WEBVTT - Debunking Common Tax Misconceptions #344 0:00:00.120 --> 0:00:02.880 Welcome to How the Money. I'm Joel and I am Matt, 0:00:03.040 --> 0:00:26.759 and today we're debunking common tax misconceptions. Oh yeah, taxes man. 0:00:27.080 --> 0:00:29.840 You know, taxes are are probably on everybody's mind right 0:00:29.840 --> 0:00:33.400 about now, not because they're actually due tomorrow. Traditionally they're 0:00:33.400 --> 0:00:36.639 doing on a course, but everyone got that automatic one 0:00:36.680 --> 0:00:39.800 month I R S extension, but even still April fifteen 0:00:39.960 --> 0:00:42.360 is it's kind of synonymous with tax day. So that's 0:00:42.360 --> 0:00:45.240 what we're talking about today. And you know, another reason 0:00:45.479 --> 0:00:47.680 we are covering taxes is because you know, when there's 0:00:47.720 --> 0:00:49.800 something that you only do once a year, you always 0:00:49.800 --> 0:00:51.159 come back to it and you're like, okay, how does 0:00:51.200 --> 0:00:53.279 this work again? You know, like whether it's maybe your 0:00:53.320 --> 0:00:56.000 pressure washer, where you're like, how does this work again? 0:00:56.040 --> 0:00:58.080 Like what like what order am I supposed? Okay turn 0:00:58.120 --> 0:01:00.200 the water on first, then start the thing up? You know, 0:01:00.280 --> 0:01:02.800 like there's like an order of where put the cleaning solution? Yeah, 0:01:02.840 --> 0:01:04.440 like what's what's the ratio? I feel like the same 0:01:04.440 --> 0:01:06.199 thing is is true of our taxes as well, because 0:01:06.200 --> 0:01:07.840 it's something is you know, when it's not something that 0:01:07.880 --> 0:01:11.240 you do every single day, basically you forget about it. 0:01:11.280 --> 0:01:13.720 And obviously that's probably one of the reasons why they 0:01:13.760 --> 0:01:18.280 switched to the an expanded standard deduction. But there are 0:01:18.319 --> 0:01:20.320 some things that we need to keep in mind, regardless 0:01:20.600 --> 0:01:22.640 of the fact that many people only look at their 0:01:22.640 --> 0:01:25.160 taxes once a year. Yeah, I'm glad we're talking about 0:01:25.200 --> 0:01:27.640 taxes today, dedicating an entire episode to it. Yeah, I 0:01:27.680 --> 0:01:30.800 think you know, taxes are complex and people feel bufuddled 0:01:31.000 --> 0:01:33.039 by them, and so they probably a lot of our 0:01:33.040 --> 0:01:35.720 listeners probably have you know, a few things that they've 0:01:35.720 --> 0:01:37.880 heard that have crept in over the years in regards 0:01:37.880 --> 0:01:40.160 to the way that they now think about taxes that 0:01:40.319 --> 0:01:42.120 just aren't true. And so today on the show, we're 0:01:42.160 --> 0:01:45.240 gonna cover the most popular misconceptions when it comes to taxes, 0:01:45.280 --> 0:01:47.320 and we're gonna try to clear those things up. That's right. 0:01:47.360 --> 0:01:48.880 But first, man, I wanted to share a little story 0:01:48.880 --> 0:01:52.440 with you, which is so we talked about on the show. Honestly, 0:01:52.480 --> 0:01:55.440 maybe it's pretty close to a year ago. I purchased 0:01:55.520 --> 0:01:58.080 a new bike for myself use some of my stimmy 0:01:58.120 --> 0:02:01.800 money from last spring, and uh, I looked around. One 0:02:01.800 --> 0:02:03.520 of the best deals I could find on that particular 0:02:03.720 --> 0:02:05.280 bike that I was looking for was at Ari I 0:02:05.800 --> 0:02:08.120 and so I was getting ready to make the purchase there. Uh, 0:02:08.160 --> 0:02:10.880 and then I got hit with the sales the online 0:02:10.880 --> 0:02:12.600 sales pitch, which is, would you like to become an 0:02:12.600 --> 0:02:15.840 ari I member for twenty bucks save ten percent? And 0:02:15.880 --> 0:02:18.239 I was like, normally, I'm not a huge fan of 0:02:18.440 --> 0:02:20.480 membership clubs, right like where you gotta you've gotta pay 0:02:20.520 --> 0:02:25.200 money to be a part of whatever membership whatever club Costco. Sadly, 0:02:25.480 --> 0:02:27.440 it's it's one of the reasons I don't like Costco. Yeah, 0:02:27.440 --> 0:02:29.280 I don't. I don't like that kind of upfront money. 0:02:29.320 --> 0:02:32.200 But in this instance, in that one purchase, it was 0:02:32.240 --> 0:02:35.040 going to more than pay for the cost of the membership. 0:02:35.360 --> 0:02:38.480 And with ari I specifically, Dude, it's a lifetime membership. 0:02:38.480 --> 0:02:39.960 I didn't realize that, Like in my mind it was 0:02:39.960 --> 0:02:42.600 sort of like this annual thing, but no, you pay 0:02:42.880 --> 0:02:45.720 one time, you become a member for life. Uh. And 0:02:45.760 --> 0:02:47.400 in my case, not only did I get you know, 0:02:47.440 --> 0:02:51.160 that immediate savings or mentally I got that immediate savings. 0:02:51.160 --> 0:02:53.200 It turns out actually didn't receive that until a couple 0:02:53.200 --> 0:02:54.640 of weeks ago. That's why I wanted to talk about 0:02:54.639 --> 0:02:56.800 it now, because I totally forgot about it. Dividend. You 0:02:56.840 --> 0:02:58.480 get that once a year, right, Yeah, it's a yearly 0:02:58.520 --> 0:03:00.680 payout and uh, you know, I guess they wait until 0:03:00.720 --> 0:03:03.680 they calculate Q four, I guess, and then they send 0:03:03.720 --> 0:03:06.399 sending out the checks to all the different members. But yeah, 0:03:06.400 --> 0:03:08.359 a card showed up in the mail saying how much 0:03:08.520 --> 0:03:10.840 money I had on that thing? Uh, And it reminded 0:03:10.880 --> 0:03:12.799 me like, oh, yeah, of course, like I bought the 0:03:12.800 --> 0:03:14.800 bike last year, and so I guess I wanted to 0:03:14.800 --> 0:03:17.560 mention that to folks because that is for maybe folks 0:03:17.560 --> 0:03:21.000 out there like me who are adverse to paying for 0:03:21.040 --> 0:03:24.080 different memberships or clubs things like that. Um, something like 0:03:24.120 --> 0:03:26.280 ari I mean it could really pay and plus I've 0:03:26.280 --> 0:03:28.480 got you know, sixties seventy bucks sitting there waiting for me, 0:03:28.960 --> 0:03:31.239 uh to use. The only downside you do have to 0:03:31.320 --> 0:03:32.720 use it at ari e I. It's not like it's 0:03:32.919 --> 0:03:35.160 cash in your hand. Yeah. Yeah, Well ari I has 0:03:35.200 --> 0:03:37.600 been one of the best retailers in America for a 0:03:37.640 --> 0:03:39.840 lot of years. To the rock Fature people, well like 0:03:39.920 --> 0:03:42.960 that they offer good products and services h and at 0:03:42.960 --> 0:03:46.400 the same time too a great return policy. So yeah, 0:03:46.400 --> 0:03:48.800 I feel like this is not an ad for ari I, 0:03:48.840 --> 0:03:51.080 but ari is like truly, like just an awesome company 0:03:51.160 --> 0:03:54.040 or not sponsored at all by a right, but but yeah, yeah, 0:03:54.160 --> 0:03:56.600 I think it's in particular if you're buying something at 0:03:56.720 --> 0:03:58.400 r e I and you plan on doing it again, 0:03:58.520 --> 0:04:01.520 like getting the twenty dollar membership, the lifetime membership makes 0:04:01.520 --> 0:04:03.760 a whole lot of sense. That's right. Let's go ahead 0:04:03.760 --> 0:04:06.240 and introduce the beer that we're gonna share on this episode. 0:04:06.280 --> 0:04:09.280 You and I are drinking a beer called sponsho Via 0:04:09.720 --> 0:04:12.080 and that is a collaboration between j Wakefield Brewing and 0:04:12.320 --> 0:04:15.480 Arcane Ale Works. Looking forward to enjoying this one with 0:04:15.560 --> 0:04:17.359 you and talking about it at the end of the 0:04:17.360 --> 0:04:20.080 episode after we talk about taxes. All right, let's talk 0:04:20.120 --> 0:04:22.520 about taxes. Everybody's favorite subject. Let's do it. Well, yeah, 0:04:22.560 --> 0:04:25.800 I mean taxes. There this fixed certainty in our lives, right, 0:04:26.040 --> 0:04:29.800 almost as certain as death, but basically just as certain. 0:04:30.440 --> 0:04:32.880 But they can also be confusing and matt um. When 0:04:32.880 --> 0:04:34.719 I think about confusing things, I think about some of 0:04:34.720 --> 0:04:37.000 the films that Christopher Nolan has put out right, like 0:04:37.160 --> 0:04:39.760 seriously I had to watch as a second time, Like 0:04:40.040 --> 0:04:42.320 is Leonardo DiCaprio in the real world or in the 0:04:42.400 --> 0:04:44.800 dream world? At the end of inception, like when his 0:04:45.160 --> 0:04:47.680 token is still spending whatever. Man, I think that's the 0:04:47.680 --> 0:04:49.120 real world, that's the whole point. But I don't know, 0:04:49.320 --> 0:04:51.240 you know, so I feel like I had to watch 0:04:51.279 --> 0:04:53.320 it again to try to figure that out. Something else 0:04:53.440 --> 0:04:56.480 that has always baffled me is how maybe like certain 0:04:56.480 --> 0:04:58.840 folks became famous in the first place, like Paris Hilton 0:04:58.880 --> 0:05:01.279 back in the day where Guy Fietti, Like, you know, 0:05:02.320 --> 0:05:03.599 that's one of the things. When I see a headline 0:05:03.600 --> 0:05:05.920 about what Guy Fietti's up to, I'm like, why who cares? 0:05:06.000 --> 0:05:09.760 Like cares about right? I mean, like D D D 0:05:10.400 --> 0:05:12.279 is a great show, but like I don't care what 0:05:12.279 --> 0:05:14.080 he's up to it in three times, okay? And like 0:05:14.160 --> 0:05:18.120 one more thing that confuses me putting together anything from IKEA. Uh, 0:05:18.160 --> 0:05:19.560 like I'm bound to get lost at some point in 0:05:19.600 --> 0:05:21.960 the process, even if I'm following the directions, and I'm 0:05:22.000 --> 0:05:24.479 probably gonna, you know, make at least one mistake while 0:05:24.480 --> 0:05:27.599 I'm doing right. Uh. But that that's like enough about 0:05:27.640 --> 0:05:30.080 how easily I cant confused. It's actually confusing to me 0:05:30.480 --> 0:05:32.400 because I mean, come on, you know, this is another 0:05:32.440 --> 0:05:35.000 Scandinavian country that you hail from. Your right if anybody 0:05:35.040 --> 0:05:38.839 should excel at Ikea directions with no words and odd 0:05:38.880 --> 0:05:42.080 figurine who were putting these together only an Alan wrench. 0:05:42.480 --> 0:05:44.120 It should be me, that's true. That's right. Yeah. So 0:05:44.120 --> 0:05:46.080 I don't know why I get so easily baffled at 0:05:46.080 --> 0:05:48.680 Ikea stuff, but I do. Um. But today we're gonna 0:05:48.760 --> 0:05:52.240 tackle a subject that's even more perplexing than than those topics, 0:05:52.279 --> 0:05:54.960 and it's taxes. And I think, basically, Matt, like, what 0:05:55.000 --> 0:05:57.839 we don't want is people walking around with jankie stuff 0:05:57.839 --> 0:06:00.719 in their head about such an important subject, assuming things 0:06:00.720 --> 0:06:03.520 about taxes and their taxes in particular that could potentially 0:06:03.520 --> 0:06:06.640 even cost them money. Um, that also aren't true. That's right. 0:06:06.720 --> 0:06:08.480 And before we kind of keep talking about taxes, I'm 0:06:08.520 --> 0:06:12.520 still thinking about Guy Fieri, which makes me think about 0:06:12.560 --> 0:06:14.680 like it's all on the Food Network, right, which is 0:06:14.720 --> 0:06:16.760 on which is a part of like Discovery plus that's 0:06:16.760 --> 0:06:20.680 like another one of these streaming platforms another uh something 0:06:20.720 --> 0:06:22.719 else you can subscribe to, you know, but because what 0:06:22.720 --> 0:06:25.600 they've got going for them as well is h GTV. Right, 0:06:26.000 --> 0:06:27.800 My mom's all about it, dude. I mean, it's it's 0:06:27.839 --> 0:06:31.479 like it's catint for like homeowners or potential homeowners out there. 0:06:32.200 --> 0:06:34.560 I don't see how they're not gonna crush because there's 0:06:34.600 --> 0:06:36.720 so much content, you know, like just like slap anybody 0:06:36.800 --> 0:06:38.960 up there, anybody gets a show. But I saw like 0:06:39.000 --> 0:06:41.240 a commercial or an ad for Discovery Plus recently and 0:06:41.240 --> 0:06:42.839 I was like, oh my gosh, this guy Fie on it. 0:06:43.160 --> 0:06:44.880 I can't remember if it was, but I was looking 0:06:44.920 --> 0:06:47.000 at the lineup and I couldn't believe how many different 0:06:47.040 --> 0:06:49.120 shows that they have. They're gonna do pretty well. Yeah. 0:06:49.200 --> 0:06:51.000 But you know, so we're we're talking about taxes. We're 0:06:51.000 --> 0:06:52.640 talking about making sure that we have the right, you know, 0:06:52.680 --> 0:06:55.880 the right tax information in our brains. And again, since 0:06:55.880 --> 0:06:58.240 it's the day before taxes are traditionally due here in 0:06:58.240 --> 0:07:00.800 the US, we figured now is the perfect time to 0:07:00.920 --> 0:07:03.960 clear a few of these misconceptions up. You know, some 0:07:04.000 --> 0:07:07.159 folks in Texas and Oklahoma have until June because of 0:07:07.200 --> 0:07:09.279 the those awful winter storms. But for all the rest 0:07:09.279 --> 0:07:11.200 of you procrastinators out there, you need to make sure 0:07:11.240 --> 0:07:13.520 you get on it. Come on, make it happen. Five 0:07:13.560 --> 0:07:15.440 your taxes, U Joel. You know you mentioned like that 0:07:15.480 --> 0:07:19.400 quote unquote Janakie, stuff like floating around in our heads, 0:07:19.400 --> 0:07:21.440 like that's often what we base our decisions on. You know, 0:07:21.520 --> 0:07:23.480 like if if we don't have, say like a tax 0:07:23.520 --> 0:07:26.360 professional in our life, if we have a misconception that 0:07:26.400 --> 0:07:28.680 we're basing those decisions on, it's really important for us 0:07:28.680 --> 0:07:30.120 to clear it up so that we can make the 0:07:30.160 --> 0:07:33.320 best in legal tax moves as we move forward. And 0:07:33.360 --> 0:07:35.040 so we want to make sure that we're all making 0:07:35.040 --> 0:07:37.680 decisions based on what's true instead of what we've heard 0:07:37.920 --> 0:07:41.000 maybe a friend say, or maybe what somebody on you know, 0:07:41.040 --> 0:07:43.960 TikTok what they wrote wrote a song about. Although there 0:07:43.960 --> 0:07:46.080 are you know, there is some good information on TikTok. Yeah, 0:07:46.200 --> 0:07:49.000 there are some people uditioning some decent financial advice on TikTok. 0:07:49.000 --> 0:07:50.520 I'm not hating on all of them. It's not like 0:07:50.560 --> 0:07:54.520 the proven medium of podcasting, which has been around for years, 0:07:54.560 --> 0:07:57.640 which only super high professional people who know exactly what 0:07:57.640 --> 0:08:00.880 they're talking about can be a part of. Right. Well, um, yeah, 0:08:01.000 --> 0:08:03.680 there is obviously some goofy financial stuff floating around on 0:08:03.680 --> 0:08:06.240 TikTok these days, but but also too in podcasts. There 0:08:06.240 --> 0:08:08.440 are some podcasts out there that you need to be 0:08:08.520 --> 0:08:10.480 wary of, and you might not be getting the kind 0:08:10.520 --> 0:08:13.560 of advice that you need, and you might be led astray. 0:08:13.600 --> 0:08:16.240 But all right, let's jump into the tax misconceptions, Matt. 0:08:16.360 --> 0:08:18.680 Let's start with the first one, and this one is 0:08:18.800 --> 0:08:20.760 if I file an extension, I don't have to pay 0:08:20.800 --> 0:08:23.559 anything to the I R S until October. I've heard 0:08:23.600 --> 0:08:26.040 about that, yeah, And we wanted to lead off with 0:08:26.080 --> 0:08:28.840 that one because there might be some folks who are thinking, oh, man, 0:08:28.880 --> 0:08:30.440 I don't want to have to deal with my taxes 0:08:30.560 --> 0:08:33.000 over the next month. Maybe I should just file extension 0:08:33.160 --> 0:08:34.880 right now, and if I do that, then I won't 0:08:34.880 --> 0:08:37.600 have to pay any money. But that's just not the case, right. 0:08:37.600 --> 0:08:39.600 It would be nice to hang onto your money for 0:08:39.640 --> 0:08:41.599 a few more months, not give any to the I 0:08:41.720 --> 0:08:43.880 R S, keep that money in your own account, earning 0:08:43.920 --> 0:08:48.240 interest the entire time. But sadly this isn't true. Even 0:08:48.320 --> 0:08:50.560 if you have filed an extension and are waiting to 0:08:50.600 --> 0:08:54.120 file your return until this fall, you still have to 0:08:54.120 --> 0:08:55.800 determine what you owe the I R S and you 0:08:55.840 --> 0:08:58.080 have to pay them now, and if you don't do that, 0:08:58.120 --> 0:09:01.040 you're gonna owe penalties in addition into the tax when 0:09:01.040 --> 0:09:03.319 you do end up getting around to paying the money 0:09:03.480 --> 0:09:05.240 that you owe the r S later. On this fall 0:09:05.280 --> 0:09:06.960 in October. Yeah, so I'm sure a lot of folks 0:09:06.960 --> 0:09:08.960 are thinking, well, what's even the point of filing an 0:09:08.960 --> 0:09:11.520 extension if if I still have to pay? Right? But 0:09:11.760 --> 0:09:13.320 you know, making sure that you don't screw this up 0:09:13.400 --> 0:09:16.360 is important because you will owe half a percent in 0:09:16.360 --> 0:09:19.439 interest every single month that you are late in paying 0:09:19.480 --> 0:09:21.280 the I R S what you owe, So make sure 0:09:21.400 --> 0:09:23.640 that you keep that in mind, Joel. Next up on 0:09:23.679 --> 0:09:26.080 the list is maybe a saying or a phrase that 0:09:26.120 --> 0:09:28.319 people kind of subscribe to, which is the thought that 0:09:28.760 --> 0:09:32.480 tax refunds are great. Uh. You know, if you're getting 0:09:32.480 --> 0:09:35.400 thousands of dollars back in your taxes, it feels so good, right, 0:09:36.440 --> 0:09:38.760 But you could have been using that money all year 0:09:38.800 --> 0:09:41.520 long to save more money, you know, whether you're paying 0:09:41.520 --> 0:09:44.000 off debt, or maybe you're investing in yourself, or you 0:09:44.000 --> 0:09:46.959 can put more money in tax advantage accounts to actually 0:09:47.000 --> 0:09:49.400 grow your wealth. Uh. And so some folks will say 0:09:49.440 --> 0:09:51.559 that the problem here is that you've given uh an 0:09:51.600 --> 0:09:53.760 interest free loan to the government, and that does make 0:09:53.800 --> 0:09:56.600 some sense, right, But the real problem is that when 0:09:56.640 --> 0:09:59.040 you get money and it feels like a windfall, right, 0:09:59.080 --> 0:10:01.240 that's it's not something you're necessarily counting on maybe kind 0:10:01.240 --> 0:10:03.760 of feels like a lottery ticket. You're you're more apt 0:10:03.800 --> 0:10:07.079 to spend it recklessly. A lump sum tax refund is 0:10:07.080 --> 0:10:10.040 more of an emotional and behavioral money problem than just 0:10:10.160 --> 0:10:12.480 then like I lost eight dollars and twenty cents and 0:10:12.520 --> 0:10:15.320 interest to the I R S problem, right, yeah, And 0:10:15.360 --> 0:10:18.599 I'm considering how low savings rates are right now, the 0:10:18.640 --> 0:10:20.520 fact that you've got a thousand dollar tax refund. It's 0:10:20.559 --> 0:10:22.600 not about the interest that you lost like that that's 0:10:22.600 --> 0:10:25.440 almost negligible, right that this very little money, But it 0:10:25.559 --> 0:10:27.600 is that idea like I just got a thousand bucks, 0:10:27.679 --> 0:10:29.719 what am I gonna blow it on? That's the kind 0:10:29.760 --> 0:10:31.360 of mindset that I think a lot of people have 0:10:31.440 --> 0:10:33.440 when it comes to getting a tax refund. But at 0:10:33.480 --> 0:10:35.040 the same time, on the flip side of the coin, Matt, 0:10:35.240 --> 0:10:38.719 if you're smart about using that lump sum to immediately 0:10:38.760 --> 0:10:41.520 boost your savings or to max out your wrath account, 0:10:41.800 --> 0:10:45.720 then getting a tax refund isn't all that bad because, 0:10:45.760 --> 0:10:47.640 as we said, it's not really costing you all that 0:10:47.760 --> 0:10:50.920 much in actual money. The interest free loan thing is 0:10:50.920 --> 0:10:53.680 is overblown. Just be intentional with the refund that you 0:10:53.720 --> 0:10:56.040 are getting back, but we're also fans of trying to 0:10:56.080 --> 0:10:58.400 minimize any refund that you might owe the I R 0:10:58.520 --> 0:11:00.600 S so that you can, like Matt said, use that 0:11:00.640 --> 0:11:03.720 money every single week, every month during the year, as 0:11:03.760 --> 0:11:05.720 opposed to getting it in a big lump song. And 0:11:05.760 --> 0:11:07.000 the best way to do this, the best way to 0:11:07.000 --> 0:11:09.120 figure this out is to use the I R S 0:11:09.200 --> 0:11:12.360 is tax withholding calculator so that you don't go overboard 0:11:12.679 --> 0:11:15.040 in either direction. Well, Joel, I'm not note. I'm actually 0:11:15.040 --> 0:11:17.960 proud to say that I actually owe the state a 0:11:17.960 --> 0:11:19.840 little bit of money and I'm going to get a 0:11:19.880 --> 0:11:22.280 small refund back from the federal government. So I feel 0:11:22.280 --> 0:11:24.120 like I'm kind of like like straddling the fence a 0:11:24.160 --> 0:11:26.360 little bit perfect Like it's tough to nail it, you know, 0:11:26.400 --> 0:11:28.600 Like it's in particular when you're self employed and you 0:11:28.640 --> 0:11:30.680 have no idea of like what you're gonna be making 0:11:30.679 --> 0:11:32.520 that year, it's tough to make estimated payments and get 0:11:32.520 --> 0:11:35.400 anywhere near you know, zero, which is like the most 0:11:35.440 --> 0:11:37.439 ideal spot. But yeah, I feel like I got bragging 0:11:37.520 --> 0:11:39.560 rights maybe for the next year. Yeah, you do, you do? 0:11:39.880 --> 0:11:43.800 I think the nerd is bragging rights. Ever, Well, I'll 0:11:43.840 --> 0:11:45.160 let you say it as often as you want on 0:11:45.160 --> 0:11:47.880 the show, and also to just everybody out there who 0:11:47.920 --> 0:11:50.760 should pat me on my head. Good for you, but 0:11:52.240 --> 0:11:54.040 uh it, well, just just all of our listeners who 0:11:54.080 --> 0:11:56.520 are getting a tax refund, who maybe just recently found 0:11:56.520 --> 0:11:58.600 out or we're going to find out really soon that 0:11:58.640 --> 0:12:01.960 they are owed ex refund um. Just be intentional with that, 0:12:02.320 --> 0:12:04.360 and you know, do what you can next year to 0:12:04.400 --> 0:12:06.960 maybe work towards having a smaller one. But don't treat 0:12:07.000 --> 0:12:09.120 it like found money, like money that just fell into 0:12:09.120 --> 0:12:11.600 your lap. It's your money, um, and so we want 0:12:11.640 --> 0:12:14.160 you to use even a lump some like a tax 0:12:14.160 --> 0:12:16.480 refund wisely. So make sure you don't like, just go 0:12:16.520 --> 0:12:18.480 out and buy around for the bar or something like that. 0:12:18.559 --> 0:12:21.000 You know that's awsome. I don't know, you're supporting your 0:12:21.040 --> 0:12:22.960 local restaurant or a bar. If by doing that and 0:12:23.000 --> 0:12:26.240 all the patrons there, everybody will everybody's best friend if 0:12:26.240 --> 0:12:28.600 you do that. That's that's right, all right, Joel. We've 0:12:28.600 --> 0:12:31.080 got several other tax misconceptions that we're gonna get to, 0:12:31.120 --> 0:12:33.040 including what that you hear I feel like all the time, 0:12:33.320 --> 0:12:35.520 which is, oh, you can just write it off. We'll 0:12:35.520 --> 0:12:37.959 get to that one plus many others right after the break. 0:12:47.600 --> 0:12:50.600 All Right, we're back. We're talking about common tax misconceptions, Matt. 0:12:50.640 --> 0:12:52.560 Let's get to one that you and I've heard a 0:12:52.600 --> 0:12:56.040 lot of small business owners say throughout the years that, uh, 0:12:56.080 --> 0:12:58.000 and this one's about tax right offs, like you mentioned 0:12:58.160 --> 0:13:00.840 before the break, and it's that mindset of I'll just 0:13:00.880 --> 0:13:02.960 buy it because I can write it off. Yeah why not. 0:13:03.080 --> 0:13:04.880 You're like, I need a new laptop maybe, or maybe 0:13:04.920 --> 0:13:07.800 I don't even need one, but I can write it off, 0:13:08.080 --> 0:13:10.400 So why not. Maybe we need new mics for the podcast, 0:13:10.600 --> 0:13:13.560 let's write it off exactly. They're basically free then, right, 0:13:13.880 --> 0:13:17.240 Well not really so. And it makes me think of 0:13:17.360 --> 0:13:20.440 met this scene from The Princess Bride where Innigo Montoya says, 0:13:20.640 --> 0:13:22.480 you keep using that word. I do not think it 0:13:22.480 --> 0:13:24.840 means what you think it means. And I think it 0:13:24.880 --> 0:13:28.480 can be easy to fall into that trap of thinking 0:13:28.520 --> 0:13:31.400 that we can justify an expense, especially when we're talking 0:13:31.400 --> 0:13:33.720 about a business here. Uh, and then it's not actually 0:13:33.760 --> 0:13:37.520 costing us anything. Unfortunately, that's not how tax write offs work. 0:13:37.720 --> 0:13:40.520 If it did, our studio would be filled with microphones, 0:13:41.840 --> 0:13:44.800 lots and lots of very expensive microphones. In reality, we've 0:13:44.840 --> 0:13:47.120 got like some of the cheapest mics you can buy, 0:13:47.240 --> 0:13:49.680 but man, they work really well. But okay, so let's 0:13:49.679 --> 0:13:52.000 talk about then in reality, like how it actually works, 0:13:52.679 --> 0:13:54.680 which is that when you quote quote write something off, 0:13:54.679 --> 0:13:58.640 you're actually deducting that expense from your taxable income and 0:13:58.679 --> 0:14:00.800 then you're your only taxed on what's left. Right, So, 0:14:00.840 --> 0:14:03.520 for instance, to keep things simpler, let's say you're in 0:14:03.679 --> 0:14:06.160 fifty thou dollars and you had an expense last year 0:14:06.160 --> 0:14:08.280 of one thousand dollars for that that laptop joll that 0:14:08.320 --> 0:14:10.960 you mentioned, So you're now only going to be paying 0:14:11.000 --> 0:14:13.400 taxes on the remaining forty nine thousand dollars. You're not 0:14:13.400 --> 0:14:16.160 getting that computer for free, but you are paying less 0:14:16.200 --> 0:14:19.120 overall taxes. And so again let's keep things over really 0:14:19.160 --> 0:14:22.160 simple here and say that your tax rate was that well, 0:14:22.240 --> 0:14:24.720 that means by deducting your taxable income by that one 0:14:24.720 --> 0:14:27.400 thousand dollars, you're not sitting in the government two dollars, 0:14:27.400 --> 0:14:30.480 which is of that one thousand dollars. So you know, 0:14:30.480 --> 0:14:32.920 maybe a better way to think about quote unquote right 0:14:32.920 --> 0:14:35.560 off is the ability to purchase something with a you know, 0:14:35.800 --> 0:14:38.200 with a discount basically like you're getting something on sale 0:14:38.440 --> 0:14:42.000 at whatever your tax rate happens to be, you know off, 0:14:42.280 --> 0:14:44.600 like that's that is pretty good, but it's not free. 0:14:44.680 --> 0:14:47.240 And oftentimes that can be the mindset is that we're 0:14:47.240 --> 0:14:49.320 not really paying for this, and no, you are paying 0:14:49.320 --> 0:14:51.200 for it, but you are getting a decent deal on 0:14:51.200 --> 0:14:53.240 it because you're using it to benefit your business. Yeah, 0:14:53.240 --> 0:14:55.440 so it's not caused to go overboard when it comes 0:14:55.440 --> 0:14:57.800 to buying stuff just so you can take the deduction. Um, 0:14:57.840 --> 0:15:00.520 but it is nice because you can essentially a discount 0:15:00.560 --> 0:15:02.760 on something that you need for your business. But that 0:15:02.800 --> 0:15:04.680 being said, Matt, let's talk about what that means for 0:15:04.680 --> 0:15:07.600 people's personal tax returns because you know, most of our 0:15:07.640 --> 0:15:10.400 listeners are not business owners and they're just individuals in 0:15:10.440 --> 0:15:13.520 the UH. So when they're thinking about writing something off, well, 0:15:13.680 --> 0:15:17.040 you're gonna need to itemize your deductions in order to 0:15:17.080 --> 0:15:20.240 write anything off. But most Americans take the standard deductions, 0:15:20.240 --> 0:15:22.960 which means they won't be able to write anything off 0:15:23.000 --> 0:15:26.320 on their taxes. It's estimated that around nine of folks 0:15:26.520 --> 0:15:29.760 are taking the standard deduction, and honestly, there's there's not 0:15:29.800 --> 0:15:32.520 really a surprise because the standard deduction was more than 0:15:32.560 --> 0:15:35.200 doubled from a couple of years ago to twelve four 0:15:35.280 --> 0:15:38.400 hundred if you're single, or eight hundred dollars if you're 0:15:38.440 --> 0:15:40.320 married filing jointly. It's a lot of money. That's a 0:15:40.360 --> 0:15:43.000 lot of money. That's a huge standard deduction. So the 0:15:43.120 --> 0:15:46.240 likelihood that you're going to exceed that and itemize your 0:15:46.240 --> 0:15:49.520 deductions is is unlikely for most folks. So that just 0:15:49.560 --> 0:15:51.240 means that if you want to be able to deduct 0:15:51.360 --> 0:15:54.400 specific items like your mortgage interest, your student loan interest, 0:15:54.560 --> 0:15:58.200 charitable giving, if you think all that totals more than 0:15:58.240 --> 0:16:00.520 what you'd get with the standard deduction, that's when you're 0:16:00.520 --> 0:16:03.440 gonna want to itemize, that's right. Uh. And so kind 0:16:03.440 --> 0:16:05.080 of on that note too, you know, there actually isn't 0:16:05.160 --> 0:16:08.040 a standard deduction when it comes to businesses, so if 0:16:08.040 --> 0:16:11.400 you're a small business owner, you gotta itemize all your expenses. Uh. 0:16:11.480 --> 0:16:13.480 And one of the deductions that a lot of folks 0:16:13.560 --> 0:16:17.200 might be wondering about is the home office deduction. Many 0:16:17.200 --> 0:16:19.480 folks think that because they started to work from home 0:16:19.520 --> 0:16:22.000 full time last year, or because maybe they have a 0:16:22.040 --> 0:16:24.720 desk in a room, that they can deduct that entire 0:16:24.760 --> 0:16:27.360 space on their taxes. But it needs to be the 0:16:27.400 --> 0:16:31.480 primary location of the business, uh, and that needs to 0:16:31.520 --> 0:16:33.560 be the only thing that that space is used for 0:16:33.800 --> 0:16:36.920 in order to qualify for that deduction. So it won't 0:16:36.920 --> 0:16:39.520 apply to you unless you're self employed, if you're an 0:16:39.600 --> 0:16:42.480 independent contractor or a gig worker. And you know, the 0:16:42.520 --> 0:16:47.760 tax law overhaul of late eliminated the home office deduction 0:16:48.120 --> 0:16:53.400 for most traditional employees from eighteen through and this is 0:16:53.400 --> 0:16:54.960 from the I r S website, but they say that 0:16:55.240 --> 0:16:58.240 employees who received a paycheck or a W two exclusively 0:16:58.360 --> 0:17:01.920 from an employer are not eligible for the deduction, even 0:17:02.000 --> 0:17:04.960 if they are currently working from home. So unfortunately, that's 0:17:04.960 --> 0:17:06.719 where things stand right now. A lot of folks are 0:17:06.720 --> 0:17:09.320 thinking that they can take that home office deduction, but 0:17:09.440 --> 0:17:12.240 not if you are a traditional W two earner. Yeah, 0:17:12.320 --> 0:17:15.639 and obviously you know, this was put in place before 0:17:15.800 --> 0:17:18.679 the pandemic um and not great timing for a lot 0:17:18.680 --> 0:17:21.320 of people because you might have been able under previous 0:17:21.400 --> 0:17:23.680 I r S rules to take some sort of a deduction, 0:17:23.920 --> 0:17:26.040 but not now. All right, man, let's get to the 0:17:26.080 --> 0:17:29.800 next misconception that we hear. Uh. Basically a tax delusion 0:17:29.840 --> 0:17:32.640 that I've seen people believe, and it's if I get 0:17:32.680 --> 0:17:35.080 a raise, I'm actually gonna lose money, so I don't 0:17:35.119 --> 0:17:37.720 want to make more. The assumption is that earning more 0:17:37.760 --> 0:17:40.120 money is going to push somebody into a higher tax bracket, 0:17:40.320 --> 0:17:42.399 and therefore you're gonna owe a whole lot more in 0:17:42.480 --> 0:17:46.040 tax because of the increased paycheck that you're gonna be getting. 0:17:46.240 --> 0:17:49.040 There are lots of people that assume that their tax 0:17:49.080 --> 0:17:52.520 bracket is equivalent to their tax rate. But that's just 0:17:52.560 --> 0:17:54.640 not true, right, because we live in a country where 0:17:54.680 --> 0:17:57.960 there are marginal tax rates, because we have a progressive 0:17:58.000 --> 0:18:00.760