 Income tax 2022-2023, self-employed health insurance software example. Let's do some wealth preservation with some tax preparation. Here we are in our example Form 1040, populating it with 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 schedules and forms at the IRS website, irs.gov, irs.gov, starting point as usual. We've got the single filer, Mr. Anderson, no dependence. W-2 wages, 100,000 standard deduction at the 12,950, getting us to the taxable income, 87,050. We're mirroring that in our income tax formula, which we may or may not use this worksheet as we go forward. But here's the 100,000, there's the 12,950. 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. The 87,050, we've relying the tax software to do the calculation. For the tax, which is on page 2 of the Form 1040, 14774, 15,000 withheld, gets us to the 226,000, which we're mirroring over here in our equation. Okay, that said, let's go on back and run the scenario where we're going to have another situation where we have income from a business, income from the business. So let's just look at the differences. I'm going to imagine a situation where we don't have any income as a W2 income anymore. And we just have the income from the business and look at all the different changes that will happen, including the change we're focused on this time, which is the deductibility possibly of the health insurance. So let's see how that would work. I'm going to go on over and say, let's remove the W2 income. And let's just say that's gone. Let's just, we'll just delete it this way. Boom. And then we're going to go into the Schedule C and say that we have then I'll just populate the income side of things. Let's say it was gross income 120,000. And then we had expenses for advertising of 20,000 just to get some subtraction in there. So that should give us 100,000 of income pulling it over. And then we have the Schedule C. Now, obviously I didn't populate a lot of the other stuff to go through the Schedule C in detail. We'll talk about it later. But the general idea is it is an income statement in essence, income minus expenses. We could see some of the added kind of confusion just with regards to bookkeeping to implement or input the income statement into the system and a client's possible need for bookkeeping help just with that. Just also note that if you take on clients that have businesses, you're also going to run into most likely the mileage method for the car, home use of the office and whatnot. So we'll dive into some more of this stuff when we get to the Schedule C stuff. But just be aware when you're trying to sort out what kind of clients you want to deal with, you know, business clients are going to be a lot more complex. That gets us the 100,000 net income that pulls into the Schedule 1. As we would expect, there's 100,000 for the additional income and adjustments to income, which pulls into the 1040. So now instead of having the 100,000 up top, it is down here on the information that came from the Schedule 1. That kind of makes sense, but it doesn't stop there. The fund doesn't stop there. We also are going to have to calculate the taxes, self-employment tax. So we talked about that so we can see then here's the 14129. That's over and above the income tax, which usually we don't have to deal with when we're dealing with clients that have W2 income because they have the employer dealing with their social security and Medicare taxes. Here we have to calculate the employee and employer portion on the net income, which was in essence that 100,000, although it was just adjusted a little bit. And that goes then to 1040 page 2. So we've got the tax calculated, but we also have this other tax of the 14129, which is another added issue. We also, as we saw in a prior presentation, get half of that tax as we can see here as a deduction, marrying what would happen on the corporate side of things where the employee pays half the tax, the employee pays half the tax, but the employer gets to deduct the items. And so we should get to deduct this half right here, but we can't deduct it on the Schedule C because we have to get to the net income in order to calculate the tax. And that would be a circle reference. So they put it over here on the Schedule 1, page number 2. And there's the half of the deductible portion of the self-employment tax. Now, on top of that, we talked about in a prior presentation a calculation possibly of a SEP or simple as types of plans that could be set up for a sole proprietor. So that's another thing that will typically come up if you deal with clients that have their own businesses, then you have issues with regards to they don't have access to a 401k plan possibly from a W-2 employee if this is their only business. So you might have to deal with possible planning to be able to set up a 401k, but that's usually more complex. So a simple plan like a SEP or a simple or something. And then you've got the health insurance situations. And so now the question is if they don't have access to any other kind of health insurance, then you should be able to get a benefit you would think for the health insurance here. And then your first thought would be that, well, shouldn't the health insurance be deducted on the Schedule C? So that gets a little bit messy because we're not putting it on the Schedule C over here. It's pulling over to the Schedule 1. And you can kind of imagine why that might be the case, right? Because if it was on the Schedule C, then you'd get to deduct, you'd get to lower your income over here on the Schedule C, which means you'd be paying less social security taxes. So the fact that they put the health insurance possibly on Schedule 1 isn't going to have a benefit for your social security taxes, although it will have a benefit for your income taxes. So that's what we end up with. So we're on page 2 here. So I'm going to jump on over and we'll say we paid the health insurance. And I'm just going to say boom, employer identification number. So I'm just going to say 10,000 here for the health insurance. And then these things are going to be populated or added up. So if I was able to deduct that, that would be added up down here, line 2635, 652, pulling over to page 1. And that is being pulled into this 35652. That gets us to our adjusted gross income. And then we got the standard deduction. And then we've got this qualified business income deduction, which is a whole nother kind of issue with regards to the Schedule C. And so I won't dive into it in detail now. And that gets us to the taxable income of the 41118. So we just want to show how all those kind of things are kind of connected. And the bottom line is that if you're dealing with Schedule C business, then there's some of those things that you're going to have to do, which will be possibly bookkeeping related, possibly data input kind of related, multiple items on the tax return, and possibly some planning related items with regards to being able to maximize the benefits for tax benefits, as well as social security tax versus the income tax and health care and whatnot. And with regards to the health care, then if you have the capacity to get health care elsewhere, like through the employment, then that could limit your capacity to get your choices on health care. Because I think this is something that the IRS kind of grudgingly does. They kind of like would like the health care in essence to go through like an employer type of situation. So if you have capacity to get health care from the employer or even from a spouse's health care system, then you basically have the ability to do that and that could limit your ability to take the health care here. If you have self-employment income, that's going to be this item. That's when you're kind of thinking that the government is treating you as if you're an employee of your own business, because you could see what's happening here on the Schedule C. You've got the net income, and now we're calculating not only the federal income tax, but the social security and Medicare taxes for basically the employer and employee portion. So they're treating you like your own employee and employer in essence for the payroll taxes, which is the equivalent here of the social security taxes. And that's what leads into sometimes these other complications with some of these other benefits that are on the adjustments like the health insurance and the half of the self-employment tax. So the bottom line is if you're subject to the self-employment tax, then you might be able to then get access to something like the health insurance deduction. So in other words, a Schedule C, clearly, if you have income, you'll have the self-employment tax. Then you've got to think about if you have other access to the health insurance. With a partnership, it's a flow-through entity. An LLC is a flow-through entity where usually the money flows through from an LLC tax return or partnership tax return. But you still end up calculating the self-employment tax on over here. So you're paying your self-employment tax on the flow-through entity. The S corporation is where it gets a little bit messy because with an S corporation, the flow-through from the S corporation into your tax return may not be subject to self-employment tax at that point because what the government tries to do is force you to pay yourself. Even if you set up a S corporation with just you, they force you to pay yourself W2 wages. So now you've got a situation where you're like an employee of your own business under the S corporation and then the health care kind of follows along. You've got to think about how the health care deduction will follow along with that scenario, which is a little bit different than a scenario like a Schedule C where you calculate the self-employment or even a flow-through entity like an LLC or a partnership, which is a little different than the flow-through entity of an S corporation. And notice if you have a loss too, then you're going to be limited most to the health insurance. So for example, if I said the Schedule C, let's say that we didn't even have a loss, but we were limited, we only had 30,000 of income. So that means, or let's say we had 25, so we only had 5,000 of net income on the Schedule C. So we only have 5,000. And then if I go on to the Schedule 1, we have the 5,000 pulling over page number 2. And now the self-employed health insurance has been limited here, as you can see. So you've got the 10,000, the earned income minus the deduction, so on, limits it here. And if I say that there's a loss, if I say that this is going to be, let's say this was 10,000, and so now I have a loss on the Schedule C, a loss on the Schedule C. We know that the loss might be able to be pulled in to the 1040, but it's resulting in something that's going below zero here. So we wouldn't have any taxes, but we still could have other benefits possibly. Well, if you have any case, if you had W-2 income, the loss could be beneficial there, but notice over here on page 2 that we no longer have the calculations for the self-employed health insurance deduction, because it's limited. So that might be another reason, kind of they put it here instead of on the Schedule C, because now it's going to be, you can't take it. It's not going to help you to get a further loss that you might be able to take against the income. You're limited in that way as well.