so you say we should get a deduction for half of the tax but I can't deduct the self-employment tax on schedule C because the schedule C like the net income is what I calculated the self-employment tax on you to end up with a circle reference so what ends up happening is that you then get the deduction on schedule one page number two so schedule one page number two so how does how does all this work they're trying to mirror kind of an employee employer situation as if on a sole proprietorship you were the employee and employer so they're taking your net income from self-employment of the 100,000 and this would be net not gross so if I had expenses it would be the net generally they're calculating self-employment based on both the employee and employer portion in general charging you the tax which you'll see on page two of the 1040 adding that on tacking it on to this to the income tax that you're going to be paying but they also get to deduct half of it for income tax purposes which you see on schedule one schedule one schedule one here page number two that's 7065 this is what we're focusing in on here we'll dive more into this whole kind of thing when we get into the schedule C business but that's the general idea if I was to kind of mirror this on my worksheet look at see how much more complicated it gets I'm going to say okay the income is not coming from the W2 the income is coming from the schedule C so schedule C income that pulls into the first page of the form 1040 so we've got that now and then we're going to have the additional tax so the additional taxes that are going to be imposed here and you could kind of calculate the additional tax here but I'm just going to put it in place for now we might do more calculations on it later but we can see it calculated on form SE or page two that additional tax is the 14129 14129 so I'll put 14129 which flows on to the first page of the 1040 and the additional taxes here and then the adjustment half of that's deductible so if I then go to my adjustments to income I'm going to take this out and I'm going to move this down give me some more room give me a little room my elbows I can't stretch my elbows out I need some elbow room this is going to be self employment tax I already have it up here so you could do it this way this is going to be equal to the tax that you calculated and the additional taxes self employment tax here here divided by two half of it should be deductible above the line so if I go back to page one now I've got the one hundred thousand half of the self employment tax is deductible seven thousand sixty five bringing us to the ninety two nine thirty six ninety two nine thirty six if I go to page one so there's the ninety two nine thirty six then we've got the standard deduction at the twelve five fifty and then we also have this qualified business income deduction we'll talk more about that later I'm just going to plug it in for now when we get to this to the schedule see we might dive into that in a bit more detail but that's going to be sixteen oh seven seven sixteen oh seven seven that's going to give us to the sixty four three oh nine sixty four three oh nine oh eight surrounding difference that's okay page two is going to be the calculation of the tax nine nine oh oh tax calculated nine nine oh oh that's the income tax and then we have the additional tax we already put in place of the fourteen the fourteen one twenty nine so total taxes at the twenty four twenty nine at this point twenty four twenty nine at this point in time so you can see there's a whole host of other things that just happened the software helping us out with it but if you don't understand it you're not going to be able to explain it to people right it's just going to be a magic bunch of stuff that just happened right there that that's going to add on that's why the schedule see could add a significant amount of complexity now let's go back to the schedule one and then go down to page two and say say that okay what if we have then a self-employed set simple and so on so remember that if you work as an employee then you might have access to a four one K plan for for example or four oh three B which allows you to put money away for retirement and get a deduction for that when you put the money in but if you're if you're not working for an employee that provides you a four one K or four or three B then you might be able to put money into an IRA and get say just an IRA deduction which is down here and which we'll talk about later but the IRA deduction has a has a limitation a smaller limitation that's why the 401 K is one reason the 401 K is going to it could be quite beneficial as as a benefit if you're self-employed you're like well I don't want to be stuck with the IRA deduction I'd like to have a higher limit maybe of what I can put in but I don't want to put a 401 K plan into my sole proprietorship business because those are way too complex and I got to deal with way too much you know admin stuff to do that so the in between is to set something up that's a little bit more simplified like a sep or as simple or a qualified plan and that allows you to put money into it as well so notice if you're in a schedule C business these kind of questions start to come up tax planning questions like that possibly bookkeeping questions and questions about self-employment tax schedules about estimated payments in the future so a lot more consulting could take places much more likely to be needed and if you're dealing with business kind of entities okay so then if I jump over to that one I could say okay well what if we had a sep and that we're going to put in let's say it's a sep and let's say that I just maximize it I'm going to maximize it here and if you have more questions about them you could do of course your research for a sep and a simple and the differences between the two which might be best for particular organizations that's a whole topic in and of itself related to business schedule C type businesses as well we might touch on that a little bit more when we get to the schedule C at least and if I jump on over you could see the amount of the deductible that it maxed out at the software did is much higher than what would max out if we had just like an IRA type of deduction if we qualified for the IRA so now we've got that included as well obviously in order to take advantage of these retirement plans you'd have to have cash flow to do and which is often a problem for individuals and corporations who are trying to put that cash flow to work either on the personal or business side but in any case so that totals up now to the to the 25 652 pulling over to the 1040 so now in the 1040 we've got the 100,000 we've got the 25 652 and then if I mirror that on my software on my side I'm going to say this is self employed sep simple so on and that I said was we maxed it out at the 18587 18587 making that blue and bolt and bracketed check in the spelling on it did you spell it right I'm going to say this is self employed sep simple simple and so on and that I said was we maxed it out at the 18587 18587 making that blue and bolt and bracketed checking the spelling on it did you spell it right you're darn right I did my spellings improving as we speak we're going to sum that up then it's got to I got to add that into my totals 25 to 62652 pulling that over to the first page so there's the 100,000 minus the 25652 gets us to the 74349 so I can mirror that over here and say does that work we got the 74349 12,550 standard and then the business the business income 12360 so we've got that this should be 12360 now bringing the taxable income to the 49439 so 49439 off by a dollar rounding that's okay page to calculating the tax 6622 if I did so 6622 calculated there and then the self employment tax which we still have on on play notice the self employment tax isn't being affected by some of the deductions we're taking which are deductions for the federal income tax which again drives business owners crazy because they're like you know I you could get this down to basically you know pretty a reasonable number and you're like but what about the self employment tax you know and that's at the 14129 and gets the total tax to the 12,00751 so 20,751 here that we can see so I did that fairly quickly and we're relying on the software to some degree to do some of these calculations and obviously there's a lot of components being involved when we add the schedule C but then that's just kind of the general idea of those of those items obviously any of those items that apply you would want to be diving into a bit more research because when we're dealing with like I said this the sole proprietorship more time will typically be needed for counseling type of things especially with you know retirement what type of retirement plans would be beneficial for the business and and obviously more complications are going to be involved with deductions and self employment tax and and that kind of stuff as well