What Your CPA Wants You to Know
A podcast for entrepreneurs! We are a husband and wife team running our CPA firm together. We know just how difficult it can be to take your business dream to a reality. Our mission for this podcast is to guide, empower, and educate entrepreneurs in an easy-to-understand way! We want business owners to have the information that they need when they need it, AND without the hefty accounting invoices from a CPA! Follow along for practical advice, tips, and tricks from a CPA who knows what it is like to run a business, and strategies to keep your business thriving from an MBA! We will also show you how to run a business while keeping your family and sanity intact along the way!
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What Your CPA Wants You to Know
87. Debunking Common Tax Myths: What You Really Need to Know!
Join us as we challenge common tax myths that we hear often from clients. We explain why your CPA doesn't need a collection of every single receipt, thanks to the magic of bank statements, and how the progressive tax system really works.
Listen to this quick 10 minute episode to learn what's true and what's false (& impress your CPA this tax season)!
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Your money you get back from the government when you file your tax return is called a return.
Speaker 2:False. Welcome to what your CPA Wants you To Know.
Speaker 1:Tax and accounting help can be expensive, so we've created this podcast to help guide you through it all and make you feel like you have a CPA in your back pocket.
Speaker 2:I'm Carson Sands.
Speaker 1:And I'm Taryn Sands.
Speaker 2:I'm a CPA with over 10 years of experience helping people start and grow their businesses.
Speaker 1:And I'm an MBA with a specialization in marketing and entrepreneurship. Taxes suck and we want to make sure you don't pay more than your fair share.
Speaker 2:We're here to share everything your CPA wants you to know in a fun and easy to understand way. Let's get started.
Speaker 1:Let's do it Today. We are not accountants, we are actually myth busters.
Speaker 2:Myth busters. So that sounds way more exciting than most of our episodes, but it's still about accounting, so if you ever watch the show Myth Busters, you know that they're at least as nerdy as accountants, maybe even more. So, you know, I think we could fit in.
Speaker 1:Definitely makes sense. Today, we're going to bust all of the myths that we hear time and time again, either through clients or submitted on our Instagram page, about what people think is correct but actually isn't, with filing your taxes and things like that. So these are things that were very easy for us to make a list, because it just seems that most people get the same things wrong. The first myth we have today is you need to give your CPA all of your receipts in order to deduct things on your tax return.
Speaker 2:False. You do not need to do that.
Speaker 1:You do not need to give your CPA your receipts and he or she likely does not want them.
Speaker 2:Don't need them, won't use them, won't look at them.
Speaker 1:The only reason that you would need those is if you were to be audited. They might ask you to pull some of those out. But for us to do your tax return. We are not the IRS. We are not looking at every single receipt. We do not need your receipt, so save those this tax year.
Speaker 2:And typically your checking account bank statement will be a much better use than your receipts for any IRS audit, unless you were paying cash for things, and then in that case you definitely want to keep the receipt. But other than that it's pretty easy to go down your bank statement and say, okay, I spent this much money at this place, and so on and so forth, and that's just as good as a receipt.
Speaker 1:Exactly so. Myth number two all of your income is taxed at the same rate, meaning if you're in a certain tax bracket, then that's just how much taxes you pay on your income.
Speaker 2:False. That is not the case, and it's a good thing that it's not. People are often worried that if they are right at the top of their tax bracket, if they make one more dollar, then their taxes will increase so much that they end up with less money than if they didn't make that extra dollar. That's not the case. The way the tax brackets work are and I'll just give you an example because it will be way easier to explain it For 2023, the tax bracket was that you pay 10% on your income up to $22,000 if you're married, and then you pay 12% on every dollar above that, up to $89,450. So what does that mean? Does that mean that if you make $50,000, you pay 12% on all your income? No, you pay 10% on the first $22,000, no matter what, and then you don't pay 12% on anything except everything from $22,000 to $50,000. So you're only paying that higher tax rate on $28,000 of income, not the full 50 that you made.
Speaker 1:So that is false because we have a progressive tax system and you are not just taxed on where your highest income fall.
Speaker 2:Right. So even the highest earners will still pay only 10% tax on the first $11,000 they make, and then 12% tax on the next $33,000 of income they make approximately, and so on all the way up the tax brackets. And they only pay 37%, which is the highest tax rate right now, on any income they make over $578,000.
Speaker 1:Right. So if you didn't know that, now you know. Now this is a big one that we see all the time, and this one had to be included in this episode. Okay, myth number three your tax entity is LLC.
Speaker 2:False LLC is something that you file with your state, usually to create a legal classification for your business. An LLC can choose to be taxed as an S-corp or a C-corp, or a partnership or a sole proprietorship. So an LLC is not your tax entity. Your tax entity would be whether you're a C-corp, s-corp, partnership or sole proprietorship.
Speaker 1:An LLC is not for the IRS, that is just for legal protection. And so if your CPA or new CPA says, okay, like what is your business, and they're asking you what you file, they're not really asking you do you have an LLC? Okay, myth number four they're not really asking you. Do you have an LLC? Okay, myth number four self-employed people pay taxes the same way that everyone else pays taxes.
Speaker 2:False. Self-employed people do not pay taxes the exact same way. They pay income tax, the same way that everyone else does, on their net income from their business, but they also have to pay self-employment tax. The reason for that is that there's no payroll taxes on any of the income that they're earning through that business, so self-employment taxes takes the place of payroll taxes. It covers your social security and your Medicare, to make sure that you're able to get those when you reach retirement age.
Speaker 1:This is shocking to many new business owners because that is a pretty big percentage on top of your normal income taxes that you're paying. So they're pretty shocked to find out that they also have to pay that 15% on top of whatever taxes they're already paying.
Speaker 2:It can be pretty shocking for two reasons when you start a business. I mean, one is you're used to the withholding covering all of your taxes, so you never really owe if you've always had a W-2 job. But the other reason is that, yes, you have your income tax rate plus your self-employment tax rate, so you're used to being in the 22% tax rate. You think maybe you make $100,000, you're going to owe $22,000. Wrong, you're going to owe about $37,300.
Speaker 1:The next myth is that you can deduct your working expenses as a W-2 employee on your tax return.
Speaker 2:False. Now this one is only false as of recently, because the Tax Cuts and Jobs Act took away the ability to deduct what they call unreimbursed employee expenses, and these are just expenses that you can deduct as a W-2 employee, that your boss or your company does not cover. This has caused a lot of problems for several industries, for example, pipeline welders. They spend a lot of money. Usually they're required to spend this out of pocket, but if they're paid as W-2 employees instead of contract labor, then this causes a major problem. Because it's not only that they're not allowed to deduct those expenses, there's not even a form to deduct them on anymore. They took it away.
Speaker 1:Yeah, it's really just not possible for us to do that, and I think some people are shocked by that, because they did used to be able to do that, and so when we go, oh no, we can't, it's more like they think maybe we don't know how to, but really we just can't anymore.
Speaker 2:We've been telling people for a couple of years ever since the Tax Cut and Jobs Act changed the rules on that that you need to tell your employer that they either need to reset everything up so that you're a contractor if that's possible within the law, and if it's not, then they need to pay for the things that are required for you to do your job. It's not fair for you to have to pay them out of pocket when you don't get to deduct it. If they pay it out of pocket, they get to deduct it, so that makes way more sense.
Speaker 1:And the last one for today, one of our very favorites your money. You get back from the government when you file your tax return is called a return.
Speaker 2:False. It is not called a return, it's called a refund.
Speaker 1:We always joke about this because people often ask us where's my return? Well, your tax return is pieces of paper.
Speaker 2:We already filed that.
Speaker 1:Yeah, that has been filed with the. Irs. But if you're getting money back, it's called a refund. And if you ask your CPA for your tax return, they might not tell you. But they're definitely going to get a little laugh every single time they hear someone say where's my return? And you're like, I already sent it to you, do you not have it?
Speaker 2:Yeah, we don't correct people. I'm not trying to be a pretentious jerk about it, we just think it's funny.
Speaker 1:But if you didn't know, now you know and you'll never ask again because you'll know you need to ask for your refund, not your return. So I hope you found something helpful in this episode today. It was a little bit funny, but also a good way to teach you some of the things that we see all the time, that people just mistakenly think are true. I don't know.
Speaker 2:And now you can laugh at all your friends when they say things wrong and pretend like you're so much smarter.
Speaker 1:Absolutely Until next time. Thank you so much for listening to.
Speaker 2:What your CPA Wants you to Know.
Speaker 1:Podcast.
Speaker 2:This podcast is intended to provide accounting and tax information for educational purposes only. All tax situations are unique and should be handled with the assistance of a tax professional Bye.