 Income tax 2021 2022 software example, other income part number two, get ready to get refunds to the max diving into income tax 2021 2020 tow. Let's start tax software. You don't need access to any software to follow along, but you might want to have access to the form 1040, which you can find on the IRS website irs.gov. Starting point single filer Adam Smith living in Beverly Hills 90210 100,000 W2 income. 12,000 550 standard deduction for the single filer 87 450 at the taxable income mirrored on our equation in Excel 100,000 12 550 87 450. Then we calculate the tax on page number two that at the 1515. We're going to be focused on schedule number one now looking at line eight. So this is schedule one part one line number eight. And we were down here at jury duty. We saw some of the other ones up top in a prior presentation. These are usually things that are a little bit more unusual to happen. Jury duties fairly usual to happen. Usually the dollar amount is inconsequential to the tax for the most part, not the most material thing oftentimes, but you want to make sure that you're reporting it properly. So that you make sure that you have everything on your side on our tax return populated in a similar way as the documentation that's going to be provided to the IRS to make sure that things are are processed properly. There could be some exceptions to in terms of like how your employer is going to reimburse you are they paying you for the jury duty and so on and so forth. But in general, the the items that are being paid by the employer reported on the W2 and the jury duty. So if you get information for that you get the documentation for that and we want to make sure that we've got the reporting properly done so that it lines up and the tax return processes smoothly. So I'm just going to put the 250 so there's the 250 it's going to sum up down below if I go then to page one of the 1040 it's going to flow in through to the line eight other income. And now we're at the 100,250 we can mirror that in our equation here by saying that if I go to the additional income let's add one for jury duty duty jury duty and jury duty and this is going to be 250. And that's that's what I need my dog jury and then I got to pick up the jury duty every once in a while you know. Any case that pulls over to page one page one of a 100,000 we're at the 12,550 standard deduction 87,700 on the taxable income. And that should mirror what we have on our tax return that's not the tax return 87,700 is that what I said it was 87,7 it is indeed page to calculate in the tax at now the 1575. So 1575157515075. So there we have that one let's go back on over let's run a different scenario, bringing this back to the norm back to the starting point jumping on over to the schedule number one. Then we got the prizes and awards they can be a little bit confusing in terms of the tax treatment on specific scenarios so if, and they're more unusual as well there so if you have questions about the prizes and award information, then you can look at you could start to research there on the form 1040 instructions, but a lot of these items on on line eight are going to be items that you might receive documentation for. And you're saying okay where do I put this information and if it doesn't fit anywhere else you might have to you might put it here and if you get a 1099 or something like that. You would think that your first thought is maybe I need to record it basically an income. So I'll go to the next one then we've got activity not engaged in for profit. Now this is fairly common one or or some people could have income for example for things that they're not doing to engage in for profit and it's important to distinguish what that is because there's pros and cons of reporting something as basically a business which you might report say on a schedule C versus something that you might report here as say for example a hobby. So if I was to go to it to the schedule C note and this this often has people often there's many arguments that are made oftentimes for people that want to report it on the schedule C. Why would you want to report it on the schedule C as opposed to a hobby. Well because then you might get all these deductions and if you get a bunch of deductions you could not you could possibly right wind up with a loss and a loss would be good because you might be able to take the loss against other income. The government is going to be skeptical of losses however because they're going to think that you're kind of cheating the system you have a hobby that you're writing off your losses against other income. So on the other hand if you don't have any expenses you would rather record it as a hobby because then you're not going to pay Social Security and Medicare. So let's take a quick look at this. We'll say let's say I had income and it was wages. Let's not not wages. I got schedule C income and let's just say it was 100,000 or 1000 1000 I mean 1000. Okay. So then if I if I go back on over on the 1040 now that 1000 is flowing through from the schedule C. It's going going from the schedule C ultimately on over to the to the 1040 and it flows into the 1040 but there's other consequences. So this is actually bad because I'd rather have that 1000 not reported here. If I don't get any deductions because on page two as you can see I've got this other tax which is Social Security and Medicare. That's the self employment tax. If you just have $1000 you have no other expenses then you don't want to report it as as schedule C income subject to self employment tax because that would that would result in more taxes right you'd have to pay the self employment tax. So but if you had a bunch of expenses related to it so if I had more expenses 2000 of expenses let's say 3000 of expenses now I would like to report it as a schedule C business. Because now I have a loss so I have a loss which is then going to pull over to the page one of the 1040 and it's going to be a benefit lowering my other income which is a benefit for taxes. The iris is skeptical of losses so there's many businesses that people are into and it also has to do with whether the iris thinks the business would be fun or not right. So if you like horse breeding or horse races or if you're like if you're you know a movie editor or something like that and you spend all your and all of your expenses are there for travel or something because because you're experiencing movie stuff or something. The iris is more likely to say hey that sounds kind of like a hobby you know and you've got like five years of losses that you're riding off against wages and we don't like that. You know so they might then qualify it as a hobby which means you wouldn't get those deductions if it was a hobby you'd have to record the income although the income would not be subject to the to the self employment. So so if you could take the deductions that would be good just remember if you have like more than three years of deductions in a row or losses in a row. It's more likely the iris is going to shift their position and put the emphasis on you. You have to prove that you're in it for business as opposed to the emphasis being on the IRS that they have to prove that it's not a business related item. Now if you go back to the to the 1000 and you just had the 1000 then you would rather report it over here. If you didn't have any other expenses you don't want to report it as income then generally you'd rather report it some place over here activity engaged and not for profit. And I'll put a thousand there bring it on back on over to the home page so that totals up to a thousand pulls it up to the 1040. So then there's the 1000 and that brings up the 101. I don't have anything on page two for other taxes social security and Medicare. I can mirror that on our worksheet. I could say okay additional income. This is going to be I'll call it hobby income instead of whatever they call it there 1000. And so then there's another one that we can line up in case it comes up sums up to 1000 pulls over to the first page of the 1040 for the 101. We still got the 12,550 standard deduction that should bring us back to the 150 I would assume. So if I go back on over 100,088 450 and the the 15255 15255 I mean 15255 would be the tax. Okay, so there's there's that one. Okay, so then let's go back on over to schedule one. You got stock options. Now oftentimes if they came from the employee or you would expect hopefully the stock options to be taken care of. In essence within the W2 possibly if there's some part of employee compensation. So it would be taken care of there but if it's not then you might have to report that other income here income from rental of personal property. If you engage in the rental for profit but we're not in the business of renting such property. So you might have a situation of that you can look into the instructions for the 1040 more detail there. We'll talk about rental on a schedule E in a future presentation and then we have the Olympic and Parallel Olympic medals. This is probably a more unusual type of situation. So you're probably not going to see that too much. But if you do, you could take a look at the instructions and see how much of that might be taxable that could be benefits or non taxable component depending on the income level. And then you've got the section 951 inclusion and so on taxable distributions from the ABLE account. So you can look in the ABLE accounts in general to see more information on that if you get some documentation related to it. That's when you probably want to dive into it and then other income. If anything else you get if you say hey I got this 1099 or this form that looks like an income reporting form of some kind. For example or I have some income that they're telling me about that is not. I think I have to include but it's not in any of these items. I don't want it to be subject to self employment. Then you might just write on the line write on the dotted line what it is and add it down here to include it and other income which of course within pull over to the first page of the form 1040 1040.