Mullooly Asset Management
Fiduciary Fee-Only Financial Planner | Investment Advisor in Wall, NJ
Mullooly Asset Management
Decoding Tax Mysteries
Ever wondered why your tax bill feels like a punch in the gut, leaving you questioning whether it's time to fire your accountant? Hold that thought; the culprit could be closer to home. In a no-holds-barred chat, we unravel the knotty world of tax returns, debunking the myths that lead to misplaced blame. From the real deal on tax preparation fees (think beyond the cost of a fancy dinner) to getting schooled on the IRS's free filing service, we've got your back. Discover the hidden gems of resources for cost-conscious taxpayers, like IRS Free File, VITA, and TCE programs, and why knowing the difference between gross and adjusted gross incomes is your new power play.
Switching lanes to the investment highway, Episode 469 takes you on a rollercoaster ride through the latest investment craze. I'll be serving up my two cents on the matter, painting a picture of its current momentum and the room it has to grow. But before you leap onto the bandwagon, I'm here to remind you to keep those excitement levels in check and do the homework. While I'm dishing out these personal nuggets of wisdom, remember, they're just that – personal. They don't come from Malouli Asset Management's playbook. So buckle up, get your notepad ready, and join us for a journey through the financial landscape that promises to both enlighten and challenge your wallet's future.
Welcome back to the podcast. This is episode number 469. One of the things that we hear very frequently from folks that we're talking to is they say hey, I need a new accountant. And so we always want to probe a little further and ask gee, what happened? Did your accountant retire last year? Are they changing their business structure? Why do you need a new accountant? The response that we get overwhelmingly is well, I paid too much money last year in taxes, so I think I need somebody else to do my taxes for me.
Speaker 1:We'll point out that if you paid too much in taxes, that's probably not the fault of your accountant. That may be a situation where you didn't have enough withheld from your paycheck, or you didn't pay enough in your quarterly estimates, or there was something wrong. Unfortunately, it's probably on your end and not on your accountants and now, accountants aren't perfect. If they make mistakes if they consistently make mistakes, then you may want to think about moving on to somebody else. If you're consistently getting letters from the IRS to explain entries on previous tax returns, that may be a caution flag. To say I need a new accountant because I paid too much in taxes tells us that you don't really understand how taxes work. One of the other things that we've learned over the years is that the average cost that a taxpayer pays in the United States last year to get their tax returns prepared is $150. That was the average cost last year. For your $150 that you pay to have your tax returns prepared, understand what does and doesn't come along with that. For $150, you're not going to get a consultation, you're not going to get advice. You're not going to get guidance on what to do. If your accountant is good, you'll get a summary letter that comes with your return saying, hey, you need to increase your tax withholding, or you should think about making estimated payments, and here's a schedule for you. Or here are the coupons to send in your quarterly estimated checks. Do what your accountant tells you, because they're giving you some good guidance.
Speaker 1:Most people, though, tend to think of oh, I need to talk to my accountant because I'm thinking about doing this thing. That kind of business model doesn't really exist that much anymore, and so finding an accountant who's going to pick up the phone and chit chat with you about some real estate limited partnership doesn't exist anymore. So you're not going to get guidance or advice. You're not going to get representation at the IRS. That will probably result in some additional charges or costs that come with it.
Speaker 1:But the other overriding point that we want to make when you're getting your taxes done is that your accountant doesn't know your situation. If you give your accountant bad information, they're going to take that bad information and they're going to fill out a tax return for you and then you're going to sign it. You're going to sign it and then it's going to get submitted to the IRS. So garbage in, garbage out is an important fact to remember when you're talking about tax returns. So look, if you're in between accountants, if you're still shopping around for someone who's we used to joke about certain accountants had a very used to use a very sharp pencil If you're between accountants, you should know that the IRS is rolling out a free online method where you can file for free, but that's just getting rolled out. And if you're in New Jersey, understand that that direct file online that's what they're calling it is not available here in New Jersey.
Speaker 1:But if you or someone you know is a lower income tax filer, there are alternatives that are either low cost or no cost. The first thing that I would suggest I don't even know if they do this anymore, but we used to tell clients, just go to the library, you can pick up the forms. They had paper forms. Now I'm dating myself because I know that they did this 20 years ago, but it used to be that you could go to your public library, pick up all the tax forms you need and fill it out yourself. I can tell you that at Shyamalanad High School, in math class of our junior year, mr Joya taught us and tested us on filling out tax forms. That was 1978 that I was filling out tax forms. We were doing case studies for people. This was part of our education. I know that they don't do this anymore, but man, oh man, this is a really good skill for young people to learn. Go through these tax forms and figure it out. There are other alternatives.
Speaker 1:They have a program called IRS Free File. The IRS has partnered with eight different companies around the United States. If your income is between zero and $79,000, it's free, it's free. I know that $79,000 in gross income that's not going to cover a lot of folks, but you may know someone who may be in a situation where, hey, every dollar counts and we don't have the income to go to some hot shot CPA. We need an alternative. Likewise, there is a program called VITA, which is the IRS Volunteer Income Tax Assistant. It's very similar to IRS Free File in the sense that if you're a household with adjusted gross income up to $64,000, you can use this service called VITA, get your tax returns filed for free. Understand that IRS Free File works for folks who have income up to $79,000. That's gross income. Vita it pretty much covers the same group. It's households with adjusted gross income up to $64,000. If you don't know the difference between gross income and adjusted gross income, we'll put some links in the show notes so you can see the difference between the two. These are vastly different numbers.
Speaker 1:A fifth option if you are again in between accountants and you're retired, there's a program called TCE which stands for Tax Counseling for the Elderly. This is often run in communities in conjunction with AARP, not for your little leager, but maybe for someone who is retired and looking for some assistance in getting their taxes done. The sixth option is you could always pick up the phone and call the IRS. You should get ready to be on hold for a very long period of time, but we've heard people say that if you don't like the answer you hear from the IRS, just hang up and then call right back and get somebody else. You will get a different answer. We hear that a lot People call the IRS. They've called them two or three times. They've gotten two or three different answers for the same question. That's not a good track record. Then there's this new program. The seventh option is this direct file online, which is just getting rolled out.
Speaker 1:A lot of us probably remember how Obamacare got rolled out Not well, things didn't go very smoothly. The IRS is rolling out this new program called direct file online and they're going very, very slowly At first. Right now, in 2024, it is sent out by invitation only. The invites are going to state and federal workers. They're not just going across the board. They want to study how smoothly this program works and whether the returns that they submit contain errors before they should decide to expand the program. That's smart. They've actually learned from the way Obamacare didn't work. Their website crashed frequently. There were a lot of problems, a lot of misinformation, and so I'm happy to see that they're doing this, doing it this way.
Speaker 1:But most taxpayers couldn't use direct file the way it's set up right now. If you receive a 1099, say you had a short-term job, you had what they call a gig, if you're part of the gig economy, if you received a required minimum distribution or some kind of distribution from a retirement plan, if you got interest from a bank account, if you had dividends, if you had capital gains, all of these instances will generate a 1099 for the year. If you received a 1099, you wouldn't be able to use direct file online. It's just not going to work. I don't really understand the reason why they are, why the IRS is rolling out this program. As we mentioned earlier, there are some alternatives, like IRS free file, which tends to work pretty well, but they seem to want to compete or put H&R block and TurboTax out of business. I just don't understand the reason for that.
Speaker 1:They also say that direct file online will work on a smartphone. Now, I understand not everybody has a desktop computer, but I would be really nervous about filing my taxes on a smartphone. The other thing that I think is worth mentioning is it will be a direct upload to the IRS if you're using direct file online, but it's not going to necessarily speed up your tax return. You can't upload your W2 as a PDF. You may get it as a PDF, you still have to actually manually type in the numbers. The information isn't really being shared in the sense that you can't just attach your W2 and have everything uploaded. It's a little kooky and a little clunky.
Speaker 1:I'm happy to see that they are rolling this out on a small scale. Again, if you itemize your taxes, you wouldn't be able to use direct file online. If you have income from your job in excess of $200,000, again you wouldn't be able to use direct file online. It also direct file online won't work if you paid for child care so you could go to work and you want to claim the child care, the dependent care tax credit. Also, if you want to claim a tax credit for doing a home improvement around the house say you put in new windows and doors and there's normally a tax credit for energy efficiency you wouldn't be able to use direct file online and still claim the credit. It really is.
Speaker 1:In the infant stages it is completely free, but we're just not there yet. But know that doesn't necessarily mean that you can't file your taxes for free. You can always do this yourself. I learned it when I was in high school back in the 70s. There are alternatives for lower income folks to get their taxes filed for free. So there are things out there that do provide some alternatives. But you'll hear more and more as we go through tax season about this direct file online portal. It's just not quite there yet. Worth a look At some point. We hope that they expand it and improve it, but right now don't hold your breath. That is the story for episode 469. Thanks, as always, for tuning in.
Speaker 2:Tom Malouli is an investment advisor representative with Malouli asset management. All opinions expressed by Tom and his podcast guests are solely their own opinions and do not necessarily reflect the opinions of Malouli asset management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Malouli asset management may maintain positions in securities discussed in this podcast.