 Income tax 2023-2024, health savings account, HSA deduction tax software example. Get ready and some coffee so we can stave off the government attack with income tax preparation 2023-2024. Here we are in our form 1040 tax software example 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, instructions at the IRS website irs.gov, irs.gov. Starting with our normal starting point taxpayer Adam Taxman just trying to avoid a dang taxman. Living in Beverly Hills 90210 single file to start off with W2 income 100,000. We have the standard deduction 13,850 taxable income there for 86,150 which we can mirror in our income tax formula. 100,000 13,850 taxable income 86,150 tax calculated by the software starting at the 14266 which is on page 2 of the form 1040 as we can see. Let's go back to the first page. We're going to be focusing in this time on the line 10 adjustments to income from schedule 1 line 26. Let's go over that first a word 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 that's okay whatever because our merchandise is better than their stupid stuff anyways. Like our crunching numbers is my cardio product line. Now I'm not saying that subscribing to this channel, crunching numbers with us will make you thin, fit and healthy or anything. However, it does seem like it worked for her. Just saying. So subscribe, hit the bell thing and buy some merchandise so you can make the world a better place by sharing your accounting instruction exercise routine. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Schedule one and check it out if we could schedule one additional income and adjustments were on page number two, which is going to be the adjustments to income. And we're looking at that health savings account, which could be further coming from the form 8889. In a prior presentation, we went into more detail about the qualifications to be able to set up and put a deductible contribution into a health savings account. Otherwise known as an HSA, but a quick recap here. You're going to need to have that high deductible insurance plan. Generally, and then the tax questions that will come up are in a similar way. I like to compare these kind of tax tools to say an IRA because I think people have a better understanding of how the IRA works. The question for taxes in points of time when we use these tools is do we have a tax consequence when we put the money into the account, which is basically kind of like a normal financial type of account, a savings account or stocks and bonds. For example, in the case of an IRA, typically stocks and bonds in the case of a savings or a health savings account, possibly a savings account. We're going to put that into a normal kind of account under the umbrella of a tax tool like an IRA or a health savings account. Do we get a benefit when we put the money in? And then the money will hopefully grow over time with interest that will accumulate or dividends if it was a mutual fund or the growth of the value of the stock, which is basically capital gain growth. Do we have to pay taxes as that money grows? That's the next question. And then when we take the money out, is there a tax impact when we take the money out of the account? So here, when we're looking at the adjustment to income, we are questioning the initial putting money into the account and whether we get a tax benefit when we put the money into account. And typically we could. That's the incentive to be putting the money into the account, although it will be severely restricted. We won't be able to take it out unless we use it for the things that it's supposed to be used for. And otherwise it might have to be included in income or possibly subject to a substantial type of penalty. So that's the general idea. So how do we put the money in there? Well, it could be something that is set up and helped to set up through the employer. So the employer might be helping out to set up the health savings account, even though the health savings account is typically something that could be movable fairly easy by the employee if they were to change jobs. If it was put in there by the employer, then you would think it would be pretty easily reported on the W2 form. So you'd get the W2 form and then in box 12, I believe, you're going to have this W, which would say employer contribution, including amounts the employee elected to contribute using section 125 to your health savings account. So we'll be able to see that and that'll be fairly easy for us to see. So if I was to mirror that, we can say let's go into our wages and let's say that we have a W in box 12 and then I'm going to say let's say that they put in the employer put in $1,000 into the health savings account. So I would have my data input screen here. If I go back on over, that might not be enough to pull in because there's still more information I might need from form 8889. Now also just to realize as I do that, this might be something that should be reduced from income. So that would mean that it might not be included then in the wages. So the wages, if I earned $100,000, maybe we would only have the $99,000 here. And then the Social Security, if it was may or may not be, if it was deductible for Social Security, you'd have the Social Security Medicare. I don't really want to change these because I don't want to have to change them every time. But just realize it should already be reduced properly in the income boxes on the W-2 and then put down here. Therefore, you might not have a deduction, but it already is accounted for because it's been included for income. So that's why the W-2 is kind of nice, but you'd have to be able to explain that to someone. So let's go then down to that 8889 just to check that out. So we're going to go to form 8889. There it is. And so now it's defaulting to the self-only plan, but you might have to add that information in order to pick it up. So it's still populating this form so that we're attaching it, but you can see it's not something that's feeding into a deduction on the Schedule 1 because the income we're imagining has already been reduced to the 99,000 because of the W-2. It's been reported thusly on the W-2. Now, if you set up this HSA and they only put $1,000 in, you might then be able to put more money into the HSA health savings account yourself, which would not be reflected on the W-2, right? So now I can go, okay, well, they put some money in, but they didn't max it out. I could still put more money in there. So let's say I'm going to go jump to the data input. And here's where I put in that it was a self-only plan. So let's say that I then want to max out my contribution. And this is something, by the way, that is something I believe you have until the filing of the return, not including extensions. So in other words, we're looking at tax year 2023. You could set up the HSA, and if you haven't funded it, then you possibly might be something you don't have to do before the year end, which is usually most things you have to do for taxes, but rather up until April 15th of the following year, not including extensions for the filing deadline. So if I go back on over, you can see now it's putting in the 2008-50 here. So if I go then to my form 8889, let's just analyze this a bit. This is the health savings account, the HSA. We're looking at the self-only. So now we have the HSA contributions made for 2023, including those made by an extended due date of your tax return that were for 2023. So here's what the 2008-50. And then we have, if you are under 55 at the end of 2023, and on the first day of every month or 2023, you were or were considered an eligible individual with the same coverage, enter 2008-50. So if you have the family, that's where the 2007-50 comes in. Enter the total you and your employer contribute to your Archer MSA. So we don't have an Archer MSA that's kind of like the old thing. We're onto the new thing. And then we subtract and then enter the amount from line five. But if you and your spouse each have separate HSAs and have family covered under HDHP at any time during 2023, see the instructions for the amount. So if you were age 55 or older at the end of 2023, married and you and your spouse had family coverage under an HDHP at any time during 2020, enter the additional contribution and then add and then the employer contributions made into. So here's the employer contribution was 1,000. So we subtract that out. We have 2,850 that is still available. So the bottom line is you had a maximum because it's a single, it's a self plan, maximum 3,850. Your employer already put in 1,000. That's already given you a tax benefit reflected in the W-2 by reducing line one of the forms. Therefore it's been excluded from income before you even put it into the tax return. But then you contributed this other 2,850, which then isn't reflected in the W-2 and therefore needs to be deducted somewhere else, which is why that's the part that's going to be on schedule one page number two. And then so it flows through here. And then it's going to flow through to the form 1040. So now we're at the 99 and then we've got the above the line deduction 2,850 getting us to the 96,150 standard deduction 13,850 for 82300. If I mirror that in our Excel worksheet, I'm going to say the income went down to 99,000. We need an above the line deduction or adjustment to income, adjustment to income. And I'm just going to scroll down and say, let's pull this down. And I'll just put it right here. And we're going to call, say it's a, it's a contribution to HSA. And let's say we'll put the maxes over here. Max is going to be, I believe it was just so we have that on our notes. The general max unless there's an age limit and so on was 3,850, 7,750. So 3,000, 3,850, 3,850. And this is for so single fam and seven, seven, seven, seven, seven, seven, seven, seven, seven, five, zero. Okay. And then we're going to say to do it, make this black and white. And I can't pull in the full amount there. Because there was an employer contribution. So I'm going to, I'm going to have to data input it and say, okay. Oh yeah, 1,000 went in there by the employer, 2,850. So I'm going to say 2850. Double click in here. I'm going to add that last bit. Pull that into the first page of the form 1040, 99,000 minus 2,850 gets us to the 96,150, 96,150 on the form 1040. 96,150. Okay. Minus the 13,850 gets us to the 82,300. 82,300 page. Numero dose 13,419. So let's just say 13,419. Boom. Okay. So that's going to be that. Now, if, if it wasn't a family plan, well, I mean to say, if it is a family plan instead of a self plan, then those limits change, right? So I can go back on over. I can go into here and say, did you, what if I'm going to jump into this one and say that now it's a family plan to, if I'm not going to change the marital status and whatnot right now, but just to give a general idea if I jump on over now, it's at the 6,750. If I look at my form for the calculation, here we have the 6,750 and they put in $1,000. We have the total coverage of the 7,750 that we could deduct, but the employer already took 1,000 of it reflected in W2 income reducing it by 1,000 in box one, which means that we can still contribute the 6,750. So if your employer, if it's going through your employer and they don't max it out, but they're putting money into it based on withholdings of your paycheck, then this is another area where you might be able to do last minute tax planning, which like the IRA is only going to be something that's beneficial if they have the money to put money into this tax planning. And this is, again, where I think it's a little bit kind of, you know, these IRAs in here, you have the same kind of situations with the 401k. They actually help wealthy people even though they're trying to incentivize people to do kind of the right thing. The argument is they're nudging people to put money away for healthcare and retirement, but in practice what's happening is you're going to increase all of the amounts that you can put into these funds, which only benefit the people that have the money to put this into the funds. So this one's a little bit tricky because notice when you're talking about like a 401k plan, then if you have enough money to put money into the 401k plan, you're just going to maximize that as you put money out, take money out of your account. And if you can still put money into an IRA, then a well-off person might still have the money to max out the IRA or like a SEP in that case. When you're talking about a high deductible health insurance, it's kind of a weird thing because usually you would think that if you were a well-off individual, then you might not have the high deductible health plan and therefore you don't have. So that's why this one's a little bit tricky because you might have the cash flow to put the money in or do the last-minute cash planning, but you're probably maybe working with people that don't have the cash flow and therefore have to kind of manage it through the year because at the year end, you can imagine situations where you have the cash flow that you could put into this if you have the money and you could put money into possibly an IRA if you had the money to help you out with your taxes. But again, you'll need the cash flow to do that and so on. Okay, so that's the general idea. So the general idea with these plans, if you qualify for the plan, you have the high deductible health insurance plan and so on, then the question is, is it something that can be set up through your work possibly making it easier to take the deductions by having them withheld from your paycheck? It being easier to calculate because the employer will take care of the tax consequences in essence by reducing the income in box one of the W-2, which makes it at least easier to report on that side. However, if the employer doesn't do that or they don't maximize their contribution, then you might be able to set up your own health savings account, which you would think would be fairly easy to do by going to your financial institution like a bank and then setting it up that way if you qualify for it. When you put the money in, you get the tax benefit either by reducing line one on the W-2 or if it's not done through the employer by the adjustment to income, which kind of has the same impact on the adjusted gross income, is the general idea. And that is that. And then when the account grows, then hopefully that'll be a tax-free thing as it earns interest. And if it wasn't under the umbrella of a savings account, you'd have to pay taxes as it grows. And then when you take the money out, hopefully you spend it on items that are qualified, in which case you might not have to include it in income, but that's where you have to be very careful to make sure that you're spending it on the proper things. Otherwise, it might be something you have to include in income, which also could be subject to then the tax and the penalties and so on. And we looked at that a little bit when we looked at the income side of things, and that's on the Schedule 1. And I think it's under other income from Form 8889. So you could see the calculation on Form 8889 where you have the health savings account. Part 1 is the HSA contributions. So we're talking about the deductible side, Part 2, HSA distributions. If you file in a joint, both returns, you and your spouse each have separate HSAs, complete a separate Part 2 for each spouse. And I won't go into that in detail right now, but just note, and then Part 3, income and additional tax for failure to maintain the HDHP high deductible health plan coverage. So I won't go into the details on the two individuals, but this is another area where, remember when two people are separate, they're two separate entities, but then they come together in marriage and heart and soul becomes one as well as the taxable entity is now one. But then you've got all these weird things that happen where they still have tax consequences tied to a single social security number and that kind of thing which could come into play at times as well. And also if they're married, you have to be careful of the married filing separate situation because that often complicates the deductibility of things as well.