 Income tax 2023-2024, filing status tax software example, get ready and some coffee so we can stave off the government attack with income tax preparation 2023-2024. 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 but that's okay whatever because our merchandise is is better than their stupid stuff anyways like our accounting rocks product line if you're not crunching chords using excel you're doing it wrong a must-have product because the fact as everyone knows of accounting being one of the highest forms of artistic expression means accountants have a requirement the obligation a duty to share the tools necessary to properly channel the creative muse and the muse she rarely speaks more clearly than through the beautiful symmetry of spreadsheets so get the shirt because the creative muse she could use a new pair of shoes if you would like a commercial free experience consider subscribing to our website at accounting instruction dot com or accounting instruction dot think of it dot com here we are in our form 10 40 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 forms schedules and instructions at the irs website irs.gov irs.gov hours starting point as usual we have our taxpayer adam tax man just trying to avoid a dang tax man living in 90210 Beverly Hills although we're focused on the federal side of things and not so much on the state side of things here we're going to start off with our point of focus being filing status the single filing status with no dependence on down below and then we have the income being reported we're going to be sticking to the basic income w2 income starting with a round number of 100,000 w2 income no itemized deductions therefore taking the standard deduction of in this case the 13850 so let's jump back over and look at our point of focus that being the filing statuses remembering that the types of filing statuses include married single head of household married filing joint qualifying surviving spouse now although this ordering is basically ordered from least favorable to most favorable that's not usually the way you're going to memorize them you're going to memorize them as saying are they married or not married if they're not married then the worst filing status would be single we're going to try to push them up to head of household if they have the requirements to do that do so which usually requires a dependent for that to be the case if they are married then we're going to try to work on the default of married filing jointly because that's usually the most beneficial filing status but if for whatever reason they want to file married filing separately they have the choice to do that in that case noting that married filing separate is not the same as single or head of household and then if there was a death of a spouse we would have the qualifying surviving spouse possible option after the year of death if they qualify which usually requires a dependent for example okay so let's start over now over here we'll also kind of map this out in our income tax formula in excel so our starting point we have income from a formula standpoint 100,000 we've got the standard deduction which we pulled from our worksheet down below 13850 and that means that we're taking the greater of the standard versus the itemized and so we then have the 100,000 minus the 13850 gives us this 86150 that should match what's on the tax return bottom line of page one in essence the income statement part of the tax return page two calculates the tax at 14266 in this case we plug that number in so there's our 14266 this number is going to populate as the average rate we have no other credits at this point or other taxes the payments that we have paid in 12,000 pulling in from our worksheet over here we're imagining it was on the w2 and then that pulls in here to leave us with a tax due or refund of 2266 and then the software calculated a penalty of $43 to get us to the 2309 that matches over here 14266 the 12,000 w2 that's the withholding that we're imagining was on the w2 and that gets us to the 2309 which is the 2309 here so that's going to be our starting point as the single filer notice that the single filing status is typically the worst filing status right because you can see down here with the standard deduction that if they if they're taking the standard as opposed to itemizing you only have the 13850 as opposed to the 27700 we'll talk more about the standard deduction in detail later but just as a general rule tying to the filing status then that's one reason the single would be the worst the other impact major impact you can have which is a little bit more hidden is in here with the tax calculations right because now you have the progressive tax system taxing at different layers of income and single is usually going to be the worst because the layers of incomes that were taxed at are going to often be the lowest now you might argue well yeah but if you go married all that's going to happen is these are going to double which makes sense because you have two people living together but still that's not usually what happens in real life right in real life you get the people get married because they're taking care of kids or family so it's not likely that the income is actually going to double most likely right because because you're going to have one of the spouses is probably going to be more occupied outside of revenue generation activities that's why married is a huge advantage sometimes especially to upper income individuals lower income individuals might have access to these tax credits which is which is why head of household is often could be a big a big tax status so let's say okay what would move someone up if they were not married what would move them up and taxed us well usually would be that they had a dependent a dependent that would be that would be here now again there's a lot there's some gray area in terms of what would qualify for head of household but usually you'd say okay now we have a dependent and so let's say to do a dependent and we're going to say this is Sam the kid and we're going to say this is going to be on 0 to 25 let's say 2 to and we'll say the social security number but but but but but but but but but but but and it's going to be the sun let's say 12 months a child living with taxpayer will talk about dependent who qualifies for dependent and so on and so forth later but if you see something like this if i go to the tax form and it says okay now it's still single but they have a dependent usually the tax software will give you a diagnostic and say hey look if there's a dependent maybe uh you should be changing the filing status to uh to head of household or like that's something that we should have in our mind as well we should be saying okay those two things should kind of link together and say oh well maybe then they qualify for head of household so i'd go back on over here and say all right let's bring it from single to head of household boom so now we're going to say that we have the status has changed to head of household and down here we have when that happens usually they will be a dependent when you put the dependent on the books it's going to have the social security number and whatnot now because uh the dependent is could have a significant tax implication the iris of course is going to want to track each individual person by social security number so if two people claim the same dependent uh then it's going to cause a problem because the iris already has the number if you file first then it's likely that your your tax return might go through whereas the other person that's claiming the dependent might have the tax bounce back although they can still file paper by paper possibly and then there's going to be an issue right with that whole thing so uh so notice what's going to happen to the to the calculations down here now we're at head of household 20 800 is the one in the middle so if i change that in my little worksheet over here i'm going to i'm going to now say that this bumped up to my 20 800 head of household which gives me in my formula 79 200 taxable income so you can see that's a benefit because it's decreasing the taxable income 79 200 and then if i go to page two i'll let the software calculate the tax 11 131 and then if i go into my worksheet here there we have our our our brackets now based on the head of household which looks like we have you know you have to update the brackets for the head of household and then so we had an impact lowering the taxable income because of the standard deduction and possibly an impact on the changes in the rates resulting in 11 131 of the tax so let's say okay i'm just going to type that in here 11 131 of the tax to do and then we also have the credits that populated from that so this is the child tax credit so this is another huge benefit we'll talk about credits more later but let's add that to our worksheet as we go now so now i've got these other credits now the child tax credit might have a refundable portion to it which we'll talk about uh possibly shortly but let's right now go to the payments and credits where we had the withholdings i'm going to pull this total down on the payments and credits is that the right line on them i want to just do the above the line credits let's do this one so i'm going to add another worksheet i'm going to put that after the income worksheet and i'm going to call it other credits i'll copy this i'm going to double click here and say other credits and then i'm going to format the whole worksheet put in my cursor on the triangle right click format the sales currency negative numbers and then no dollar sign no decimals close it up i'm going to put my cursor on there again and go to the home tab font group and border or bold it and then i'll put up top this is going to be other credits and i'm going to make that a header home tab uh font group i usually just make it black and white to show it's a header and then we're going to say this is going to be the child tax credit and i'm just going to do a basic calculation right now we might do it a little bit more in depth later but let's say this is child let's just say sam and then the maximum credit is going to be uh 2000 so i'll just i'll just plug in uh the 2000 here now we could have multiple children so i'm going to leave some space for later and we'll dive into it in more detail later home tab font group let's say that this is going to be bordered and i'm going to make it blue and then this is going to be the total child tax credit and we'll put that on the outside equals the sum of these boom and then i'm just going to say this is going to be other credits i'm going to sum this up here this is all we have and other credits right now so it's the 2000 that 2000 i'm going to pull into the first page now so this other credits is hard coded i'm going to say that's going to come from this other credits line item so so there we have the credit so this was our tax 11 131 minus the 2000 child tax credit which i'm pulling in from that other worksheet so the total tax is at the 9131 so now we're going to say okay 9131 is the total tax and i can kind of double check that and then my 12 000 of federal income tax was paid 12 000 now we have a refund situation so head of household had a significant impact right so 2869 2869 so that's going to be the general idea i know i'm doing this fairly quickly but just to give an idea now if the income was lower than 100 000 now now if they got if they got married at this point in time then your income is going to go higher you might still get but when it's lower that's when you get this the situation where you might have a tax detriment so let's let's first go back and say okay what if we go back to no dependent sam you're out of here and we're going to say okay and we're going to go back to single status single status and let's say that we roll this back to single is 13 850 and then and then the tax so single 86 150 86 150 the tax on page 2 then would be 14 266 so i'm just going to type in here 14266 and then we don't have any of the credit for other credits that's gone we took sam has has disappeared sam is gone or was never was never happened in the first place because he's going to happen in the future but wait a second we're going to tell the story differently so 2308 2308 okay and then we're going to say okay now they get married so now they get married and so we're going to say all right sam or adam gets married and so we're going to go okay so now we're going to go from single to married filing joint which is generally the case and got married to jane so there is that so okay and then we go back on over so now we have adam and jane no dependence status changed from single to married filing jointly no dependence at this time 100 000 for w2 income now you could say well jane could have earned 100 000 too and that's true i'm not and either one of them could have earned you know but but we're going to imagine now that they got married and they're basically maybe they're going to start a fair i don't know they're going to live on the same 100 000 right so there's two people you have to take that into consideration when you're saying okay what does mean for the taxes but the standard deduction jumped up to 27 700 of course because it doubled right so now we're going to say this jumped up to 27 7 so that means that now our taxable income is only 72 300 72 300 if i go to page number two then the tax also tax tables now significant change to the tax tables because we doubled all the tables too so so now that's a pretty nice deal and so now you're at the eight two three nine so eight two three nine instead of the 14 so eight two three nine is the tax and then the payment was 12 000 so down here payment was 12 000 so now you get this refund of the 37 61 37 61 now again you might say well yeah but they again the the income could be doubled because because they they got married and that and that's true but like i say it's often not the case where it totally doubles because usually one earns more than the other and then and then and then if they do have a family you would think that you wouldn't have equal earnings for both so so you could double it and check it out so that's kind of puts a wrench into the system but that's kind of good because it kind of incentivizes a family structure you would think let's check but let's take a look at another scenario let's say okay well what if what if we were going from head of household and and then you had a dependent so now we had a dependent let's go on over and add sam back again so we had sam as a dependent date of birth we're going to say o 222 social security did a dud dud dud dud and then relationship son okay son and then and then so there we have that and let's add one more uh uh sam and uh we'll just say tim i i don't know date of birth 0505 21 let's say social security number to dud dud uh relationship son okay okay and okay so let's see what that looks like if i go back on over to the form so now they so now they're they're from single head of household two dependents both qualifying children so now and and let's bring the income down let's say let's say the income is at like just say it's like 30 thousand and withholdings are 5 000 so now you got the 30 000 and then the the deduction is 20 800 so we're going to say okay deduction is going to be standard deduction 20 800 boom and then we're going to go okay and then the tap and so that gets us to the 9002 so that brings us to but this income needs to be what did i say the income was 30 000 and that brings me to the 9002 okay and then if i go to page number two the tax is only at the 923 here's the tax rates i let the system calculate the rates so 923 okay so 923 and then we have the the uh the child tax credit so notice the child tax credit is being restricted to the amount of income because it doesn't want to go below zero so now the child tax credit is just going to be the 923 now i could get fancy and try to calculate this but i'm just going to say 923 and just plug it in there because and just say okay i can see why that is because that brings the tax to zero but then you have a 5000 uh of that's the withholding but then you have these earned income credit of 4821 and the additional child tax credit of 3077 so i'm going to go into these in more detail so i'm just yet i'm letting the software calculate it right now but i just want to show you that obviously that's significant to a to lower income uh individuals right so if i was to say okay uh let's go over here and say that's going to be in this line item of payments and and other refundable credits let's just plug those two in i'm going to pull this down and say okay what if we had the the additional child tax credit and i'll make that a header black and white and i'm just going to say child one i will put the names child two i forgot their names already sam and i know them it's sam and whatever let's just add them together right now actually i'll just put them together because i don't want to get into it too much just say 3077 3077 we'll talk about the credit more later and then and then i'm going to say let's pull this down that'll give us the let's say total additional child tax credit is equal to the sum sam and tim that's what it was okay equals the sum equals the sum all right and then i'll make this blue border we'll make it blue and then we also have the earned income credit so i'm going to move this down and i'm just going to say earned income credit and i'll make this black and white black white and i'll get into it more later but i'll just make this blue for now blue bordered and i'll just let the software calculate it we'll talk more about it later 4821 4821 so total earned income credit is going to be equal to the sum brackets of those two so my total payments and credits if i sum out this outer column is now at 1998 pulling that into the first column 1998 could that be right that can't be right that because my withholdings are off let's go back my withholdings now changed to 5000 so now we're at 12898 so now i'm at 12898 12898 so you can see that's a significant quote refund in quote because you didn't actually owe any taxes right uh or that it took you down to this credit took it down to zero and then and then the 5000 was kind of like refunded but then this amount you know is over the top of that now if you if they if if there's a marriage situation then you can imagine that these you might lose those two because the whole the whole structure of the earned income tax credit and the child tax credit uh could could result in so if you had two people then that were in the exact same situation and they're they have this 12898 and then they got married then we'd say okay let's add and say this would be w 22 and let's say we had another 30 000 5000 and then jane is now they're now married married filing jointly and so now we have jane there so then now you're at adam jane uh married filing joint and and they both had let's say they both had well should i add the other two two more kids on it now let's just keep the two kids now they're at 60 000 and you're at the bottom line 32 000 on the taxable income so it does increase the head of household from 2008 to uh to 27 7 and then on page 2 we've got the tax calculated at 3439 and then now there was withholdings of 10 000 and notice there's a significant change in the the additional child tax credit in part because these two interplay with each other right so we have the child tax credit up here the additional child tax credit but notice the earned income tax credit has a significant impact on it as well so we have a refund of 10 561 10 561 versus before we had the 12 12 8 98 let's put them both to get let's let's imagine there was two dependents because they both got married and they both had two dependents so now they had four so they were in the exact same situation child one and let's just say this was date of birth was also 0 to 25 to 2 social security and then daughter let's say and then add another one so child 3 data birth 0 5 0 5 20 21 social security and then daughter let's say and so now and i know i'm doing this quickly but i'm imagining that now we had two people that were in the same exact situation we mirrored over here that got married going from head of household head of household for both of them to married filing jointly and so now they've got the four kids together they doubled their income from 30 000 to 60 000 because they're both working that brings the standard to 27 7 and then on page 2 we've got the tax calculated at the 3439 we've got the child tax credit which we'll talk more about later but it's 3434 to bring it down to zero we have the 10 000 withholdings now and then now we have the earned income credit but it's it's 710 it's significantly lower and then we have the additional child tax credit 4561 so we then have a refund of 15 271 so 15 15 271 versus before we would have had this times two possibly if i did that right i'm not i know i'm not i did this fairly quickly i'm not this is not an extensive snow i'm just showing that it could be possible if someone's getting married where you see a situation usually the marriage is beneficial to upper income individuals why because the brackets are better and the standard deduction generally works but when it gets really kind of messy and when you get into these refundable credits and may not be working out to be be beneficial between the two so you kind of have to you know take that into consideration these aren't these refundable credits can actually work against uh what you would think would be the normal tendency or or incentive of the tax code of marriage being you know maybe preferred in a family structure versus not right and that's kind of so it's interesting and we'll talk more about that later okay so that's so we've gone over we've gone over the the single the head of household and the married filing jointly now i'm not going to get into a lot of detail on the married filing separately they can choose to file married filing separately i just want to point out here that if that were the case though then you would have to make sure that you know if you're in a community property state or not to properly allocate the the income between the two because there could be significant differences as to how you would treat the separate filing if they were if they're in community property states or not but let me just show you this if i mark it over i said married filing separately now now run adam adam married filing separately notice it has to put jane here it's still listing jane so if you check married filing separate enter the name of the spouse because again the tax code still wants to know uh who the spouse is so they can check the other side of basically uh what is going on we left everything else in essence of the same here on page two there could be a significant impact on the credits here uh such as especially the refundable credits because the iris is going to be skeptical of allowing you to take to take credits if you go to married filing separately because the idea would be if if the iris was not skeptical then you could take advantage of it by saying whoever's the higher income earner i'm going to put them here and then i'm going to put put the children on the other tax return so that possibly they can get the earned income tax credit you can see a similar thing that people would try to do if you had a situation where you had uh where you had the itemized deduction if one person has itemized deductions and they're taking the itemized deductions and then they try to file separately so that the other person is taking the standard deduction you can see how that would be kind of manipulative of the tax returns and those are also implications that it might be the case that if they were if they were separate and file and filing as head of household then they then then it might have been beneficial to them in that case from a tax perspective right but when you're married the iris doesn't want to allow you to do tax planning by manipulating the money and the phaseouts between the two people so you're going to lose some benefit so there's a significant difference then if you're single then the question is you would like to go to head of household if you could if you're married then you can't go back to single or head of household unless you get separated or divorced typically your only option is to say married filing joint and that's a choice that you can make and may be applicable in some cases but usually it's going to be less beneficial and it's certainly not the same thing as not being married right you cannot go back you can't say i'm married but i'm going to have the same exact benefits for taxes as if i'm single or head of household because because the iris is going to be skeptical again that you're kind of gaming the system and manipulating the income all right and then the qualifying surviving spouse i won't get into that one well i could check it off if i go back on over here we'll just say let's just check it off here because we're running long qualifying surviving spouse and then the spouse had died right so so now you've got the qualified surviving spouse so what would happen then well if adam's wife died in the year of 2023 then you would think they would still be filing married filing joint or possibly married filing you know usually married filing joint in that case right and and then in the year after if there were qualifying children then then you might file for the qualifying surviving spouse and you can see that if you were to do that you get the benefit of in this case the 27 700 for the for the married filing joint status meaning you get that you get the same benefits as if married even though you're basically not married at that point because your spouse died within the last two years and then on page two you get the tax benefits of of still the brackets as though married even though again that the person died in the last couple of years so that's the general idea so quick recap if they're not married then they would be single or they want to go up to married to head of household but it could only do this so if they qualify typically needing a dependent if they are married then they can't go back to single or head of household unless divorced or separated but would prefer usually to file married filing joint unless there's some weird circumstance where they want to file married filing separate and you want to be careful of those situations noting the rules in the state that you're in whether that be a community property state or not if a spouse dies while married then in the year of death they would still be married filing joint because there would be income or they would be together at least for part of the year and then in the following years the question would be do they bounce back to single or head of household or rather can they get the qualifying surviving spouse which basically puts you in the same status as if married even though you're now basically widowed or widowed or whatever at that point