Unlock the mysteries of tax filing with a beginner's guide that's anything but taxing! Navigating the maze of income streams and deductions is a breeze with financial guru Joe Haslam's six vital steps. We tackle the nitty-gritty, from income tracking to beating those deadlines, and arm you with the know-how to distinguish tax credits from deductions. It's not just about numbers; it's about gaining the confidence to handle your finances or knowing when to call in the cavalry of tax professionals.
Where do 1099 contractors fit in the tax puzzle? This episode is a treasure trove of insights for the self-employed, shedding light on Schedule C forms and the art of business expense deductions. We discuss the landscape shift towards standard deductions and demystify forms like the 1099 NEC. And, we've got a plot twist—did you know that home office deductions aren't as perplexing as they seem? Whether you're a gig economy old-timer or a fresh freelancer, this is your primer for financial finesse come tax time.
As the curtain falls on our tax talk, we share a quirky yet effective solution to the cable chaos in your life (yes, toilet paper rolls can be game-changers!). But the heart of our episode lies in the importance of financial responsibility, with Hollywood tax blunders serving as cautionary tales. Together, we're building a community that values meaningful content, so subscribe and join our mission for advice and anecdotes that make tax season less taxing and much more enjoyable.
Unlock the mysteries of tax filing with a beginner's guide that's anything but taxing! Navigating the maze of income streams and deductions is a breeze with financial guru Joe Haslam's six vital steps. We tackle the nitty-gritty, from income tracking to beating those deadlines, and arm you with the know-how to distinguish tax credits from deductions. It's not just about numbers; it's about gaining the confidence to handle your finances or knowing when to call in the cavalry of tax professionals.
Where do 1099 contractors fit in the tax puzzle? This episode is a treasure trove of insights for the self-employed, shedding light on Schedule C forms and the art of business expense deductions. We discuss the landscape shift towards standard deductions and demystify forms like the 1099 NEC. And, we've got a plot twist—did you know that home office deductions aren't as perplexing as they seem? Whether you're a gig economy old-timer or a fresh freelancer, this is your primer for financial finesse come tax time.
As the curtain falls on our tax talk, we share a quirky yet effective solution to the cable chaos in your life (yes, toilet paper rolls can be game-changers!). But the heart of our episode lies in the importance of financial responsibility, with Hollywood tax blunders serving as cautionary tales. Together, we're building a community that values meaningful content, so subscribe and join our mission for advice and anecdotes that make tax season less taxing and much more enjoyable.
Today on the Idiot's Guide, we are talking about beginner's guide to filing your own taxes and when to not to and instead ask for help. And this week's today old life hack might be truly life-changing, or at least organizing genius. Tune in and find out. I'm your host, adam Richardson, aka the Profit Hacker, and I'm joined by the man in charge, mr Joe Haslam. Welcome to the Idiot's Guide. Well, we are gaining momentum, and it's all thanks to you, listener. But we're not done yet. Let's keep the momentum going strong by subscribing and inviting others to join the excitement. Together, we will make waves.
Adam:Now I want to kind of start this off. I think like taxes are weird, and I know, like I I come from this in a totally different perspective than you. You're like taxes are easy. Well, actually, they're probably not easy, but you know, for the most part, they're they're pretty straightforward. I mean mean, even when I, when I was younger, like filing was pretty simple. I didn't have a lot of responsibilities, didn't have a lot of anything. So, like it was just like I made this much, I paid this much, I owe this much, you know, like that was pretty much it. That's how it all is even older. That's the problem is is it's it's. I made this much here. I made this much here. I made this much over here this way, and then I made this much in this fashion over here, and because of all of those made this much is, you know, made all of this. I don't know which one has an S at the end of it.
Adam:So all of those but uh, I, I, you know all of those different options about made this much, and then I get to write off this part, or write off this part, or get this part taken away from my, so I don't have to pay as much because of this or that or this or that. And so over the years it's gotten significantly more complicated in my eyes because I do not do taxes. I quit doing taxes when my I can honestly say almost 16 years ago, because my son was born on tax day. He is an April 15th baby and he's turning 16 this year and I haven't done my own taxes in that many years.
Adam:There you go, even when it was like well, I can say this, my wife has done taxes a couple of those years, but for the most part we've done. We've always looked at professional help. And then you're running into the whole gambit of like what is, you know what's good professional help versus what isn't good professional help? Right, because you know, I I've had some that are just straight up opinionated and lock your life down. You can't get away with anything. And I've had other ones where I'm like I don't want to owe a dime and I haven't filed taxes in three years. So you know those guys are miracle workers, potentially illegal yeah.
Joe:Your dog is not a deduction, Just just to make that clear.
Adam:If anyone's confused it doesn't matter, they are not a dependent.
Joe:They are not a dependent. They are not a deduction, they are not anything now, they are property, but that's as far as it goes so I'm gonna run through.
Adam:I've got six steps, okay, and then we'll break them down, but I'm gonna just kind of run these six steps. This is real basic guys. If, if this is over your head as far as, like, this isn't enough information, I would encourage you to go find somebody to work with on your taxes. But this is kind of a basic umbrella over the top and it's courtesy of bank of America Um this is not coming from me.
Joe:This is coming from someone else, so I will correct as needed.
Adam:Number one keep an eye on your income. Okay, we'll elaborate on that here in a minute. Number two save the right paperwork all year long. Okay, yeah, all right. Number three watch for your income documents to arrive. That's a given right Number four learn which credits and deductions you can take. Yeah, okay, you know I mean this is like fortune cookie level, like you know. It's so, so easy to hit the mark.
Joe:you know, like that last one's going to take a little bit because there's a big difference between deductions and credits. And so when we go to that one, we're going to talk about the difference between those.
Adam:Number five mind your deadlines. Know when to file Yep, and what will happen if you don't. Number six decide how to file your tax return. There are options, there are different ways of doing it, and everyone is effective in its own way for individuals. And so those are the six. They're very general. Like I said, you just got your fortune read to you, and so let's dive a little deeper. Keep an eye on your income, joe. How would you suggest someone does that?
Joe:Keep track of your paychecks.
Adam:Oh, maybe a budget. We've talked about that twice.
Joe:Well, one thing so there's a difference here. Okay, so when you're doing a budget, you are looking at your take-home pay, which is very different from your actual gross income, and so it's important to look at your gross income and know what your paycheck says you're making, so you know what the actual taxable income is going to be. And that's important because when you're looking at, you've got your federal withholdings coming out, you've got your social security, you've got your Medicare, you've got your state all these things coming out. Depending on the state, you have other things that come out. All these things coming out, depending on the state. You have other things that come out.
Joe:I think in Washington State, you have some family medical leave payments that come out. California, I think, has some of those as well. So different states have different additional deductions that come out. Some states have local taxes that come out of your paycheck, and so this is where it's important you want to look at what is your actual gross income, because that's going to make a big difference, not your take home pay. So don't just look at your budget and say, okay, this is how much I'm making every week, that's how much you're taking home. Look at what your actual gross is.
Adam:You know, I, I, I honestly say that, like, I do a terrible job of keeping track of my income and I rely on my W-2s at the end of the year, you know.
Adam:But there are other things that I, you know, I've learned that I can't just rely on those W-2s, because I get paid in a lot of different ways. Now I can't really say that, like, I'm like a stripper and I get ones all the time, you know, like, but let's say, for example, like right now I do things on the weekends, that I'm a DJ for different gigs and that I get tips from that and I also get paid. I get a check from the locations that write me a check and you know that stuff is, it's 1099. So it's still tracked but it's different than a W-2. It's my own responsibility to keep track of that and you know if it's substantial enough to be able to file. I guess that's kind of one of those questions and I think it might be down to state wise. But keeping track of income, what if you have such a minimal income that you don't, you don't really need to worry about filing what what per se is is a general figure. A general figure.
Joe:So it changes every year because once you get that standard deduction, so if your standard deduction so a deduction is a reduction of your gross income, okay. So a credit is a reduction of your tax due, okay. So that's the difference between those two. So when you're looking at a deduction, so if you make $10,000 and your standard deduction is 13,000, well, you're at zero, you have no income, and so there's no tax due on no income, and so that's the point. That's what you're looking at is what are these deductions that are coming in? And then, if I go below zero, I don't have to pay anything. So you just look at the standard deduction. If you made less than the standard deduction, you weren't going to owe anything in taxes as far as withholding taxes, income taxes.
Adam:I remember a year this was quite a few years ago, but it was. It was probably about 13, 14 years ago my we were. We were living in an apartment that working for a church, and we were making very, very little. Everything was paid for as far as like our apartment or living on food stamps. So I had no documented income unless I went out and did something and I do odd jobs and we had a pet sitting thing that we were trying to kind of keep going. But collectively our total income was like like less than like $4,000 that year.
Adam:It was absolutely like I've like. That's hard If you try to just do the math, break that down every single month how much you're living on like there's some things. Food stamps was really awesome Because you know I that's hard to it's. It's a hard situation but I've been there, so that's. That's really where it comes down to. Is it's like when somebody says like man? You don't know what it's like. I'm like man.
Adam:I have been near homeless like almost the big. I got kicked out of that apartment when I was making that little like I. I ended up having to get evicted, not because I didn't pay rent, but the church I was working for stopped supporting us and evicted us out of the, out of the property, and so it's a whole longer, very, very, very abusively ugly story. But the the long story short is I ended up almost near homeless, um, and thought holding a sign was probably more effective than anything else. I had, um, but but that that was the kind of income that I was at at that point. We didn't file taxes that year, I didn't need to. But you know, turning around like pretty quickly, you know, go get a job and not have to work, work to get off of food stamps and work to that level, and even that was tight, but it was still something that I was barely over those standard deductions. So you know okay.
Joe:So yeah, and that's why, if you've got multiple W-2s, if you've got multiple different types of jobs, so W-2, so let me just clarify this. Okay, so you, you mentioned 1099 income versus W-2 income. Yeah.
Joe:Okay, so just to clarify the difference between those for anyone who doesn't know W-2s are for employees, 1099s are for contractors. Generally, a contractor is someone who owns a business. Now a lot of companies will try to pay you as a 1099 contractor, even though you're technically not, in order to avoid paying some extra taxes. So if you're an employee, they have to pay unemployment insurance, they have to pay half of your FICA taxes they have to, and FICA again. So FICA is social security and Medicare, so it's just the combination, um, and so there are a lot of expenses that employers are going to try to get around by paying you as a 1099 contractor as opposed to an employee. So, but the IRS is really cracking down on that as well, as individual states are cracking down on that, so hopefully that will be going away a little bit more.
Joe:Now there are legitimate 1099 contractors out there, you know, and if you're in one of those positions, you own a business, you have things going on or you're a gig worker, things like that. Those are legitimate 1099 contractors and so when that happens, that income, you're essentially running a business. Even if you're not, you're running a business as a 1099, which means you're going to put it on what's called a schedule C on your income tax return. Now this is getting a little bit more complicated, but when you get that income as a 1099, it means you have a lot more to write off. So let's say you're a gig worker as a photographer. Okay, so you, you, you do wedding photography.
Adam:We are going to talk about deductions in a couple.
Joe:Yeah, but I kind of want to go over this. Okay, because we're talking about 1099 income, okay. Okay, so, when you're keeping track of your income so that you know how much taxes to pay, this is why it's important. Okay, as a W-2 employee, you don't really have a lot of deductions. Yeah, you can the itemized or the standard deduction anymore. They raised it a few years ago. That is now the most comprehensive.
Joe:Most people, unless you've got a lot of things going on, aren't going to even itemize deductions anymore. Okay, so that's easy. When you're a 1099, let's say you're a photographer, you go out, you've got your camera, you've got your equipment, all those things become deductions and so you take your gross income, subtract those out of it and that becomes your taxable income at that point. And so that's why, if you're getting a 1099, it's a little bit more complicated to keep track of what your income is, because you've got these little extras Now. We'll go into what counts as deductions credits later on, but that's what you want to keep track of what your income is, because you've got these little extras Now. We'll go into what counts as deductions credits later on, but that's what you want to keep track of. It's not necessarily your gross when you're getting a 1099. It's that gross minus your expenses. So essentially your net, not quite your net, but that's what you're looking at. That's what you're looking at, okay.
Adam:So number two is save the right paperwork all year long. Now this one for me, like other than like're you, you know you have a 401k or something like that, or charitable donations that's, that's a good one Most places, unless it's like a like a drop off for a donation, that's about the only place that you're going to kind of get that donation receipt on the spot. But if you donate, let's say, to a community regularly, usually there's an itemized or something that's given at the end of the year for that um, and then, uh, like other things, like maybe medical bills or medical expenses, um, it just, it really kind of depends. But those are kind of the things that I mean are mentioned in this but also just really come to mind. I can't think of maybe some receipts, but it's more business related when you're talking about that kind of tax filing and that's a lot more complicated than this.
Joe:We always see the trope on TV of here comes the IRS auditor, we've got to find our receipts. That's totally bogus. As an individual, you don't need to keep any receipts. You really don't. There are no deductions that you're going to have receipts for as an individual. Now if you're a 1099 contractor, you know those things. Yeah, you can keep the receipts, but you've got a bank statement. Yeah.
Joe:You know you've got everything now as an email, you don't necessarily need to keep the receipts. And so if you go out to eat maybe that one I recommend you know if you're going out to um lunch with a client or something you've just right on the back of the receipt, you know this is who you are with and this is what you talked about, and then you keep that receipt. But realistically, keeping receipts anything like that for an individual completely bogus, that is not real. It's not how it works. As an individual, you really don't even I mean you don't need to keep track of your 401k statements because they're required to give it to you at the end of the year true you don't have to really keep track of anything throughout the year.
Joe:all I recommend is they'll send you, you know, maybe a quarterly statement or something like that. Keep your final quarterly statement of the year. But a lot of times, any of those investment accounts, they send those forms, those tax forms, with the year end quarterly statement and so you've already got it. You don't need your June 30th investment statement because it's completely pointless when you do your taxes. So you don't need to keep any of that. Charitable contributions, when you contribute to your church, when you contribute to any kind of organization, they're going to send you a statement at the end of the year. Now, keep those receipts, maybe keep because not every charitable organization is going to be good about that. And so if you want to make sure you get the deduction, just keep track of the receipts. But, honestly, just go back to your bank statement and look up everything that you've spent to that church or organization or whatever, and there's your records, right there Essentially, yeah, it goes back and back to that and, honestly, electronically you can.
Adam:You can let's say it's a bank statement Most of those electronic transactions or something you can search that particular item so that you don't have to look at like, oh well, this is a month of spending that I also have to filter through to find those donations. You can search for that donation, then it'll bring up all of them.
Joe:Yeah, and going back to before talking about tracking your income and the standard deduction, most people don't itemize anymore and most of those deductions are itemized deductions, which means you're not even going to use those. Yeah.
Joe:So there's really no point. Now your accountant may ask for them because they're going to run analysis. Okay, is standard or itemized better for you, but now, nine times out of 10, the standard is going to be the maximum deduction you're going to be able to get on that, and so it's not really even medical expenses, anything like that. It's not going to be high enough that you're going to get a worthwhile deduction on it. Keep track of it.
Joe:I like keeping track of it just for fraud prevention, but not necessarily for taxes. There's really very few things you need. I think the only thing, the only thing that actually comes to mind that you want to keep track of, is child care expenses. Yes, because that's going to be a credit that you get later on, and you want to be able to put all those in, because your daycare isn't necessarily going to send you an end of year statement. This is how much you spent. Some will, some are really great about that, but not all of them, and so keep track of that. I think that's the only one that I would say keep track of diligently.
Adam:So number three is watch for your income documents to arrive Now. I think I've learned in the past that it's typically it has to be postmarked no later than January 30th Is it 30 or 31 days in January.
Adam:Whatever by the end of January it has to be postmarked so you could receive it in February. Nowadays most everything is electronic unless, like some way, you just aren't, you know, like you don't live on earth, um or or, or, generally speaking, like most places, you have electronic access. But let's say, you severed from a company and you don't access their portal anymore and so because of that you have to get it mailed to you, sort of thing. I had an employer from a few years ago that I stopped working for and they had access, they did electronic files and all that kind of stuff, electronic forms but I had to go online to, or I had to try to go online, couldn't get access to the portal, so I had to have them mail it to me. You know, and that's, that's just kind of ironing out some of those difficulties.
Adam:But I think one of the things this this actually kind of talks about this and I was watching something else but there's a little bit different kinds of 1099s as opposed to a W-2 is a W-2.
Adam:Like it is straightforward you get to your employer, you fill out a W-4. That is all your information. As far as what you want for taxation, you know any exemptions that you have, if you have children or your joint, whatever it is like all of those different things, or if you're just a single person and you have a whole bunch of zeros and a lot of taxes coming out. You know, like that's just what the government likes to do, but, um, but, but then having it, having it done this way, um, you know, you'll receive a W-2 and the standard is is no later than, uh than by the end of January, 1099s work, the same as far as the, you know, communicating that information to you. So over the month, I would hold off through January until all of your forms are there. Don't file before, because if you file before and you're like, shoot, I forgot that entire category of income, you know, like what you know, I don't know what would happen, but the IRS probably frowns on it occasionally.
Joe:Yeah, you'd have to amend your return.
Adam:Yeah, so, but 1099, there's NEC, there's DIV, there's E, there's T, there's INT. I just is, is there, you know, for keeping it simple, stupid, yeah, how do we fix that? So?
Joe:the one that people are going to be most. Here are the ones that are people are going to be most familiar with. Okay, so there's the 1099 NEC. Now this is a new one as a as of a couple of years ago, but this is for it's NEC non-employee compensation. So that's what 1099 NEC means. So that is when you're getting income from a business.
Joe:Now, the reason they created this is because of the prevalence of more and more companies are paying contractors, so they created a separate form for it non-employee compensation. So it used to be the 1099 MISC, so that just meant miscellaneous. 1099 M I S C, so that just meant miscellaneous. So it was for other income that wasn't tracked from other 1099 forms, so it was just all the miscellaneous. Well, that was the standard form for any contractor getting paid, so it covered a huge swath and so they created the NEC so that there was a more specific, just like the other 1099s I'm going to mention. So 1099 NEC is probably the most familiar one that people are going to be seeing if they're a contractor, if they do any gig work, if they do anything like that.
Adam:Okay, so then DIV or INT, for example.
Joe:So 1099 DIV is dividend. Okay. So there is reason to these names. Yes, so when you get dividend income, that comes on a 1099 DIV. So that's going to be, if you have an investment account, if you have something where there are dividends coming in.
Adam:Okay.
Joe:Similar to that. The 1099 INT is interest income. So you're going to see that also coming potentially from investment accounts where you're making interest and so you may have. Let's say, you have a Fidelity account where you have investments in stocks that are returning dividends as well as interest. So you get your year end statement and it has probably four 1099s at the very end of the statement. Probably not a lot of money in those, but you're going to have a 1099 DIV, 1099 INT.
Joe:You're probably going to have maybe a couple other 1099s in there, and so what you do is you just make sure that all the numbers that are on there you're putting those into your tax returns, Okay. So those are probably the biggest ones. That you're going to see is that 1099, NEC MISC, so non-employee compensation, miscellaneous dividend and interest. So even if you have a bank account, so a savings account with your bank, you're going to get a 1099 INT if you made any interest on that, Okay. And so it may be three bucks, because interest rates at banks suck, but you're going to see that $3, 1099 interest form and you're going to get taxed on it. You're going to get taxed on that three bucks, but, hey, you got three bucks.
Adam:No, you didn't. Well, you got three bucks. No, you didn't Well, you got two and change. Yeah exactly All right, Uh. 10 98 E.
Joe:So 10, 99, 10 nine student loan interest for that one. So 10 98 E is the student loan interest. So now we're going into 1098 categories, uh, which are, which is just another income reporting form. So a 1099 eight E is, uh, it's just, it's education, so it's your student loan interest. Um, and so that's going to be your, the money that you paid for student loan interest.
Adam:okay, and that's deductible and then 1098 t so that's your tuition expenses, yeah, so does that mean like so if I have my kids go to a private school that has a tuition? Is that what you're talking?
Joe:about this is higher education tuition okay, all right, darn it.
Adam:I think about this is higher education tuition. Okay, all right, darn it. I think about that.
Joe:I was like you mean, I could write that off, holy cow. No, so this is for higher education. So this is, when you go to college, the tuition, the books, anything that you paid to the college they're going to provide your report on that, because there are certain programs that you get deductions and things like that on that tuition cost.
Adam:Okay, so like honestly, that's a pretty still a pretty broad swing. But you know, 1099s, nec and Form W-2 are your basic straightforward, this is what you get. Yeah, if you're getting something that's going to document that from an employer.
Joe:Yeah, and here's the thing If you are spending money, if you are putting money somewhere that isn't for some kind of consumer good so it's not when you're going to Walmart and you're buying food good, so it's not when you're going to Walmart and you're buying food If you are putting money somewhere outside of those consumer goods, there's probably going to be a tax form that's coming to you. So that's, if you're paying off student loans, if you're paying tuition, if you are paying for mortgage, if you're paying for what else is there, if you're putting money into investment accounts, if you're putting money into a savings account, any of those are going to have these forms coming back to you. So just be aware of that.
Adam:Okay, okay. So number four is learn which credits and deductions you can take. I think something to note on this is the fact that that changes. So you know, when I was younger it may not necessarily need to be a deduction of any sort, I may not have very many I remember owning a pet sitting business and trying to go for as many deductions as I could possibly go for, but then realizing that there is a standard deduction, and so you're like man, I'm not even going to make a dent in that. And so you're like man, like I'm not even gonna make a dent in that. Or learning that, something that I thought I could always.
Adam:This is like the myth I'm going to say this because it irritated me finding this out but a deduction about like, oh yeah, you know, when you use an office and it's, you know, at your house and it's not, let's say, it's a desk that you, you know it's next to your bed in your room or it's, you know, some sort of working space that's mixed in with your living space, it doesn't mean that your entire living space is deductible as a working space is deductible as a working space even if you have a sectioned off area. It's really hard to use that as a standard deduction against your or as a deduction against your taxes. Yeah, I had somebody just completely shoot me down and say, like you can't, that's not allowed, and I'm like I've never heard this before. Like you know, there's this myth that you should be able to because, well, you work from home. Oh well, it doesn't matter.
Joe:Well, and it depends on how you define work from home. Okay, If you're W2 employee. No, there's no home office deduction. Yeah. So the home office deduction applies if you've got your own business. So let's say you're a gig worker You've got your own separate business, anything where you've got this, where you're going to get office as a deductible expense because you don't have an office that you're going to, and so it's essentially you're allowed to write off this section of your home that you're working from.
Joe:Uh, there there's a uh interesting scene in the movie the accountant, um, where he's talking to this isn't he an assassin? It's something like that. Yeah, but he is an accountant, he has this day job as an accountant, that's true, um, and so he does taxes, uh, but he's talking to this couple about an old couple, and the wife makes something, or then she sells it, kind of like a hobby, and so they're recording the income and he's asking them you know, do you use this table for doing that? Well, yeah, and then he goes through a couple more questions and he kind of leads them into the spaces dedicated for that activity, and so he says, ok, since you are dedicating this space to that activity, you can write off this portion of the home. Now he leads them to that conclusion, which is what he is trying to do in order to help them. Which is what he is trying to do in order to help them.
Joe:But if you've got a space that is designated and specifically for this work and this effort and is not used for anything else in the home, then yes, it's deductible. But let's say that square footage is a hundred square feet out of an a thousand square foot space. That's 10% of your home you can write off. Okay, so you take your utilities. Let's say you spend $500 a year in utilities. Well, you can write off $50 of that because it's 10% of the entire space. Who spends?
Adam:$500 a year.
Joe:Right, I'm using round numbers.
Adam:I was going to say I had more than that a year in my apartment.
Joe:Yes, I'm using round numbers, but the idea is you look at that square footage of the space, divide it against the total space that you have for your home and that's what you can write off. So let's say you have rent $1, dollars a month in rent. You get to write off a hundred dollars of that for this home office space. So you can deduct these things, but you have to understand what the rules are. Now. This is where it comes in handy to have someone helping you through this. But finding the right person is really important, because some are going to be really strict and say, no, you can't write off anything. Others are going to be super liberal and lead you into writing things off that aren't allowed to be writing written off like your dog. And now you're going to run into potentials where you're going to get audited and as soon as that happens, that accountant is going to be out the door and they're never going to talk to you again. Yeah.
Joe:So it's really important to find the right person, someone who's going to be, you know, middle of the road and be able to support you and help you. Okay, but it's not their responsibility. If they do something wrong, it doesn't matter, right? They do not have the responsibility of having signed the tax return. You, as the taxpayer, signs a tax return, which means you are on the hook. This is the area where a lot of people don't realize. Okay, nicholas Cage is the perfect example of this. It's kind of an older story at this point, but it's one I've used for a long time. He had financial advisors that were leading him to write off certain things and they were filing tax returns for him. Well, he found out many years later that they were not filing correct tax returns. They didn't get in trouble. Right.
Joe:Nicholas Cage did, and he had a huge amount of back taxes that he had to pay. He tried going after them, but he's the one that signed the tax returns and he's the one that's responsible for the taxes, not the accountant, and so this is why it is so important for anyone filing taxes. It doesn't matter if you hire someone, it doesn't matter if you use TurboTax, it doesn't matter what you do. The end result is you, the individual, are on the hook to make sure it's all done right, because you're the one signing the tax return and, yes, it sucks.
Adam:Yeah, I've worked with some really shady people. I'm going to go back in my history and be like wow, shady people. I'm gonna go back in my history and be like, wow, uh, um, I mean, the good thing is is like some of the stuff that I I filed years ago were years ago.
Joe:So even like we're I, I I hope that there's some level of uh, no, dang it there's not, nope, it used to be three years, but they got rid of that, I think now it is 10 or 20 years they can go back. So it used to be three years, without justification they could go back and then, if they found something in those three years, they could go back to 10 years. Now they got rid of that limitation, they can go back as far as they want without justification.
Adam:Wow, yeah, yeah, that's scary, but yeah, and that's the thing is. I mean I, I I only in the sense of, like financial responsibility, wise, like the difference of 20 years is massive and and how behavior of of how you spend, of what you do, how you keep track of things, all of All of that stuff is one of those things. It's just kind of, yeah, that's kind of sketch.
Joe:It is and there's no liability, and this is something I would love to see changed within the accountancy world is that there is responsibility upon the accountants if they do something wrong. Yeah. But the easy justification is well, my client told me to do it that way. Right.
Joe:And so now they're absolved of all liability. So it's a really hard line there. But this is why it's so important to know what your deductions, your credits. Again, a deduction is a reduction of your income. A credit is a reduction of your taxes. Okay, and learning what those are. So, like the child tax credit. So let's say you owe 10,000 in taxes and you have a $2,000 child tax credit. That reduces it to $8,000 taxes due, yeah. Whereas if you've got a deduction for, let's say, it is your mortgage interest, okay, so that's a deduction. So you made $50,000 and your interest was 5,000. Well, now you have $45,000 in taxable income, and so then that will go into what that tax calculation is. So let's say you're in the 20% tax bracket, now you owe $9,000 as opposed to $10,000. So see how that kind of works. The difference between a deduction and a credit. Yeah.
Joe:So credit is directly against the taxes, a deduction is against the income, and so it's two different sections of the calculation. But know what those are yourself, because your accountant is not going to be the one on the hook.
Adam:You are that earlier Charitable deductions those are. You know, obviously they're freelance expenses, we've talked about that. That's like 1099 stuff and you know the equipment, the items that you use to perform can all be considered for those things. But also keep in mind that, like we mentioned at the very beginning, there is a standard deduction, that that if you're not exceeding that, you know, you, you, it might be worth considering that as as your deduction.
Joe:Um, and there's potential for these to change every year. Yeah.
Joe:And so you want to make sure. Now the standard deduction goes up every year, but the things I'm talking about charitable contributions changed uh, as far as deductibility three years ago. All of these things can potentially change year to year, so it's important that you keep up to date on what those changes are. Do you need to know them in detail? No, but do you need to know what they are? Yes, that's important. So just keep up to date on all these things.
Joe:Most news sites will publish new articles on hey, these are the changes for this year. A lot of larger accountancy firms will put blog posts or articles on their website about these are the changes this year. A lot of those things come up, so just go out there, look on these websites, read the articles, look into that information. Again, accountants firms they generally have like an FAQ or a tax section that's just available to anyone, not just their clients, and so you can go on there and learn about what the changes are, and so I definitely recommend look that up. Understand what these are. Do you need to know them in detail? No, do you need to understand up. Understand what these are. Do you need to know them in detail? No, do you need to understand them and know what they are.
Adam:Yes, I think one of the most essential things to remember is this. Fifth one is deadlines. Mind your deadlines. Sometimes you might have an extension from this, but your standard is, like we said, around the end of January is to get all of that tax information to you. So between January and February you should be compiling all of that financial information that is being sent to you for whatever you did over the last year. Mind whatever else you've kept track of over that year as well.
Adam:So my wife and I, we have a folder we actually start it earlier in the year for everything that starts coming in, anything that we get throughout the year that might be part related to our taxes. You know we just put it into that file so that by the end of the year we have that to our taxes. You know, we just put it into that file so that by the end of the year we have that. I. We just actually, you know you said you know go back 20 years. That's terrifying, but I've I had tax filings that we just destroyed recently that were way, way, way back like almost almost 20 years, but but just kind of having that stuff that we just went through and we're like I don't? You know, I, I don't really foresee us needing to do anything with this. I mean, we've been pretty squeaky clean as far as I. I know, you know, like knock on wood, you know anything and I, we do this podcast and they're going to be like we're going to take a look at you now, you know, but it's, it's, it's something where your deadlines April 15th has been the standard way.
Adam:I know COVID made that weird, but it's back, it's, it's April 15th, it's, it's, it's, it's. This. This episode will come out about a week, just just a little over a week before that deadline, a little over a week before that deadline. I do know that there's some flexibility. If it falls on a Sunday or a Saturday or whatever it is, they'll usually give you that that weekend. You know so it'll be the 17th or whatever, but but that's, that's about as much wiggle room as the IRS is going to give you, unless you raise your hand and file a form for an extension, and then there's options for how long you can do that extension, and you know. So I think one of the things to mention is, just when you're minding your deadlines, also be punctual about asking for an extension for things or even a payment for when you have filings that go through and you want to get something set up. So you're making payments against some taxes that are owed.
Joe:Yeah. Now one thing that most people don't realize is, when you file an extension as an individual, you are required to pay the estimated amount that you're going to owe in taxes, and so it's an extension of filing, not an extension of the payment. And so if you don't pay so if you owe, say, $2,000 on your taxes, okay, but you don't have them ready yet so you file an extension, you need to send that $2,000 in. If you don't, you're going to get charged interest on that $2,000 until you finally pay Can you write that interest off.
Joe:No, no, it's paying to the IRS. No, you cannot write it off. And so when you're looking at that idea of an extension, just remember it's an extension to file, not an extension to pay. Now, for some people it's worth it to not pay that $2,000 and wait and have that interest accrue. But be aware that that interest is going to accrue and you have a responsibility to pay that to the IRS at the time of the extension.
Adam:So the last one is decide how to file your tax returns. There's a lot of different ways. There's a lot of different programs that are out there that work. You know, I'm like I'm pretty sure I don't work for any of them. We don't get sponsored by any of them, so I'm not going to mention any of them. The only one that I'll probably mention is well for me, but is if you are under or within an adjusted gross income, which is like the, the IRS special term for what? What this is? Essentially it's as a single person, I think it's like. Right now it's like 38 under 38,000. And then over as as a joint file, it's 76, five, something like that or less. So if you're under those or within that category, you can free file, which means that there's a, there's an option for you to go onto irsgov and they have it, walk you through there and and it's a free filing system, so it's not going to add any extra charge for using that program, like so many other programs that are out there have like, oh, this is going to cost you this much for using this program this year.
Adam:You know you're like, but I mean, I remember printing out the 1040 easy and filing taxes and mailing all that stuff in. But that was back in the olden days, you know, when I was 16, you know, and that my kids will say that was the olden days, that's around, when dirt was born. But but yeah, like free filing, there's IRS online forms. You can go on there and print them out If you want to do a paper filing. There's tax prep prep software. I think QuickBooks has a tax prep. Even payroll services sometimes have tax prep software in ingrained in them. So look, and if you're a W-2 employee and you you know you're working from somewhere, see if that that employer you know wherever you get your payroll through has an option for some sort of tax prep for you. Get your payroll through has an option for some sort of tax prep for you. That might be an advantage that you could do to where you don't have to pay very much or at all by having that staying within that family kind of a thing. Yeah.
Joe:And there are a lot of free programs out there. Again, a lot of those are income-based, and so it's going to determine what's your income, what's your gross, what's your all these numbers? The worst thing is you go in and then you don't qualify after you've put in all your information, and now you're kind of stuck. The one that I prefer to use I really like it is TurboTax. Yeah.
Joe:Okay, so we're not sponsored by TurboTax, we're not getting paid by TurboTax, anything like that. It's just one that I like for individuals. I've used the H&R Block tax cut I've used. So TurboTax is an Intuit one. I've used a lot of these different softwares and I like the TurboTax user interface. It asks the right questions, goes through everything. If you want to do it manually, you can go and look at the manual side of everything and put it in. So it does have a lot of good features about it. So that's one that I like. It is a little on the costly side, but for the average person you don't need to have an accountant do your taxes.
Adam:And if you did have a tax preparer or an accountant that does that for you, TurboTax is probably more affordable than an accountant would be it is, and again, the majority of people don't need an accountant to do their taxes. Yeah.
Joe:It's if you own a business, if you've got I'm talking about, not just a gig job, I'm talking about if you own a business where you have to file, you know, s corp tax return or partnership tax return, then, yes, go get a, an accountant, someone to do that for you. I would generally recommend that. I wouldn't necessarily recommend TurboTax has a version for those kinds, but unless you're really good at it, I wouldn't recommend that.
Joe:I would recommend just going and getting an accountant because, they're going to help you through that whole process of that business side. But, as an individual, if you've just got a little bit of gig income, if you've got a W-2, turbotax or anything like, it is going to be sufficient. I like TurboTax because it asks you all the questions Do you have this, do you have that? And don't just click buttons and hit okay, okay, okay, okay, okay, without reading the questions because you're going to owe more in taxes. Yes, I know it's annoying that it's asking you so many questions, but there is a reason for that. It's asking to make sure it's getting you the best return possible. So you know, just just go through.
Joe:If you can qualify for the free programs, great. If you're in those free programs, you probably don't have a lot of deductions or credits anyway, and so it's not going to to matter all that much. But if you don't qualify for those, go with TurboTax or something like it. I mean again, it's my favorite. I mean you don't have to if you don't want to, but go through a program like that. If you have a lot more than that, if you've got a lot of credits, a lot of deductions, business income, all these other things coming through, then yeah, maybe it's worth it to get an accountant, but the right tax preparer is not going to be cheap.
Joe:Don't expect to go and pay $200 for a tax preparer and expect the best return possible. That's not going to happen. To get the right accountant for an individual tax return, you're probably talking $1,000 minimum. You're probably talking $1,000 minimum. Okay, accountants good accountants are not cheap. Because they're good accountants, you get what you pay for, and so go through something an electronic system. When you have enough income, then you go get a good accountant. You don't want a crappy accountant income, then you go get a good accountant.
Adam:You don't want a crappy accountant. I was referred to a good accountant years ago and good was a very loose definition. I would say good at making sure things were buttoned up, but not in the sense of technically legal, you know. So when you have that definition of good, you know, make sure there's a reputable part of that that you're paying attention to, because you can have a really good accountant. That will wind you up in a lot of trouble.
Joe:Well, I wouldn't call them a good accountant.
Adam:Right, yeah, you know, you're like're, like I know a guy. He's really good like I don't, I don't, I don't want to know that guy, you know.
Joe:but he may be good at making you pay less taxes, but I still would not say that's a good accountant, a good tax preparer but also in the sense of like, you know, I I've gone to tax prep locations.
Adam:I mean, they're around and you walk in and you're like, you know I get, I schedule an appointment with so and so and they've been there for 15 years and you know like this is just what they do. But they're sticklers and they're like that's the one that I had a couple years ago that I was like what do you mean? I can, can't write this space off in my house. Like I've been doing that for years, you know, and they're like Ooh, I wouldn't mention that. You know Like, but but then finding out that information and just going like this is bull, yeah, but, but yeah, you know like, get.
Adam:I would say as well, if you are working with a preparer or some an accountant that you have to end up working with because of whatever you're doing, make sure that they. You know you guys, it's a good mesh, they communicate well with you. They aren't just, like you know, dry as you're talking to an IRS auditor sort of dry like that one's you're not going to get along with them very well. So even though they're numbers, people like you know, sometimes a little personality in those numbers is is helpful for you to feel better about your taxes.
Joe:Interview your tax preparers. Don't just pick one and go with it. Interview them. Make sure you find the right fit. Yeah.
Adam:So, moving on to our today old life hack, so this one's actually kind of cool. I liked this one. I didn't know this, so I am today old when I found this out. We all well, majority of us in the United States are fans of collecting cables, collecting cables. Now, when I say that, you know well, I like I guess I can't say that's exclusive to the US, I mean, everybody has that. Like, you have this drawer that you're like, yeah, just put it in that drawer and it's a cable, that's like a telephone cable, and then a couple charger cables and maybe a couple charger bricks and some HDMI, like just wires and cables galore. It looks like a bowl of spaghetti, you know, multicolored bowl of spaghetti in there. That's just. You grab one and you're like, oh, this is to a power adapter and it's, it's, it's wrapped up around this, this one and this one and this one. So you go and you get, maybe, maybe you get a way to organize it, and you get some Velcro and you're like, okay, each one. Now I'm going to individually like wrap this Velcro and then I'm going to pile them in there. And they still managed to stick to the Velcro, to the Velcro, to the, and you're like it's still a bowl of spaghetti at the end of the day. So you're just, but I can't let go of it. It's still there. I know I'm like I'm visualizing this. I'm sure you are too, joe, visualizing this.
Adam:This cabinet, drawer, basket, something in my house that I, I'm pretty sure I have a box put in storage. That is also that. But if you're, you know, like pretty much everyone, everyone on earth, deals with this problem. Okay, it's a problem, it we have to call it that because you have no use for those cables and they're still around. You still have them. So grab some, uh, grab a shoe box Okay, and grab a shoe box okay, and or whatever a square box.
Adam:And you, when you're using toilet paper and you get to the end of that toilet paper roll and you just have the tube left and you're like, man, I should probably do my part and recycle this first and foremost. If that's all you do is just recycle, recycle the toilet paper roll, okay, but there's another use for it. If you put it inside of a shoe box and you know you go through enough toilet paper. You can have a handful of that. So each individual wire has its own tube. That's designated and you can wrap up that cable, stick it right down in that tube and now you have an entirely organized cable mess. That is now you know, oh, I need this charger cable. I can use this real quick for a moment and put it right back in its little tube where it can exist in an organized life for the rest of its life. So I like I have a picture and I'll put it on the video. But I'll show you because you can see it, but I can it's pretty genius Come on.
Adam:I mean like, unless you have really messy toilet paper rolls and I don't want to ask, but why You're like? I use every last bit of toilet paper, including the roll.
Joe:Just get command strips and put it up on the wall and just hang your cords.
Adam:Yeah, but I'm talking like a box of spaghetti. It's much more than command strips. Command strips are not going to cut it, they're going to give up the right ones will.
Joe:For some people that may work. I've got a lot of cords and I like to keep them very organized and I like to know where they are. I'm the guy that my garage. I have the cork board where everything has its spot and everything is in its spot and it's all hung up on the wall all the tools, all the extension cord, everything is up there in the proper place.
Adam:I want to get back to that. I can't. I have kids and my kids have destroyed that in me for a season, so there you go. I'll be the grandpa with the impeccable organization.
Joe:If you've got kids, use toilet paper rolls. Use toilet paper rolls.
Adam:You know you're going to have some. It's just a good use, it's a suggestion, but, honestly, if you have that spaghetti bowl of stuff, it's a benefit. It's worth considering. So, anyway, that's a wrap. As far as our episode for today, I do want to at least give a quick mention. Our channel isn't just about content. It isn't about trying to get the most, um, like crazy things that we're trying to do. We want to cover things that are, you know, are are important, and and the reason why is we want to connect with our audience and subscribing, you're joining a community of like-minded individuals who share your interests and passions, so let's grow together and forge meaningful connections along the way. Subscribe like, hit that bell and you'll get to know when we have an episode on the radar, and we try to be basically consistent every single week with something. So, anyway, that is the end of our show. Thanks for listening, thanks for watching. Life is too short, so keep laughing and learning and remember idiots have way more fun. Check your shoes.