 Income Tax 2023-2024, Educator Expenses Tax Software Example, get ready and some coffee because we're setting our refund to the max with Income Tax Preparation 2023-2024. First a word from our sponsor! Yeah, actually we're sponsoring ourselves on this one because apparently the merchandisers don't want to be seen with us but but that's okay whatever because our merchandise is is better than their stupid stuff anyways like our trust me I'm an accountant product line yeah it's paramount that you let people know that you're an accountant because apparently we're among the only ones equipped with the number crunching skills to answer society's current deep complex and nuanced questions if you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com here we are in our form 1040 example problem using LASERT tax software you don't need tax software to follow along but if you have access to tax software it's a great tool to run scenarios with you can also get access to forms schedules and instructions at the iris website iris.gov iris.gov iris.gov looking at our taxpayer adam tax man just trying to avoid a dang tax man living in 90210 Beverly Hills single filer to start off with no dependence we're going to start off with an even 100 thousand w2 income the standard deduction at the 13850 resulting in taxable income 86150 which we can mirror and see in excel formula wise we've got the 100 thousand standard deduction 13850 getting us to the taxable income 86150 the tax calculated by the software 14266 which we can see on page two and x let's go back to page one our major point of focus this time being online number 10 adjustments to income from schedule one you might call these like above the line deductions they're basically deductions although they're called adjustments to income because they're reducing our income up top so this would be like our gross income and then we have a type of deduction or you can think of it as a reduction of income if you so choose and that's going to give us another subtotal and important subtotal adjusted gross income and then we have more deductions being the greater of the standard deduction or itemized deductions these above the line deductions or adjustments to income which you could also call like schedule one deductions now that we have this relatively new item of a new schedule schedule number one are important to note even for taxpayers that are below the threshold of being able to itemize because you could still get a tax benefit from them even if you don't have enough deductions to clear the standard deduction threshold all right so let's go over here and say all right let's go into that schedule number one which is the additional income and adjustments to income additional income part number one and we want then the deductions so we're going to go to page number two which is going to be part two adjustments to income the first one being these educator expenses now the educator expenses as we talked about in a prior presentation we're basically kind of put in place by the power of the teachers unions right because normally we don't have a deduction just for a particular industry usually the tax code is kind of more broad where we're going to say well if you qualify for this deduction in general then it would apply to you but in this case we have a deduction specifically aimed at educators so when we have the so basically the question that would come up if your tax preparer would be is someone a teacher if they are a teacher then the question are they a qualified teacher and if so they probably have the deductions necessary to take this deduction but you want to make sure that they have qualified expenses so then we know that an eligible educator is a kid in a garden through grade 12 teacher instructor counselor principal or aide who worked in a school for at least 900 hours during a school year so they're all the people that pay the money to the teachers union right and that's that's that's who's going to qualify they keep an okay so in any case so that means that uh so if they qualify then we might so if we hear that they're an educator then do they qualify we're going to say okay well then you probably have the ability to take this deduction because it's capped at 300 dollars however note the idea here is that you can only take expenses necessary to help you to generate the revenue just want to recap this concept because it's important from a tax perspective and you can see it most clearly on business income reported on the schedule c meaning if you had a schedule c business then you would have income and then deductions which are expenses this is basically an income statement it would not make sense to tax someone on a hundred thousand dollars of income if they needed to expend like 80 thousand dollars to generate the 100 000 that wouldn't make sense because they might not even have the money to pay the tax because really they had to expend those expenses to generate the income so an income tax only makes sense if you tax people on the net income after the necessary expenses in order to get the top line income and we call those we could call those ordinary and necessary expenses now those expenses doesn't mean that you that you had to expend them in other words if i didn't had advertising would that mean i would go out of business most of the time no it's not like mandatory or i die kind of expense but those are the ordinary and necessary expenses typical for me to try to attempt to generate more revenue that's going to be the general idea if someone is a w2 employee going back to the 1040 such as we have here for adam we're going to imagine they're a teacher now although it's a fairly high salary for uh for the teachers you would think but let's say that that they're a teacher and they've got the w2 income as with any other w2 job the assumption is that you're not buying the things necessary to generate the revenue because your employer is providing that now note that most people not just teachers are probably spending a significant amount of their own money 300 dollars being fairly low actually in order to do their job well especially if you're in a job like teaching or nursing where you're caring for people and you get attached to the people and you're trying to help them out then you're probably spending money on it right so 300 is a fairly low threshold but it's usually not deductible because you're an employee but now they're going to allow you to deduct the the 300 for this particular industry mainly for political reasons but it's been it was in place a long time ago in any case so most people will qualify for that you would think if they're a teacher but you want to make sure that they have the documentation and the event of an audit related to this now it's not likely you're going to get audited with will the iris target teachers for for the 300 dollars to make sure that they spent those is probably not going to be the thing that triggers an audit unless again the iris is coming after you for political reasons or something maybe they maybe that's what they'll get you on but usually you would think that wouldn't be in any case so let's go and jump to that one go to page number two and then we'll right click and jump to that area so so we're going to say if it was 10 000 let's say we we spent 10 000 or 1000 dollars I put here it's still going to cap it at 300 so if I go back on over it's going to cap at 300 that's why the software is fairly useful because you want to know that cap of 300 to be able to communicate that to other people but it's also useful that you can kind of test it in the software by saying well what if I put like 600 dollars well it's going to cap it at 300 dollars that's the cap that's going to sum up down at the bottom of the schedule which is going to then pull into the form 10 40 so we've got the 100 000 now from w2 income or assuming from a teacher and the 300 dollar above the line deduction to bring us down to 99 700 so now the standard deduction is still the same we didn't have to take itemized deductions greater than the standard deduction to get that 300 dollars because it's an above the line or schedule one deduction and that's going to get us to the 85 850 let's put that over here in our excel worksheet so now we're going to have adjustments to income so we're looking at this line item in our in that's in another worksheet that I put over here adjustment to income the only thing we happen there thus far is self-employment taxes let's make this black and white so I'm going to pull this down and let's add another category which I'm just going to say is educator expenses educate educator expenses we will make them black and white and then I'll put two two columns for it because you could have a married couple which then means that you have 600 of expenses because they both have 300 and oftentimes teachers like other industries tend to marry each other right so you could have to could easily have two teachers or people that work in the school area so this is going to be to so let's just say tax payer and it's going to be 300 dollars and this will be total educator expenses I'll put this in the outer column summing that two columns up I'm going to pull this to the outer column as well I'll pull this out there and then I'll fix my sum of the total of these two summing up these two categories that we have thus far let's make this black and white as well because that'll be so I could see it connected okay so then so then that's going to pull over did I spell it right let's check the spelling expenses okay so then that's going to pull into page one so it's an above the line so 100 minus the 300 gets me to the 99 700 this adjusted gross income is quite important because many times when we look at phase outs as we'll see later in more deductions and credits it's not based on this 300 000 but based on the agi as its fundamental at least starting point for things that might phase out as income goes up and then we've got the standard deduction hasn't changed 13 850 gets us to the taxable income 85 850 which is the same over here that looks movie bn b to the n bn tax is now at the 14 200 so I'll say okay tax 14 2 oh that's not right that's not right 14 14 200 okay so that's what we have there let's go back on over now remember that this is an area you're not going to have necessarily documentation for so you're not going to get typically like the equivalent of a 1099 for income or anything like that for it you're going to be basically getting this information by observing on their w2 and when you interview if you have a client as to what they do for a living and if they're an instructor then that's when you're going to it's going to give you the question and then of course your assumption will probably be that they have over $300 of legitimate expenses and make sure that you then communicate with them to make sure that they they have the supporting documentation for that so that in the event of an audit they could they could produce that documentation but you're not usually providing that documentation to the irs in any kind of attachment or anything like that that's the general concept of it now of course if they were married then you could have two teachers so we're going to go back on over and say okay what if they were married and so then i'm going to go to the income and say they both work at the same place but now let's break up the income to 50 000 and not 500 000 that's unlikely for a teacher you'd have to be you'd have to be like a anyway we'll say w2 let's say this one is going to be another 50 000 i'm going to indicate that this is the spouse so that it knows that these are two individual two different individuals and then when i go back on over i'm going to say that we have schedule number one page number two part number two right click and jump into that area and i'm going to say it was a thousand taxpayer and spouse right so i'll put a thousand for the spouse it'll cap it at 300 for 300 and 300 or 600 total which is going to sum up down below pull into the form 1040 and so now we have the 600 here in the form 1040 i can mirror that on my worksheet by saying okay here's this adjustment now we have spouse i don't know how to spell spouse and 600 we'll put that that pulls over to 600 now they're married so my standard deduction is going to change so i'm going to say this not it's doubled now to 27 000 and so that gives me a taxable income 71 700 so if i go back on over 71 700 page number two calculate in the tax now at the 800 167 800 8167 8167 8167 so that's the that's the general idea with the educator expenses bottom line you don't get any documentation for it you need to know what industry they're in are they a teacher if they're a teacher then you're like oh you've got those teachers unions they and they're and so we're so you have a you have a deduction that no one else gets the nurses don't even get it or whatever but that's cool it's not that much i'm just saying i'm not complaining or anything i'm just saying it's like a special deduction so then we so then and then and then that's when you're going to basically say well i'm going to assume most likely that they might have those expenses but i want to make sure that they have the documentation and whatnot with regards to the expenses so that you can take that basically above the line deduction