 Income tax 2021-2022, software example, self-employed health insurance deduction. Get ready to get refunds to the max, diving into income tax 2021-2022. Lassert tax software, you don't need access to tax software to follow along, but you might want to have the Form 1040, which you can find on the IRS website at irs.gov, irs.gov. The starting point single filer, Adam Smith, living in Beverly Hills, 90210, 100,000 W-2 income, standard deduction, $12,550. We got the $87,450 for the taxable income, mirroring that in our income tax equation formula, $100,000, $12,550, $87,450, letting the software calculate the tax on page 2 at the $15,15, and that will be calculated here at the $15,15, as well, or we'll show it there as the $15,15. We're going to open up some more forms. We're focused now on the Schedule 1, Page 2, so Schedule 1, Page 2, Adjustments to Income. We're looking down here at the self-employment tax line number 17. However, to look at line 17, we're talking about a business type of situation most commonly applied to a schedule C, so likely having a schedule C, but you can see other situations like a flow-through partnership or possibly a S-Corporation, but that's a little bit more confusing, the S-Corporation, because they also have a W-2 kind of situation on that flow-through entity, because that's the way the IRS typically likes to collect the self-employment tax or the social security and Medicare in that instance. So be careful with the S-Corporation. But in essence, you can see, well, if there's going to be a calculation of self-employment tax, this might then be a question that comes up for you as to whether or what's going on with the insurance type of situation and is there the ability to take a deduction related to it. So let's go through the whole scenario again. I'm going to close this up for now. I'm going to go back to the first page of the 1040. I'm going to move this 100,000 to schedule C, so that we can imagine we then have a schedule C system instead of W-2. I'm going to go back on over and delete the wages here. We're going to go then into the income schedule C. And let's do it this way this time. I'm going to say that the income was 120,000 and then the expenses were 20,000 just so we could see the net income calculation of the 100. And then I can go back to the forms. I can look at the schedule C, which is an income statement. 120,000 minus the 20,000 gives us that 100,000. Now there's a bunch of stuff that kind of happens when we add this business entity and some of it is relevant as we try to think about the possible deduction for the insurance because we have a similar kind of situation. You always got to kind of think about this dynamic is that when you think about the employee and employer situation for a corporation what happens is you possibly could have a deduction related to the insurance. There's often a benefit of an employee having their insurance basically provided through the employer and then you got a deduction. This is a similar kind of situation as we saw with the self-employment tax which is trying to mirror in some ways the payment of the self-employment tax is if you were an corporation and an employee-employer type of situation in which case as we saw the employee and employer well in a corporation the employee and the employer pay a portion or a half of the self-employment tax social security and Medicare. We saw in a prior presentation that in that situation we got the 100,000 the net income the government treats basically the self-employed individual even if we don't have any employees as kind of the employee of ourselves and the employer of ourselves charging us basically payroll taxes on the employee and employer side which we can see calculated on Schedule SE. So if you see Schedule SE that means that you have some income in essence that the government is basically seeing you as both the employee and employer and then any other benefits that might be involved or similar to that situation in a C corporation situation like insurance is where you could possibly see a mirroring type of transaction happening for the self-employed individual for any of this kind of self-employed income. So if I go to the first page of the 1040 and then go to page 2 of the 1040 there we saw that 14129 added on to the tax the normal income tax that's being calculated now and half of that's going to be deductible. So now if I go to Schedule 1 and I go to page 2 so now we've got the 765 half of the self-employment tax being deductible trying to mirror once again the employee and employer kind of side of things if it was an employee-employer relationship in a normal corporation. So now that that's set up you could say okay maybe I qualify now for the self-employed health insurance deduction and you got to look at other things you got to say okay well did you have access to the health insurance by some other means possibly you have W-2 income as another on your other income and your Schedule C business is a side job and it's not all of your income and you have the capacity to get the insurance through your W-2 income then the IRS would generally think that that's the way you would go or if married then do you have the capacity through your spouse possibly to get covered under a plan through employer so you got to take those into consideration. So but if you're doing a tax return and you see self-employed income then that's going to take you a step further to want to question what exactly is your health insurance payment situation or do you have access to health insurance how are you paying for the health insurance and so on so I'm going to jump on over to this and let's go into the health insurance and I'm just going to put my trustee 1,000 there just to test it out and then go back on over to the forms so there's the 1,000 that pulls over to the forms as well so now if you have this item here you would expect that you would also have the half of the self-employment and that totals up then to the 8,065 pulling over to the form 1040 where we've got the 100,000 8,065 adjusted gross income at the 91,935 standard deduction 12,550 and then we've got the qualified business income deduction which we might talk about when we get to the Schedule C business getting us to the 28,427 and the taxable income of the 63,508 and then on page 2 we've got the tax calculator for the federal income tax and then we've got that added tax which is going to be the self-employment tax that's being tacked on so if I was to mirror all this on my form over here to try to understand it and recalculate it I could say okay my income is not coming from the W-2 it's coming from the Schedule C I could put the income statement in here again but I might just want to just put the summary here and if I wanted to do another worksheet to calculate the income then I might do that in a more complicated worksheet so I won't get into that now that flows through to page 1 and then we're going to have the deductions for the self-employment tax so adjustments to income let's do the tax first the tax is going to be an additional tax of the tax here is that the right number on the additional tax I'm just going to plug it in here we could recalculate it but I'm just going to plug it in at the 14129 so 14129 and that pulls in to the first page so that pulls in right here 14129 in the added tax and then I'm going to go to the adjustments so the adjustments to income we've got the adjustment for the self-employment which is going to be equal to and I'm going to pull it over from the additional taxes that 14129 divided by 2 because half of it's going to be deductible and then we've got the health insurance so now we've got the new thing which is on schedule 1 page 2 which was the deductible part of self-employment not that it was this one self-employed health insurance so I'm going to put that in here self-employed health insurance and then you would probably put the full amount which I'll put the full amount 1000 here this isn't half of it this is the full amount and then I'm going to put some brackets around it make it blue and then summing that up looks good so these two adding up to the 8065 that pulls over to the page 1 so there's going to be the 8065 getting us to the 91936 so if I go back to page 1 you can see how that's calculated the 91936 to 12550 getting us to and then you've got the qualified business of the 15877 to the taxable income of the 63508 so if I go back on over here 91936, 12550 and then we've got the qualified business income deduction which I'm just going to pull from the software at this point we might get into that more detail later that's the 15877 15877 our focus isn't there right now however that gets us to the 63509 so there's the 63509 depending on the software to calculate the federal income tax because it's the progressive tax system 9724 so we've got the 9724 so there's the tax and then there's the other taxes which is the self-employment tax gets us to the total tax of the 23853 so there's the 23853 just to get an idea of how all the things that are kind of impacted and again if you kind of work that through with an excel sheet forcing yourself to do the calculations in a more transparent way from a sheet that you kind of built then that often helps you to internalize this stuff a bit more understand it, feel more comfortable be able to explain it