Tax Forms and Mistakes You Can't Miss

EPISODE RESOURCES

2025 Federal Tax Brackets

Navigating Tax Season: Common Forms, Mistakes, and Deductions

In this episode of the New Money, New Problems podcast, we dive into common tax forms and mistakes that you don't want to miss during tax season. Topics range from the importance of accounting for all income sources, including W-2s, 1099s, and income from high-yield savings and brokerage accounts. Brenton elaborates on the significance of accurately reporting restricted stock units (RSUs) on your W-2 and explores various tax deductions, both above-the-line and below-the-line, including retirement contributions, health savings accounts, and itemized deductions like mortgage interest and property taxes. 

This episode is packed with valuable information to help you optimize your tax filing and maximize your financial benefits.

00:00 Introduction to Common Tax Forms and Mistakes
00:45 Welcome and Recent Events in Nashville
01:37 Importance of Tax Filing Season
02:34 Understanding Different Income Sources
04:45 Common Mistakes with W2 and Equity Compensation
08:21 Above the Line Tax Deductions
10:04 Standard Deduction vs. Itemizing Deductions
12:02 Below the Line Deductions for Homeowners
12:55 Medical and State/Local Tax Deductions
14:56 Charitable Contributions and Home Equity Line of Credit
16:46 Recap and Calculating Taxable Income
19:21 Introduction to Tax Credits
20:27 Child and Education Tax Credits
23:20 Conclusion and Final Advice

Transcript

 In this episode, we talk about common tax forms or tax mistakes you don't wanna miss. Let's get started.

Let's get some money from New Money, New Problems. It's the New Money, New Problems podcast. A show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen. Negotiating compensation, purchasing your first investment property.

Helping your family with money, the highs and lows of entrepreneurship, new money brings new problems that require new solutions. Join us as we work through them together. I'm Brenton Harrison, and this is the New Money, New Problems podcast.

Hello and welcome to another week of the New Money, New Problems podcast. I typically say I hope you all had a good week. I'll say in the Nashville area. If you're here and listening, I hope that you had a safe last couple of weeks. If you all are unaware. Last week, Nashville suffered through the worst ice storm in almost 40 years.

Most of the city lost power. Some are still without power. Um, and if you are around our way, we lost power and had significant damage to our roof as a part of that ice storm, which we're still navigating. So when people say that there is no benefit to. To renting and you should always own a home. As someone who is a homeowner currently navigating this situation, I would say they are wrong.

And as a matter of fact, later in this episode we're going to illustrate some other reasons why home ownership doesn't necessarily benefit you every single year, at least from a tax perspective. That said, the purpose of this episode is not to talk about the stuff that's annoying me around my house, it's to talk about the tax Filing season that is upon us.

It is that time of year where if you do not have all, you should have most of the tax documents that you need to file your return, and every single year. I tell you that from a financial planning and wealth building perspective, there is a lot of opportunity in how you file your taxes in terms of benefiting the chances that you have to generate wealth.

But there's also a lot of common pitfalls that we try to make sure that you avoid on this podcast. So along those lines, we're going to give you. An idea of some common tax forms or mistakes that we see every single year when we're reviewing people's tax filings in the hopes that you can avoid them.

And we're gonna do this in the order of how your tax burden is actually calculated. And that the top of that tax calculation burden is literally just totalling up all of your income sources. And this may seem very obvious because if you work, uh, or if you're self-employed, you think that, Hey, all I need to do is submit my W twos and your 10 90 nines.

But first, we'll talk about the fact that there are other forms of income that are calculated when considering your total taxable income. So we'll get to the 10 90 nines and w twos, but first we want to start with. Extra income besides what you Earn at work.

And a common mistake is missing the income that's generated by savings accounts, specifically high yield savings accounts.

Where if you have a savings account or a high yield savings account somewhere and you're generating significant interest, you're going to get that 10 99 because the interest on that form at minimum is going to be taxed. Just like your ordinary income is taxed from your job. At maximum, it's considered investment income

for people who have an Adjusted Gross Income above certain levels, which means they pay an additional 3.8% in tax on top of that, and unfortunately, many people miss that form. Other forms of income, which would also come in different 10 90 nines, like a 10 99 div as an example, is the income from your investment accounts in general. So if you have a non-qualified brokerage account and you're investing in that account, there's activities

whether it be buying or selling stocks or just dividends that you've received from dividend paying stocks or mutual funds, that could be considered taxable income as ordinary income. If you're talking about something like a dividend itself,

if you have sold a stock for a loss or a gang, that is going to be based on the profit or loss, considered a short-term or a long-term capital gang, and all of that information that's needed for your tax return is housed on that 10 99. So you want to make sure that it is filed with your return

because as that brokerage account grows, the taxable impact of that account is going to grow as well, and it becomes something that does have to be incorporated into a full strategy.

So all of these are separate income sources from your income that we have to address even before we get to the W2 or the 10 99, and there are some potential pitfalls here as well.

Let's start with a W2.

There are many mistakes that you can find on a W2, but specific to those who have equity compensation, that would be something like a restricted stock, for example. You want to make sure that the basis for your stock

is accurately reported on your W2. What does this mean? Restricted stock is company stock that is granted or vested to an employee over a certain period of time. So for example, you might work at company X, Y, Z, and they will grant you a thousand shares of restricted stock, and that stock will vest 25% per year over the next four years.

So that means that every year. 250 shares of company stock is going to vest, meaning it actually becomes yours when they grant it to you. They're saying if you stay long enough for it to become yours, it will be yours. When it vests, it actually becomes your stock. So let's say that we have someone who has 250 shares of company stock vest in the year 2025.

And at the time the stock vested, it was worth a hundred dollars per share. Well, if you're quick with math, that means that it was worth $25,000. And the thing about restricted stock is once the shares vest, it is taxable to you as income. So it makes it look in this scenario like this taxpayer earned an additional $25,000, even though it's not technically cash in their pocket.

That $25,000 would be taxed, like their salary as well, meaning it's taxed as ordinary income, which is the term that is used. Now this is an important concept that $25,000 of stock is considered the taxpayer's cost basis. It essentially means that's how much skin they already have in the game. They were granted $25,000 of stock that recently vested. So now in the future, if they ever sell those shares for a profit,

the government's only going to make them pay taxes on any growth that occurred beyond the initial $25,000. Why? Because they already paid taxes on the first 25,000. That is their basis. So down the line, let's say that three years from now, that $25,000 worth of stock Gross, two $35,000 in value, and they sell it, they're only going to have to pay tax on that $10,000 of growth.

If the basis was accurately reported on their W2. If you look on a W2, there is a box that says other,

and for people who have restricted stock in that box that's listed other, their employer is supposed to list the value of any restricted stock that vested in the current year, meaning for this taxpayer, they should look at a W2 and they should see a section that says other and $25,000 worth of stock should be listed there for 2025.

However, it is very common for the W2 to not list any reportable RSUs in this other box when you get your tax document.

And even if they do, it may be that the company where the stock is held does not have an accurate reporting of the basis from that stock as well. So it is incredibly important that you have this form corrected if you don't see those shares accurately listed or if they are accurately listed and the brokerage company that holds the stock doesn't have this information that you keep track of it on your own so that in future stock sales, in the example we used, you don't pay $35,000 worth of capital gains taxes on a transaction that should have only generated $10,000 worth of gangs.

Now that we've totaled up our income, however, we can start the process of reducing the amount of income on which we pay taxes. Taxes are like a game. You want to use all of the legal tools that you can to reduce the income on which you pay taxes.

So the next step we have in that arsenal is to employ above the line tax deductions. A tax deduction is something that you can use to reduce the income on what you pay taxes, and an above the line tax deduction is a deduction that's available. No matter how you file your taxes, which will become clear shortly

the most common above the line tax deductions, especially for an employee, are the contributions that you make to retirement plans like a 401k or a 4 0 3 B that are pre-tax. There are also contributions to things like your health savings account, your flex spending account, and your dependent care flex spending account.

And the good thing is. If reported accurately, all of this information is already calculated on your W2 by the time you get the document. So while you might want to double check to make sure, you shouldn't have to manually report the information as an employee in terms of what you contributed in these areas because it's already taken care of on the W2.

If you're a business owner, however, things like the health savings account, things like a retirement plan or an IRA that's individually owned, those may be items that you have to manually report that aren't listed on your tax documents, depending on how your business is structured and how you pay yourself.

So be aware that these are all eligible above the line deductions and go on the hunt for where you might find that information. Be with the health savings account provider or with the brokerage company where you hold your IRA or company retirement account to make sure you don't miss out on these opportunities to lower your taxable income.

I.





So we've taken our total income, we've then reduced the income on which we pay taxes by utilizing above the line deductions. Now is time for us to make the decision of whether we're going to use the standard deduction or whether we're going to itemize our own deductions.

Instead, if you choose to itemize and you total up all of your own expenses that are tax deductible, these are also called below the line tax deductions. You can only benefit from them if you choose to itemize. And this brings me to my point about owning a home in recent years.

The standard deduction, which is available no matter what expenses you have, has increased significantly. As a matter of fact, in the tax year 2025, if you file your taxes Married, Filing Jointly, you have a standard deduction available to you of $31,500, meaning you can reduce your taxable income by that much. No matter what's going on in your taxable life, now this is a very high standard deduction and you wouldn't itemize unless you have more than $31,500 of deductible expenses.

Otherwise, why would you, you be taking less off of the top of your income than you have access to? And as a matter of fact, this year, because of this increased standard deduction, it is the first year that I can think of in my working years that my wife and I have chosen to take the standard deduction.

We did not have enough of our own expenses to exceed that bar of 31,500. Why is this important as a homeowner? Because the tax benefits of home ownership are only relevant when you itemize. And we're gonna go through those deductions. But since I filed the standard deduction this year, that means as someone who was currently bearing the burden of the costs of home ownership, that I got no corresponding tax benefit from that home ownership in 2025.

And if you always file the standard deduction and you say, and pat yourself on the back, I have a home that's mine and it's such a great tax deduction. That is not true. It's only a great tax deduction or a deduction or benefit at all from a tax perspective if you choose to itemize.

But for those who do, let's go through those tax deductions, starting with the interest that you pay on your mortgage.

There's a document called a 10 98. It's just a mortgage statement that's issued every tax year by the company that holds your mortgage, and it gives you a lot of reportable information that you can use to reduce your tax burden. The interest that you pay on your mortgage is part of it. Also the amount that you pay in property taxes is something that's a benefit to you as well.

And while that may not be on the mortgage statement, you should be able to go to your property assessor and retrieve that information if you don't see it on the 10 98. If you're below a certain income and you pay PMI, or some might call it mortgage insurance premiums in the tax year 2025, that is not tax deductible, although in the tax year 2026, it is something that will be deductible. So you need to pay attention to it moving forward, but it would not be of value to you this year.

The next below the line deduction that can be valuable but is not widely used because you have to generate a significant amount of expenses are medical expenses. Now, medical expenses are only deductible to the extent that they exceed 7.5% of your Adjusted Gross Income. So that's a very high bar to hit if you're thinking about it.

If you have an Adjusted Gross Income of $200,000. That means that you cannot deduct any medical expenses until they exceed $15,000. That's seven and a half percent of 200. Now, in terms of what qualifies it is things like the insurance premiums that you pay for health insurance, the copays that you pay for doctor's visits.

If you go to therapy and it's something that's medically necessary, all of those expenses are eligible. But again, because of that high threshold, it's not something where you get to take advantage of a lot of the deductible expenses in most cases.

Although what I've seen some people do is if they have some surgeries that they know that they need, uh, to have on their body or even dental procedures, instead of spreading them out over, uh, multiple years, they will bunch them into one year to take advantage of that threshold. I've even seen scenarios where couples will choose to file their taxes Separately so that that one person who might have more expenses in a given year has an easier threshold to hit because it's only going off of a lower income.

Because by lowering the household income on their return, that threshold is easier to surpass. Other tax deductions. Huge tax deductions, especially in states that have high state income tax are your state and local taxes. So we just talked about property taxes.

That's a state and local tax. State income taxes also a tax. If you live in a state like Tennessee where we don't have state income tax, but you have a high sales tax, we actually have the highest sales tax in the nation, then you can file. To take advantage of the sales tax, but you can't do both. So you can either take advantage of the state income tax or the sales tax, but you can't deduct the state income and the sales tax on your return.

Next up are charitable deductions, and this is something that's going to be unique. Uh, moving forward for a lot of taxpayers, if not all taxpayers, but in the year 2025 is only relevant for people who itemized in the year 2025.

You cannot take a tax deduction for a charitable contribution if you file for the standard deduction, which also means that if you're someone who's only given to charity for the tax benefits and you then choose to take that standard deduction, then you don't get any tax benefits. But if you itemize, you get a dollar for dollar reduction in most cases for whatever you contribute to a charity. So you want to make sure that you reach out to those charities and get the receipts for your contributions so you can file it with your tax documents in 2026 and beyond. However, that's going to change

because in that year and moving forward, even if you file for the standard deduction, you'll be able to take a deduction for up to $2,000 in qualified charitable contributions. But if you itemize, there's going to be a new threshold or floor that's established where you can only deduct the charitable contributions that exceed 0.5% of that income.

And then lastly, for certain homeowners who have a home equity line of credit and they use the funds in that home equity line of credit to actually improve or upgrade or maintain their home in a way that adds tangible value or preserves its value, you can potentially deduct the interest that you pay on that home equity line of credit.

Although there are limits on how much you can claim, and it does actually have to be for the improvement or maintenance of your home. And it can't be cosmetic. So for example, if you use funds on a home equity line of credit to paint your home, that's not something that could be used as a tax deduction, but if you use that same home equity line of credit to say, replace your roof, that's something that's potentially tax deductible.

So as a recap, at this point, we've taken our total income. We then reduced it by using the above the line deductions available to all taxpayers. We then reduced it further by choosing to either itemize our taxes with below the line deductions or take the standard deduction available to us.

What's left is considered our taxable income, and this is the amount that's actually applied to the federal tax brackets.

If you're looking on screen, and we'll put this in the show notes, you're seeing the federal tax brackets for the tax year 2025. Let's assume that we have a tax payer who earns $150,000 in total income. If you look at these tax brackets and they had to pay tax on their total income, they would fall in the 24% tax bracket.

But let's say that through above the line deductions, they take their Adjusted Gross Income down to say $110,000. And then through either the standard deduction or below the line deductions, they're able to reduce their taxable income even further down to say, $80,000.

Well just by these tools, not only have they reduced the income on which they pay taxes by $70,000, they also reduce the tax bracket that the highest portion of their income is taxed by 2% as well, knocking them from the 24% bracket down to the 22% bracket. And this is the type of tangible value that comes from not just using the tools around you, but also having an awareness of what is involved in tax planning.

This is the New Money, New Problems Podcast. A show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen. We'll be right back.

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All right, let's finish this up with the concept of a tax credit. So we have gotten to the taxable income and we have taken that taxable income to the federal tax brackets. And based on that information, we have calculated the amount of tax that is owed. So right before the break, we talked about a single taxpayer who made $150,000, but through the different tools, was able to bring their taxable income down to about $80,000. This is not an exact calculation, but a rough calculation of the taxes they would owe against that income would be $12,500 or so.

That's not necessarily the end of the story because they can use tax credits to reduce the amount owed dollar for dollar. So the tax deduction reduces the income on which you pay taxes.

The tax credit reduces the taxes themselves While there are several that don't require you to do any digging, like for example, having a child and being able to receive the child tax credit, you don't have to go searching for your child. You just let the IRS know that you have a child.

They calculate the credit on your behalf. There are others that do require a little more research. One of them is the child independent care credit. The child independent care Credit is something where you are, if eligible, able to be credited for an amount that you use to pay for care that allows you to work or go to school.

And it has to be something that allows you to stay at work or go to school. It can't be something you're doing just for your own benefit. So for example, let's say you have a married couple and one of these spouses doesn't work, you then cannot take the child independent care credit for the cost of say, sending a child to summer camp.

But if you are in a scenario where you, or you and your spouse are paying for care, there are a number of expenses that are eligible. pre-K and daycare costs are eligible for the credit. Summer camp costs, as long as it's not an overnight camp, are eligible for the credit. If you pay for before care or aftercare at your child's school, even if they are above pre-K age, as long as they're under the age of 13, that is a potentially eligible expense to be used for the credit.

If your children are a little older and now they are at college age, than there are credits that you can take for them or yourself as well if you are going back to school for yourself or even just taking classes on the side.

So for example, there's the American Opportunity Tax Credit. This is for people who are in their first four years of post-secondary school. So it's for someone who is pursuing a degree and you have to be taking classes in pursuit of a degree. You have to be enrolled at least halftime at your school, but it's eligible to you, your spouse or your dependents.

So if you have a child in your house who was in school, you can use that tax credit. And it is a significant credit for their first four years of post-secondary education. And it's for eligible expenses, not just like tuition and fees,

also the cost and materials that go towards their schooling, even if it's not paid towards the school. The lifetime learning credit is something that's not limited to the first four years of post-secondary education. Although it's not as strong of a credit. It's something that you can use for yourself or your spouse or your children in any year.

You don't have to be enrolled at least half time. You don't even have to be pursuing a degree. It could just be a random class that you're taking here or there because of your enjoyment or because you're trying to increase your income potential, even if you're not pursuing a full degree. And in this case you can claim tuition and fees and even some school expenses as long as they are paid directly to the school In this scenario.

So I know that's a lot. Whenever we do the tax episodes, I warn people like, Hey, I know this is some terminology, heavy tax, heavy content, but again, these are things where you'd be surprised the thousands, if not tens of thousands of dollars that this either costs our clients on a yearly basis before we catch it.

Or they leave on the table by not understanding what's involved in a fully integrated tax strategy. There are tons of stuff that we left out because it's either too specific for our general audience or not relevant to some of our audience. But what I would encourage you to do, as I always do, is if you have a complex tax scenario or you're a high income.

Rather than leaning on the TurboTax of the world to consult with a tax professional and form a relationship because there is just some comfort when they  📍 stamp on that return that it says, prepared by a CPA or enrolled agent as compared to you trusting your own ability to keep track of this information.