 And in order to get the income statement, you're gonna need some kind of bookkeeping. There's no double entry accounting system in the tax software because there's no balance sheet, but you may still wanna recommend a client use software that implies or implements a double entry accounting system like a QuickBooks or Zero or that kind of software because that makes your accounting system more reliable and your income statement more reliable. So it also means that we have to double check our number when we do the data input because we don't have as much of a double check with the double entry accounting system. We might talk about more of that later, but the net income in essence is what then flows through to the rest of the form. It would flow through to the schedule one here. As we can see schedule one, which is additional income and adjustments to income. This is the business income or loss schedule C. So that makes sense. That sums up down below. That's pretty straightforward. And it pulls into the 1040. So 1040, we no longer have the W2 income up top, but rather we've got the other income from schedule one. That's all making sense. That doesn't seem too much more complicated other than the fact that we have to deal with the income statement, the bookkeeping and so on with regards to it if we wanna help a client out with that. And then we've got, but then it gets a little funny down here because we also have to deal with the added taxes. So we've got something happening here. That wasn't there before. And then we've got this qualified business deduction. That wasn't there before. And then on page two, we're not only calculating the taxes, but we also have this other taxes including self-employment tax. So that's got messy all of a sudden. Let's first take a look at this self-employment tax. So the self-employment tax is over here on schedule SE. So self-employment, you can think of it as like the equivalent for a self-employed individual as the payroll taxes if you were in an employee-employer situation. So in other words, if you were an employee of someone else then you would be paying social security and Medicare tax as well as withholding for federal income tax. And the employee would also be paying social security and Medicare kind of matching is the kind of concept that they were trying to set up there. If you are self-employed then they still want you to pay into the social security system, right? So how are they gonna make you pay into the social security system? If I don't have any employees, I'm not giving myself a W-2. Clearly I'm the one doing most of the work if I'm the owner of the business and I have no employees. So the IRS says, hey, we're gonna take that 100,000 and we're gonna force you to pay not only the federal income tax but also the social security and Medicare tax. Not only that, but we're gonna force you to pay in essence the employee and employer portion of the social security and Medicare tax. It's not exactly like that. We'll talk more about the calculation later. But in essence, it's kind of like twice the tax on the net income. So the net income of the Schedule C is kind of treated at as though it's your earnings, like W-2 earnings from the employer and as though you're the employer paying the social security and Medicare. So that means it's an added tax. Now this Form 1040, we usually just think about the income tax because that's the thing we're focused on and oftentimes the W-2 has the information of the social security and Medicare but it's already been taken care of by the employer unless they went over the cap or something like that. So there's nothing we have to do but here we do have to do something because nobody else is taking care of the self-employment tax because we're self-employed. So the tax, I won't go through the calculation now, we'll talk about it later but you could see it's kind of a messy calculation and we get down to the 14129 which is significant obviously, which is now going to the 1040 page two. So not only do we have the tax income tax but now we've got the self-employment tax increasing the total tax significantly. All right, so not only that but then we've got this above the line deduction here. See, we've got this 7065. Where did that come from? Where did that come from? Let's go to the schedule one page two this time. There's the 7065, it says it's the deductible part of self-employment tax that came from the Schedule SE. Let's think about that back to the Schedule SE. We calculated, we just determined that the 14129 is our portion of like the social security and Medicare like payroll taxes as though we were the employee and employer of ourselves on the Schedule SE. But they're trying to mirror this situation to match what would happen in an actual C corporation. In a C corporation what would happen is that the person paying the wages would get to deduct the wages, the income, the W2 wages and in our situation, the W2 wages are income to us because we're kind of paying ourselves because it would be like similar to us giving ourself a W2 of 100,000 which would bring the net income to zero. We're just saying that's kind of like our W2 income so half of that tax would be like similar to us paying the withholdings for social security and Medicare but then they also pay the employer half of the tax which we had to employ too but they get to deduct the employer half of the tax when they do that. So now they're gonna try to fix the sole proprietor to mirror what happens on the business side. They wanna allow us to deduct the employer half of the social security tax which is similar to the employer half of the payroll taxes which you would think would happen somewhere on the Schedule SE but you can't put it on the Schedule SE because if I deducted on the Schedule SE that would cause a loop reference because this 100,000 would then be decreased which would recalculate the amount that's gonna be the actual tax and so on and so forth. So we have to deduct it somewhere else and that's gonna be this half that they calculated here so they took half of it, 14, 129, half of that 50%, 7,065 pulls in to page or Schedule 1, Page 2 there's the 7,065 which sums up down below and then that pulls into the form 1040 so now we've got the 100,000 minus the 7,065 gets us to the 92935 AGI adjusted gross income and then we've got the standard deduction that was there before it's the same cause we're still a single filer, no change there but then we've got this qualified business income deduction on form, so the form here is 8995 so if I go to the 8995 qualified business income deduction and this was a rule that came in a little bit a little while ago when they were trying to simplify the tax code but then trying to, again, it kind of came about that they were trying to make the taxes simplified and lesser for the flow through entities like a Schedule SE and the LLC and the corporations and then, again, just like normal they kind of left out or forgot about the sole proprietors as they did that and then they had to kind of fill in the gap with this kind of plug the qualified business income deduction so this deduction is somewhat of a mess but it's a huge component as you can see so this is being used to pull in to calculate the 1040 and here's the worksheet here the trader business income the 100,000 minus the 7065 gets to that 92935 which is the qualified business income which is then what is used to calculate the deduction so hopefully we'll be able to dive into that a little bit more in a future presentation but I just want to point out to now that that obviously adds another kind of weird level of complexity here and then that's going to give us our taxable income which is at the 63, 988 and then page two now we've got the tax being calculated and then of course we already saw that we had this self-employment tax that's going to be included now down below with the withholdings the payment side of things we no longer have the W-2 withholdings anymore that means that we can't just fill out a W-4 and then have our employer withhold the withholdings we have to make estimated tax payments and those estimated tax payments are often another mess especially for new sole proprietors and that's because people when they move from a W-2 employee situation to a sole proprietorship they just don't really even think about the taxes oftentimes for one and number two they don't know how much they're earning because if you're a new Schedule C business you can't actually calculate the tax until you actually calculate your income and you don't know what your income's going to be until the end of the year typically now you might say, hey look, I can just take as I go I might have in the first quarter I might have earned 20,000 and so why don't I just take the 20,000 times the tax rate I'll say 15% or something and then I can calculate my tax as we go well that would work if it was a flat tax but it's a progressive tax so I can't take like 20,000 of earnings and then try to know what tax rate I have to project out what I'm gonna earn on the entire year to see what the actual tax rate should be my actual tax rate that I'm gonna use to calculate my estimated tax payments