 Income tax 2022-2023, other itemized deductions tax software examples. Let's do some wealth preservation with some tax preparation. Here we are in our example Form 1040 populated using LASERT tax software. You don't need tax software to follow along, but it's a great tool to run scenarios with. You can also get access to the Form 1040 related forms and schedules at the IRS website, irs.gov, irs.gov, starting point single filer. Support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Mr. Anderson, 100,000 W2 income, 12,950 for the standard deductions, getting us down to the 87,050, mirroring that over here on our tax worksheet calculation. And then we're letting the software do the tax calculation on page 2, 14774, 15,000 withheld, getting us to the 226, and mirroring that in our worksheet, 14774, 15,000 withheld, 226. We're mainly concerned, however, with the top part of the equation looking at the income tax or taxable income calculation. So let's go back to that first page. We're focused down here on the itemized or the standard deductions. Remember, we only take the itemized deductions if they're greater than the standard deductions. However, we could have an exception to that general rule. There's a general rule in essence if we have a qualified disaster type of situation, which we talked about a little bit in a prior presentation, but we'll touch on here. Otherwise, it's usually the case that these other deductions are probably not going to be the thing that pushes people over. The main thing that pushes people over is the home purchase. And that means that you might have a loan related to it, which causes mortgage interest, deductible, and then the property taxes, which are the two big ones. We'd have to clear 12,950 single, 25,900 before we benefit. Let's check it out on the Schedule A to see it in more detail. And then the big ones are the taxes and the interest here, but we're focused down here on the other itemized deductions. So the one big one that could come into play, which will be unique to a particular area or a particular disaster, is the qualified disaster. And if there is one or any kind of federally declared disaster, which may be leveled up to a qualified disaster, and we talked about that more in a prior presentation, so we'll just touch on it here. But you can do more research by looking up the disaster on the IRS website, possibly the FEMA website, looking at the instructions from Form 4684 and then diving into more detail on the specific problem that may have happened in your particular location. Now remember, if it's just a qualified disaster, then it might be up here in the casualty and theft laws. I'm sorry, if it's just a federally declared disaster, it might be up here. And then if it's a qualified disaster, it might be pulled down here into the other itemized deductions, where even if you're not clearing the standard deduction, it might still have a benefit. So let's give a quick recap on that. This is coming from Form 4684. So if I scroll down to 4684, 4684, we've got the casualty and theft losses. That will typically be populated in a form that's going to be like disbursements, like a schedule D for the capital gains. And I'll just put the property again. The date acquired, I'm going to say is negative 010122, or let's not say 22. Let's say it was sometime a few years ago. Two zero, date sold, the date of the disaster 061522, let's say sales price zero, the cost 10,000. Same example we saw before in the prior presentation. So there we have it. And then I'm going to go to the casualty and theft information and say it was, let's say, a fire. And then we would pick the designation, personal property disaster that happened. And then there's a distinction between the qualified disaster and the non qualified disaster. So there's a difference in the reporting between those two. I won't pick the actual code right now. We'll come back to that in a second, but I'm picking non qualified at this point. Fair market value of the casualty, I'm going to say is less than the cost. And I'm going to say we got re-encompensated for insurance. Fair market value determined, safe harbor insurance of 100 or 1000, I'm going to say. So let's just see what that populates in the software. So I pulled back on over here to 4684. And you can see it's basically taking the rule for a loss that's a federally declared disaster, but not qualified, I believe, is the way to state it. And so we've got the $100 deduction, but there's also that 10% of the AGI, which basically wipes it out, which means it's not being pulled over here to the schedule A. Now, I'm going to adjust that. I'm going to bring the income level down, let's say, to 50,000. Let's bring it down to 50,000. And then if I go back on over, you would think that it would pull over now, but it's still not pulling over. We'll pull over, we'll pull over, pull over. Because it's going to be limited. So if I scroll down, I could see it pulling over at 2,900, but I'm not over the threshold to itemize. So it's not pulling, it's not helping at that point in time. However, if now I say, let's pull it back up, I'm going to say, let's pull my income back up to 100,000. Now it's not populating here at all, but now I'm going to say it's a qualified disaster, which means it's going to move it from the casualty and theft losses down to where we're focused, other itemized deductions. Let's do that. So now I'm going to go back into my disbursements, and I'm going to say that it's now a federally declared qualified disaster. Now note that you would want to pick the actual disaster, make sure that you're doing your research to drill down on how to properly record this for the unique area that you're particularly in. Your tax software should have the information in it, because it was declared and it might have a FEMA code and whatnot that you can then tie in and do more research on for that particular issue. But just to see the general flow, now I'm going to flow it back on over, and you can see that we have the form 4684 is now being populated, calculated a little bit differently for the qualified disaster. We don't have that 10% of AGI thing going on. We get to the calculation of that 7,500 pulling into the Schedule A, but now it's down here on the other itemized deductions. And even though I wasn't itemizing, it basically took that 7,500 plus the floor of the standard deduction, the 12,950 that normally I have to clear before itemizing and just adds it in there so that I basically get the advantage of taking the net qualified disaster even though I'm not itemizing. So that's huge. I mean, that could be a big deal and that pulls on over to the first page. So that's kind of an exception to that general rule that you'd have to clear the itemized. It's itemized. It did clear the itemized deductions, but it did so by adding the 12,950 to the itemized deduction. So you have to kind of be aware of that in the specific area. So if you have a qualified disaster or a federally declared disaster of any kind, you probably want to drill down and look at the specifics on how to calculate that unique situation. It's unique because every situation will have its own code, but the general rules for a qualified disaster and a federally declared disaster will generally apply if that category had been applied to whatever disaster you're dealing with, but you want to drill down on that. Okay, so I'm going to undo that. Let's say let's remove that craziness. I'm going to say let's delete that out of here and that puts us back to where we were before. So now we've got the 100,000 and the 12,950. Now let's imagine the other kind of common one in this area, which is that gambling loss situation. Now remember in practice, you might have some clients that like to gamble a lot. And so you want them to be aware of collecting their losses so that if they have any winnings or when they have any winnings because eventually you will have winnings, so you would expect the losses to be greater if you're doing gambling at a horse track or a casino or particularly a casino or something like that. So you want to be tracking your losses so that you might be able to get some benefit from them, but you're probably only going to get a benefit from them if you're itemizing because the gambling losses themselves aren't usually going to kick you over. So remember the general idea of a loss from a natural loss for an income tax perspective would be if it was something to help you generate revenue, it would be a legitimate loss for income taxes, which you can see on the Schedule C for example, which is basically an income statement with income and then expenses. These expenses are the most natural kind of thing that you would expect from an income tax system to be able to deduct because it's fair to tax people on the net income, not the gross income. But when you look at most people that have W-2 income, the thought process is that the employer is taking care of the expenses and therefore all the deductions that we usually look at, these Schedule A deductions are actually kind of incentives, often time that aren't like natural deductions that you would expect in an income tax type of system. Now with gambling losses, you might say, hey look, I'm trying to earn money through gambling. I should be able to deduct the expenses, which kind of makes sense, but it's not really something that the government wants to incentivize and it's not like an act that you're doing for profit generally over here. It's kind of more like a hobby or a specific area, so therefore you don't typically get the deduction over here, but you might be able to get the deduction on the Schedule A, which is of course much worse because you'd have to be clearing the itemized deductions before you can take that. Other times you might be dealing with people that just basically went to Vegas and they happened to win something and they got a W2G or something like that. In that case, same kind of thing applies. You only get the losses up to the winnings and it's a Schedule A type of thing. So the situation would be, as we saw before, they would probably have a W2G of income that's on Schedule 1. We'd have to say, okay, now they had gambling winnings, W2G. I'm just going to say, okay, W2G winnings, let's say 5,000 or whatever. They didn't withhold anything, let's say. And now we've got that included in income and the question is whether they're going to say, yeah, but I spent a lot more than that much maybe they might say on gambling. Maybe not 5,000, I don't know how much they spent on gambling, but depends on what you're doing. So I've watched the movie Rounders and that's nothing, man. The swings are huge on the poker table. But in any case, then if I go to the Schedule A, we can have the losses over here. If I jump to, that won't let me jump to. Let's go over here and just go deductions for Schedule A, miscellaneous itemized deductions. And there we have them, the gambling losses. So gambling losses, actually that's an override right here. It goes in the same area as the gains. So I can put them in here, the gambling losses. So there they are. All right, let's say I lost like 8,000. I spent 8,000 to win 5,000. Well then if I pull that on over to the Schedule A, it's going to cap it, gambling losses to the extent of the winnings. Notice it writes it in here because there wasn't like a, just like a category for it writes it in here, 5,000. But that 5,000 isn't enough to clear the 12,000 itemized deduction threshold. So if I go back on over, then it's not being pulled over here. Obviously if the losses were less than the winnings, then it would take like 4,000. It would take the 4,000 up to cap at the number of the winnings. So if I go back down, there's the 4,000. So clearly the thing that would push people over to being able to itemize are the interest on the home. So if they own a home, then their gambling habit, maybe they can support their gambling habit more because they can take the deductions. So we're going to say then we've got, let's say there was 12,000 here and then the taxes, we've got real estate 3,000. And so then if they're already itemizing, then it's going to become more relevant to pick up those gambling losses. If they had gambling winnings, they can pull into the first page of the 1040. And so the general idea is if you're dealing with someone that gambles a lot, then you might want to tell them that, yeah, you should be tracking your losses, especially if you're itemizing so that you can take the losses. And if you gamble a whole lot, then maybe the losses will be sufficient enough to kind of push you over to itemizing. But usually they're not because they would have to clear the 12,950 or the 25,009. So if they don't own a home, they might not be able to do that. If there's someone that doesn't gamble a lot, but they're just going to Vegas and they're going to go gamble, then maybe, you know, you want to say, well, it might be worth holding on to your losses, receipts of your losses or something like that in the event that you happen to get just one windfall win for whatever reason, so that you might have the information to support the losses. Because remember that if you get audited for the deduction of the losses, they're going to want to know the evidence of the losses. So then the question is, is it worthwhile for you to track the evidence of the losses if you're going to Vegas or something? Or if you're doing some kind of gambling where you might be able to deduct the losses if you happen to actually win something and it kind of depends on how much you might win and whether or not you'll be able to deduct the losses and whether or not you are itemizing. If I put that over here on our worksheet over here, by the way, we had gambling winnings before, I thought. Did we have gambling winnings before? On other income, maybe not. So let's just add schedule one gambling winnings. Is that how you spell gambling? I'm going to gamble that that is correct. It is correct. I win. I didn't put any money down. Dang it. I'm not that good at gambling anymore. Anyway, so let's say, what did I say it was? We won 5,000 and then we'll say that this is boom. And let's put some borders around this gambling winnings that would pull over to the 1040. And then the losses would be part of the itemized deductions. So if I went into the schedule A in our worksheet and we said, let's say we had gambling, it's casualty, other items. Let's just add it here. I'm going to add some space. Give me some room, man. Crowd in me. You're crowding me over here. All right. So we're going to say this is going to be gambling losses. And then let's say that was 4,000, we said. 4,000 total, total other itemized deductions. Summing that up on this side. Boom. Chaka-laka. And then is the spelling okay? Medical. Medical. Change it. Change it. Okay. I wasn't even checking that part, but whatever. So that only adds up to 4,000 right now. So it doesn't pull over. So now it's not over. So we would be taking the lesser of still the standard. But if I had my other ones here, the mortgage interest, which I said was 12,000 real estate taxes, which I think I said with 3,000. And then the state taxes are going to be calculated. I'll let the software do that for me. 1,017. 1,017. 1017. That brings us up to the 20,017. Scrolling down 20,017. Pulling over to the page one of the 1040, 100,000 minus the, or plus the income, 105 minus the 20,017 gives us the 84,983. So let's see if that matches up. 105 minus the greater of 12,950 or 20,017. Gives us the 84,983. So there it is. So there's just an example. I won't get into the second half of the tax calculation at this point because we're really kind of focusing in on that first half of the formula. We'll get into that second half in future sections, which will be great.