 Income tax 2023-2024. Social security benefits tax software example. Get ready and some coffee because we're looking at some useful hacks for income tax preparation. Hey, hey, I said useful hacks. Get that legacy media reporter hack off the screen for crying out. This is not a joke. We're not sitting in some press conference making up words to just throw at people. Supercalifragilisticexpialidocious. Like, what are you talking about? The words you use don't even have any definitions for crying. Here we are in our first award from our sponsor. Yeah, actually, we're sponsoring ourselves on this one because apparently the merchandisers, they don't want to be seen with us. But, but that's okay. Whatever. Because our merchandise 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. 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 the forms, schedules, instructions at the IRS website, irs.gov, irs.gov. Starting at our normal starting point with Adam Taxman, just trying to avoid a dang taxman. He's living in 90210 Beverly Hills, single filer to start off with no dependence. Starting with W2 income as usual of the just nice round $100,000 standard deduction $13,850, giving us the taxable income $86,150. We can see that in Excel in our formula format. $100,000 income $13,850 standard deduction, giving us taxable income $86,150 tax calculated by the software at $14,266 on page two of the software $14,266. Let's go back to page one now and we're going to be thinking about income related to social security benefits reported on line six. Now note when we're thinking about people that are in their working years, typically then they're going to have something like W2 income and they'll be paying into the social security system. Remembering that the social security system is a tax when you're paying into it, although it's not the normal or largest tax that's funding the federal government. It's going to be for the benefit program type of tax. When we think of the form 1040 and reporting on the form 1040, we're primarily thinking of reporting related to the federal income taxes. But we could have some instances where we have to do some reporting and some calculations with regards to the social security taxes. Now there's two sides of the coin with social security, us putting money into social security and then us taking money out of the social security program. We typically put money into social security as we are working in the form of payroll taxes taken out by our employer. If we're a W2 employee reported to us on the W2 form, if we are a sole proprietorship, we pay into the system with the calculation of self-employment tax typically, or there would be a general scenario if we're a sole proprietor type of business. Now remember that with social security and the United States were kind of confused as to whether it should be something that's like a total retirement program that's federally mandated retirement program for everyone, which would seem to indicate that the more money you put into it, the more you should get out of it in retirement. Because that's how a normal kind of retirement plan would work. Or is it a safety net program where you're going to save for your own type of retirement, but we're going to put some money away for those people that couldn't save for retirement for whatever reason. Possibly they lived longer than they thought for retirement or they have other circumstances that resulted in them having a problem in retirement and therefore we have a safety net to help them out. More and more the social security is being thought of kind of a national type of retirement plan. So the more that you put into it, you would think kind of the more that you would get out of it in the point of retirement. Now in the point of retirement then if we get payments out of the system, the question is do we have to include them in income and income is basically bad. So more income would typically be worse because if I include it in income then we're going to have to subject it to the ordinary income tax rates typically resulting in taxes. And there's a phase out kind of process as your income goes up less money will be included from the social security benefits. So let's go back to the first tab here and I'll just show my W2 income. Remember with the W2 income if I put in 100,000 the software will calculate the tax that we put into social security at 6200 because the social security is kind of a flat tax up until a certain point where it is capped. Now I'm going to delete this one and say if they're in retirement maybe they're not going to get money from W2 wages but they're going to be reliant possibly on 1099 hours money coming out of retirement plans and possibly then the social security of course. So let's go into the social security and let's say that the social security was like 15,000 and let's start off with that being the only income. So if I go back on over now we have no W2 income. We've got 15,000 on the social security line 6A you can see none of it is being pulled over to 6B because of the phase out threshold. So if you go into this worksheet it'll give you a little bit more information on that calculation. You've got the social security benefits enter one half of line one and so on and so forth. I won't go through the whole thing but the general idea would be that if you're below a certain threshold of income then you may not have to include the income for income taxes, which would generally be a good thing because it's going to reducing the income reduces the amount of taxes that you pay. Now let's imagine that we had other income. I'm going to go back on over and say we had income and we're going to say this time let's say it comes from retirement or pensions or IRAs. And so I'll say this is for a 1099 and we're going to say that it's a normal distribution and let's also change the age of our taxpayer and say that they're like 60. Let's do 67 again. Let's go 2023 minus 67 changing the date of our taxpayer to 1956. And then we will say that we have our income in the pension of normal distribution. Let's say it's 30,000 and the taxable amount is 30,000. So when we take money as we saw in a prior presentation out of a retirement plan or something like that typically it might be subject to tax because they got a tax benefit when we put the money in. So let's go back on over and now you've got the 30,000 in taxable income. Social security is still paid out at the 15,000 but now we have part of it that is becoming a taxable component to it. You can take a look at the calculation here to get more detailed on the calculation. But usually what you need to do is be able to explain to people the impacts of the social security that they're going to be receiving. And that will usually be if you have a significant amount of income you'll have to include in income up to 85% of your social security benefits. But if your income goes down then it phases out meaning that you're going to add a lower amount to the social security benefits. Let's just mirror this over in our worksheet over here so we can get an idea of what's happening from this side. So we're going to say no W2 income this time. I'm going to add income down below for the, we'll call it a 1099 or an SSA 1099. The typical form that you would receive would usually look something like this to help you to do your data input. You might also be able to go to the social security website if you need to get that form for whatever reason if it doesn't get to you. And then I'm going to call this another category of SSA 1099 income. And I'll make this black and white up top home tab font group making it black and white. And so then I'm going to say let's put it down to like there making this bordered and blue. And then I'm going to say that we had one 1099 15,000 that was included. And then there's going to be some kind of calculation to remove to bring that down. Now I could in my Excel worksheet get more complex in determining exactly what the calculation will be that will be included. Or I can be dependent on the software. So typically I might be dependent on the software so that I can kind of say, okay, I'm going to put 15,000 in here. And then I'm going to double check to the software to see what was actually calculated on the software. Using the software to help me out with the more complex calculation. And then I'm going to say this is going to be total SSA 1099. And so let's say 15,000 there and then I'm going to put the taxable amount on this side. Let's say and then I'll go back on over and go the taxable amount is 7,000, 7,000, 7,500. 7,000, 7,000, I'm not saying that right. 475, sorry, 475. So let's take a look at the percentage then that was calculated. It's this over this. That means I can take a look at the percent. 50% is being included. About 15% that's going to be included is the calculation. And then down here for my total income, I'm going to have to say the total's down to here. And then I'm going to say plus and I'll put this amount right here. Boom. And then I'll say this is the sum of this. All right. So there's our 7,475 that pulls into page one, 7,475. The standard deduction is now, if I go back on over at page one, the standard deduction is, well, let's go back to the 1090, the 1040. And I'm going to say, okay, so now I have pension income of 30,000. Let's also include that. So that's the 1099R. So here's the interest, dividends, IRA. And I actually put the IRA and the pension in the same place. Let's actually put these in two different places because there's two different line items on the 1040. So I'm going to add another category under here. I'm going to insert some columns. I know I'm doing a lot of Excel this time. Sorry about that. But I'm going to say this is going to be a 1099R pension. And this will be 1099, let's say, 1099R IRA. And then I'll make this a separate category because there's a different line item on the tax return. Might make it a little bit easier to see. I'll make this down to here, let's say, bordered and blue. And then I'll say this was 30,000. And this will be the total 1099R pensions outer column summing it up. And then my total down here is going to sum down to here. And then I could also have a taxable portion and a non-taxable portion. So I'll add that here and sum this up. So I know that was a little bit of a lot. But that adds up to 37,475. If I go to the first tab, 37,475. And then I'm also going to have to say they're over the age limit. So my standard deduction is going to add another 1,850. So 15,007 for a taxable income of 27,775. So I'm going to say, OK, 21,775. And then on page 2, tax is being calculated at the 2393. So I'm going to just put here 2393. So there's our calculation from a formula basis going back on over. If I increase the income above that, let's say 30,000 goes up to. And even if it was tax exempt interest, just note if I go over here and I say interest. And this was from, let's say, bank and it was tax exempt. And let's just say it was a high number of 30,000 just to make it clear. And I go back on over. So notice that that tax interest is not included here, but did have an impact on. So it's not included in taxable income, but it did have an impact on how much the social security would be impacted. Now, why would that be the case? Well, even though that's not included in taxable income, if you got that much in terms of interest, that means you must have a lot of money sitting in the bank. And the whole idea here is, well, if you have a lot of money, then you don't need as much of the social security. This is this mix between social security benefits being a type of retirement program for everybody versus a safety net benefit program system. So if you have a lot of money stashed away, you don't need social security if it was a safety net program and not like a pension plan program for everybody. So now we can see how much is being included of that. We have the 12,750 divided by the 15,000 will give you the 85%. So now it's at the maximum. So in other words, if I go back on over here and we show that we're going to say, OK, now we had interest income. Well, that's not included. But now of this amount of the social security, we can see that 12,750, so 85% is being included. So that doesn't mean we're paying taxes on 85%. That means that 85% of the benefits are being included. And then that's going to impact the taxable income. And then the tax calculation will be based on the taxable income using our progressive tax rates. Going back to page one, you could once again, if you wanted to take a look at the calculation for it here, but you get the general idea. The max goes up to 85%. If your income is lower, fairly low thresholds, then it might phase out in terms of how much you have to include in income. If I bring my income up substantially more than that, it's still just going to be taxed at that same amount. If I bring this up to 100,000, it's still being included at the 12,750 or 85%. Now, when you have married couples, you have to be careful to make sure that you're applying the social security properly because it could have an impact on some of the calculations. So for married couples, then of course the phased out thresholds will change. And so I'll say now they're married filing jointly. And so now you've got Adam and Jane. And if I go back on over, so now we've got the two individuals together. And of course, it's still being taxed at the maximum of the 85%. If I go back on over to the data input, we can say the benefits from social security. You might have benefits from each of them, right? Or 15,000, let's say 20,000. They might not both be the same. So you want to make sure that you're allocating between the taxpayer and spouse. If they're both over the age limit, you would think they would both possibly be receiving social security right now. Is she over the age limit? Yes. Okay. Is she? No, she's not. So what she's, she's with that young lady again. Let's say she's, let's say that let's just bring this date to 7073, let's say that should work. And then I'm going to go back on over. All right. So now I'm going back to the 1040. So it's easier for me to see. So now we've got the same 100,000 from the pensions and annuities, which also might be important to allocate to the proper spouse. And then we've got the social security. So you got your social security calculations, 29,750 being included. So that's 29,750 over the total of 35,000 is 85%. So again, we're basically including 85%. The phase outs would be different if married as well because of course the phase outs you would think would change if you have two people instead of basically one person with regards to them. So that's the general idea. But the general concept would be we're talking about social security. In this case, we're talking about paying out social security. Therefore, typically thinking about older peoples and their tax returns. And the general idea is that up to 85% would typically be included in income, not 85% being taxed, but that being included in the taxable income subject to the progressive tax rates. Unless your income is below a certain threshold, in which case it could phase down to 50% down to zero. So that would be included in income.