Speaker 1: Welcome to How the Money. I'm Joel and I am Matt,
Speaker 1: and today we're debunking common tax misconceptions. Oh yeah, taxes man.
Speaker 1: You know, taxes are are probably on everybody's mind right
Speaker 1: about now, not because they're actually due tomorrow. Traditionally they're
Speaker 1: doing on a course, but everyone got that automatic one
Speaker 1: month I R S extension, but even still April fifteen
Speaker 1: is it's kind of synonymous with tax day. So that's
Speaker 1: what we're talking about today. And you know, another reason
Speaker 1: we are covering taxes is because you know, when there's
Speaker 1: something that you only do once a year, you always
Speaker 1: come back to it and you're like, okay, how does
Speaker 1: this work again? You know, like whether it's maybe your
Speaker 1: pressure washer, where you're like, how does this work again?
Speaker 1: Like what like what order am I supposed? Okay turn
Speaker 1: the water on first, then start the thing up? You know,
Speaker 1: like there's like an order of where put the cleaning solution? Yeah,
Speaker 1: like what's what's the ratio? I feel like the same
Speaker 1: thing is is true of our taxes as well, because
Speaker 1: it's something is you know, when it's not something that
Speaker 1: you do every single day, basically you forget about it.
Speaker 1: And obviously that's probably one of the reasons why they
Speaker 1: switched to the an expanded standard deduction. But there are
Speaker 1: some things that we need to keep in mind, regardless
Speaker 1: of the fact that many people only look at their
Speaker 1: taxes once a year. Yeah, I'm glad we're talking about
Speaker 1: taxes today, dedicating an entire episode to it. Yeah, I
Speaker 1: think you know, taxes are complex and people feel bufuddled
Speaker 1: by them, and so they probably a lot of our
Speaker 1: listeners probably have you know, a few things that they've
Speaker 1: heard that have crept in over the years in regards
Speaker 1: to the way that they now think about taxes that
Speaker 1: just aren't true. And so today on the show, we're
Speaker 1: gonna cover the most popular misconceptions when it comes to taxes,
Speaker 1: and we're gonna try to clear those things up. That's right.
Speaker 1: But first, man, I wanted to share a little story
Speaker 1: with you, which is so we talked about on the show. Honestly,
Speaker 1: maybe it's pretty close to a year ago. I purchased
Speaker 1: a new bike for myself use some of my stimmy
Speaker 1: money from last spring, and uh, I looked around. One
Speaker 1: of the best deals I could find on that particular
Speaker 1: bike that I was looking for was at Ari I
Speaker 1: and so I was getting ready to make the purchase there. Uh,
Speaker 1: and then I got hit with the sales the online
Speaker 1: sales pitch, which is, would you like to become an
Speaker 1: ari I member for twenty bucks save ten percent? And
Speaker 1: I was like, normally, I'm not a huge fan of
Speaker 1: membership clubs, right like where you gotta you've gotta pay
Speaker 1: money to be a part of whatever membership whatever club Costco. Sadly,
Speaker 1: it's it's one of the reasons I don't like Costco. Yeah,
Speaker 1: I don't. I don't like that kind of upfront money.
Speaker 1: But in this instance, in that one purchase, it was
Speaker 1: going to more than pay for the cost of the membership.
Speaker 1: And with ari I specifically, Dude, it's a lifetime membership.
Speaker 1: I didn't realize that, Like in my mind it was
Speaker 1: sort of like this annual thing, but no, you pay
Speaker 1: one time, you become a member for life. Uh. And
Speaker 1: in my case, not only did I get you know,
Speaker 1: that immediate savings or mentally I got that immediate savings.
Speaker 1: It turns out actually didn't receive that until a couple
Speaker 1: of weeks ago. That's why I wanted to talk about
Speaker 1: it now, because I totally forgot about it. Dividend. You
Speaker 1: get that once a year, right, Yeah, it's a yearly
Speaker 1: payout and uh, you know, I guess they wait until
Speaker 1: they calculate Q four, I guess, and then they send
Speaker 1: sending out the checks to all the different members. But yeah,
Speaker 1: a card showed up in the mail saying how much
Speaker 1: money I had on that thing? Uh, And it reminded
Speaker 1: me like, oh, yeah, of course, like I bought the
Speaker 1: bike last year, and so I guess I wanted to
Speaker 1: mention that to folks because that is for maybe folks
Speaker 1: out there like me who are adverse to paying for
Speaker 1: different memberships or clubs things like that. Um, something like
Speaker 1: ari I mean it could really pay and plus I've
Speaker 1: got you know, sixties seventy bucks sitting there waiting for me,
Speaker 1: uh to use. The only downside you do have to
Speaker 1: use it at ari e I. It's not like it's
Speaker 1: cash in your hand. Yeah. Yeah, Well ari I has
Speaker 1: been one of the best retailers in America for a
Speaker 1: lot of years. To the rock Fature people, well like
Speaker 1: that they offer good products and services h and at
Speaker 1: the same time too a great return policy. So yeah,
Speaker 1: I feel like this is not an ad for ari I,
Speaker 1: but ari is like truly, like just an awesome company
Speaker 1: or not sponsored at all by a right, but but yeah, yeah,
Speaker 1: I think it's in particular if you're buying something at
Speaker 1: r e I and you plan on doing it again,
Speaker 1: like getting the twenty dollar membership, the lifetime membership makes
Speaker 1: a whole lot of sense. That's right. Let's go ahead
Speaker 1: and introduce the beer that we're gonna share on this episode.
Speaker 1: You and I are drinking a beer called sponsho Via
Speaker 1: and that is a collaboration between j Wakefield Brewing and
Speaker 1: Arcane Ale Works. Looking forward to enjoying this one with
Speaker 1: you and talking about it at the end of the
Speaker 1: episode after we talk about taxes. All right, let's talk
Speaker 1: about taxes. Everybody's favorite subject. Let's do it. Well, yeah,
Speaker 1: I mean taxes. There this fixed certainty in our lives, right,
Speaker 1: almost as certain as death, but basically just as certain.
Speaker 1: But they can also be confusing and matt um. When
Speaker 1: I think about confusing things, I think about some of
Speaker 1: the films that Christopher Nolan has put out right, like
Speaker 1: seriously I had to watch as a second time, Like
Speaker 1: is Leonardo DiCaprio in the real world or in the
Speaker 1: dream world? At the end of inception, like when his
Speaker 1: token is still spending whatever. Man, I think that's the
Speaker 1: real world, that's the whole point. But I don't know,
Speaker 1: you know, so I feel like I had to watch
Speaker 1: it again to try to figure that out. Something else
Speaker 1: that has always baffled me is how maybe like certain
Speaker 1: folks became famous in the first place, like Paris Hilton
Speaker 1: back in the day where Guy Fietti, Like, you know,
Speaker 1: that's one of the things. When I see a headline
Speaker 1: about what Guy Fietti's up to, I'm like, why who cares?
Speaker 1: Like cares about right? I mean, like D D D
Speaker 1: is a great show, but like I don't care what
Speaker 1: he's up to it in three times, okay? And like
Speaker 1: one more thing that confuses me putting together anything from IKEA. Uh,
Speaker 1: like I'm bound to get lost at some point in
Speaker 1: the process, even if I'm following the directions, and I'm
Speaker 1: probably gonna, you know, make at least one mistake while
Speaker 1: I'm doing right. Uh. But that that's like enough about
Speaker 1: how easily I cant confused. It's actually confusing to me
Speaker 1: because I mean, come on, you know, this is another
Speaker 1: Scandinavian country that you hail from. Your right if anybody
Speaker 1: should excel at Ikea directions with no words and odd
Speaker 1: figurine who were putting these together only an Alan wrench.
Speaker 1: It should be me, that's true. That's right. Yeah. So
Speaker 1: I don't know why I get so easily baffled at
Speaker 1: Ikea stuff, but I do. Um. But today we're gonna
Speaker 1: tackle a subject that's even more perplexing than than those topics,
Speaker 1: and it's taxes. And I think, basically, Matt, like, what
Speaker 1: we don't want is people walking around with jankie stuff
Speaker 1: in their head about such an important subject, assuming things
Speaker 1: about taxes and their taxes in particular that could potentially
Speaker 1: even cost them money. Um, that also aren't true. That's right.
Speaker 1: And before we kind of keep talking about taxes, I'm
Speaker 1: still thinking about Guy Fieri, which makes me think about
Speaker 1: like it's all on the Food Network, right, which is
Speaker 1: on which is a part of like Discovery plus that's
Speaker 1: like another one of these streaming platforms another uh something
Speaker 1: else you can subscribe to, you know, but because what
Speaker 1: they've got going for them as well is h GTV. Right,
Speaker 1: My mom's all about it, dude. I mean, it's it's
Speaker 1: like it's catint for like homeowners or potential homeowners out there.
Speaker 1: I don't see how they're not gonna crush because there's
Speaker 1: so much content, you know, like just like slap anybody
Speaker 1: up there, anybody gets a show. But I saw like
Speaker 1: a commercial or an ad for Discovery Plus recently and
Speaker 1: I was like, oh my gosh, this guy Fie on it.
Speaker 1: I can't remember if it was, but I was looking
Speaker 1: at the lineup and I couldn't believe how many different
Speaker 1: shows that they have. They're gonna do pretty well. Yeah.
Speaker 1: But you know, so we're we're talking about taxes. We're
Speaker 1: talking about making sure that we have the right, you know,
Speaker 1: the right tax information in our brains. And again, since
Speaker 1: it's the day before taxes are traditionally due here in
Speaker 1: the US, we figured now is the perfect time to
Speaker 1: clear a few of these misconceptions up. You know, some
Speaker 1: folks in Texas and Oklahoma have until June because of
Speaker 1: the those awful winter storms. But for all the rest
Speaker 1: of you procrastinators out there, you need to make sure
Speaker 1: you get on it. Come on, make it happen. Five
Speaker 1: your taxes, U Joel. You know you mentioned like that
Speaker 1: quote unquote Janakie, stuff like floating around in our heads,
Speaker 1: like that's often what we base our decisions on. You know,
Speaker 1: like if if we don't have, say like a tax
Speaker 1: professional in our life, if we have a misconception that
Speaker 1: we're basing those decisions on, it's really important for us
Speaker 1: to clear it up so that we can make the
Speaker 1: best in legal tax moves as we move forward. And
Speaker 1: so we want to make sure that we're all making
Speaker 1: decisions based on what's true instead of what we've heard
Speaker 1: maybe a friend say, or maybe what somebody on you know,
Speaker 1: TikTok what they wrote wrote a song about. Although there
Speaker 1: are you know, there is some good information on TikTok. Yeah,
Speaker 1: there are some people uditioning some decent financial advice on TikTok.
Speaker 1: I'm not hating on all of them. It's not like
Speaker 1: the proven medium of podcasting, which has been around for years,
Speaker 1: which only super high professional people who know exactly what
Speaker 1: they're talking about can be a part of. Right. Well, um, yeah,
Speaker 1: there is obviously some goofy financial stuff floating around on
Speaker 1: TikTok these days, but but also too in podcasts. There
Speaker 1: are some podcasts out there that you need to be
Speaker 1: wary of, and you might not be getting the kind
Speaker 1: of advice that you need, and you might be led astray.
Speaker 1: But all right, let's jump into the tax misconceptions, Matt.
Speaker 1: Let's start with the first one, and this one is
Speaker 1: if I file an extension, I don't have to pay
Speaker 1: anything to the I R S until October. I've heard
Speaker 1: about that, yeah, And we wanted to lead off with
Speaker 1: that one because there might be some folks who are thinking, oh, man,
Speaker 1: I don't want to have to deal with my taxes
Speaker 1: over the next month. Maybe I should just file extension
Speaker 1: right now, and if I do that, then I won't
Speaker 1: have to pay any money. But that's just not the case, right.
Speaker 1: It would be nice to hang onto your money for
Speaker 1: a few more months, not give any to the I
Speaker 1: R S, keep that money in your own account, earning
Speaker 1: interest the entire time. But sadly this isn't true. Even
Speaker 1: if you have filed an extension and are waiting to
Speaker 1: file your return until this fall, you still have to
Speaker 1: determine what you owe the I R S and you
Speaker 1: have to pay them now, and if you don't do that,
Speaker 1: you're gonna owe penalties in addition into the tax when
Speaker 1: you do end up getting around to paying the money
Speaker 1: that you owe the r S later. On this fall
Speaker 1: in October. Yeah, so I'm sure a lot of folks
Speaker 1: are thinking, well, what's even the point of filing an
Speaker 1: extension if if I still have to pay? Right? But
Speaker 1: you know, making sure that you don't screw this up
Speaker 1: is important because you will owe half a percent in
Speaker 1: interest every single month that you are late in paying
Speaker 1: the I R S what you owe, So make sure
Speaker 1: that you keep that in mind, Joel. Next up on
Speaker 1: the list is maybe a saying or a phrase that
Speaker 1: people kind of subscribe to, which is the thought that
Speaker 1: tax refunds are great. Uh. You know, if you're getting
Speaker 1: thousands of dollars back in your taxes, it feels so good, right,
Speaker 1: But you could have been using that money all year
Speaker 1: long to save more money, you know, whether you're paying
Speaker 1: off debt, or maybe you're investing in yourself, or you
Speaker 1: can put more money in tax advantage accounts to actually
Speaker 1: grow your wealth. Uh. And so some folks will say
Speaker 1: that the problem here is that you've given uh an
Speaker 1: interest free loan to the government, and that does make
Speaker 1: some sense, right, But the real problem is that when
Speaker 1: you get money and it feels like a windfall, right,
Speaker 1: that's it's not something you're necessarily counting on maybe kind
Speaker 1: of feels like a lottery ticket. You're you're more apt
Speaker 1: to spend it recklessly. A lump sum tax refund is
Speaker 1: more of an emotional and behavioral money problem than just
Speaker 1: then like I lost eight dollars and twenty cents and
Speaker 1: interest to the I R S problem, right, yeah, And
Speaker 1: I'm considering how low savings rates are right now, the
Speaker 1: fact that you've got a thousand dollar tax refund. It's
Speaker 1: not about the interest that you lost like that that's
Speaker 1: almost negligible, right that this very little money, But it
Speaker 1: is that idea like I just got a thousand bucks,
Speaker 1: what am I gonna blow it on? That's the kind
Speaker 1: of mindset that I think a lot of people have
Speaker 1: when it comes to getting a tax refund. But at
Speaker 1: the same time, on the flip side of the coin, Matt,
Speaker 1: if you're smart about using that lump sum to immediately
Speaker 1: boost your savings or to max out your wrath account,
Speaker 1: then getting a tax refund isn't all that bad because,
Speaker 1: as we said, it's not really costing you all that
Speaker 1: much in actual money. The interest free loan thing is
Speaker 1: is overblown. Just be intentional with the refund that you
Speaker 1: are getting back, but we're also fans of trying to
Speaker 1: minimize any refund that you might owe the I R
Speaker 1: S so that you can, like Matt said, use that
Speaker 1: money every single week, every month during the year, as
Speaker 1: opposed to getting it in a big lump song. And
Speaker 1: the best way to do this, the best way to
Speaker 1: figure this out is to use the I R S
Speaker 1: is tax withholding calculator so that you don't go overboard
Speaker 1: in either direction. Well, Joel, I'm not note. I'm actually
Speaker 1: proud to say that I actually owe the state a
Speaker 1: little bit of money and I'm going to get a
Speaker 1: small refund back from the federal government. So I feel
Speaker 1: like I'm kind of like like straddling the fence a
Speaker 1: little bit perfect Like it's tough to nail it, you know,
Speaker 1: Like it's in particular when you're self employed and you
Speaker 1: have no idea of like what you're gonna be making
Speaker 1: that year, it's tough to make estimated payments and get
Speaker 1: anywhere near you know, zero, which is like the most
Speaker 1: ideal spot. But yeah, I feel like I got bragging
Speaker 1: rights maybe for the next year. Yeah, you do, you do?
Speaker 1: I think the nerd is bragging rights. Ever, Well, I'll
Speaker 1: let you say it as often as you want on
Speaker 1: the show, and also to just everybody out there who
Speaker 1: should pat me on my head. Good for you, but
Speaker 1: uh it, well, just just all of our listeners who
Speaker 1: are getting a tax refund, who maybe just recently found
Speaker 1: out or we're going to find out really soon that
Speaker 1: they are owed ex refund um. Just be intentional with that,
Speaker 1: and you know, do what you can next year to
Speaker 1: maybe work towards having a smaller one. But don't treat
Speaker 1: it like found money, like money that just fell into
Speaker 1: your lap. It's your money, um, and so we want
Speaker 1: you to use even a lump some like a tax
Speaker 1: refund wisely. So make sure you don't like, just go
Speaker 1: out and buy around for the bar or something like that.
Speaker 1: You know that's awsome. I don't know, you're supporting your
Speaker 1: local restaurant or a bar. If by doing that and
Speaker 1: all the patrons there, everybody will everybody's best friend if
Speaker 1: you do that. That's that's right, all right, Joel. We've
Speaker 1: got several other tax misconceptions that we're gonna get to,
Speaker 1: including what that you hear I feel like all the time,
Speaker 1: which is, oh, you can just write it off. We'll
Speaker 1: get to that one plus many others right after the break.
Speaker 1: All Right, we're back. We're talking about common tax misconceptions, Matt.
Speaker 1: Let's get to one that you and I've heard a
Speaker 1: lot of small business owners say throughout the years that, uh,
Speaker 1: and this one's about tax right offs, like you mentioned
Speaker 1: before the break, and it's that mindset of I'll just
Speaker 1: buy it because I can write it off. Yeah why not.
Speaker 1: You're like, I need a new laptop maybe, or maybe
Speaker 1: I don't even need one, but I can write it off,
Speaker 1: So why not. Maybe we need new mics for the podcast,
Speaker 1: let's write it off exactly. They're basically free then, right,
Speaker 1: Well not really so. And it makes me think of
Speaker 1: met this scene from The Princess Bride where Innigo Montoya says,
Speaker 1: you keep using that word. I do not think it
Speaker 1: means what you think it means. And I think it
Speaker 1: can be easy to fall into that trap of thinking
Speaker 1: that we can justify an expense, especially when we're talking
Speaker 1: about a business here. Uh, and then it's not actually
Speaker 1: costing us anything. Unfortunately, that's not how tax write offs work.
Speaker 1: If it did, our studio would be filled with microphones,
Speaker 1: lots and lots of very expensive microphones. In reality, we've
Speaker 1: got like some of the cheapest mics you can buy,
Speaker 1: but man, they work really well. But okay, so let's
Speaker 1: talk about then in reality, like how it actually works,
Speaker 1: which is that when you quote quote write something off,
Speaker 1: you're actually deducting that expense from your taxable income and
Speaker 1: then you're your only taxed on what's left. Right, So,
Speaker 1: for instance, to keep things simpler, let's say you're in
Speaker 1: fifty thou dollars and you had an expense last year
Speaker 1: of one thousand dollars for that that laptop joll that
Speaker 1: you mentioned, So you're now only going to be paying
Speaker 1: taxes on the remaining forty nine thousand dollars. You're not
Speaker 1: getting that computer for free, but you are paying less
Speaker 1: overall taxes. And so again let's keep things over really
Speaker 1: simple here and say that your tax rate was that well,
Speaker 1: that means by deducting your taxable income by that one
Speaker 1: thousand dollars, you're not sitting in the government two dollars,
Speaker 1: which is of that one thousand dollars. So you know,
Speaker 1: maybe a better way to think about quote unquote right
Speaker 1: off is the ability to purchase something with a you know,
Speaker 1: with a discount basically like you're getting something on sale
Speaker 1: at whatever your tax rate happens to be, you know off,
Speaker 1: like that's that is pretty good, but it's not free.
Speaker 1: And oftentimes that can be the mindset is that we're
Speaker 1: not really paying for this, and no, you are paying
Speaker 1: for it, but you are getting a decent deal on
Speaker 1: it because you're using it to benefit your business. Yeah,
Speaker 1: so it's not caused to go overboard when it comes
Speaker 1: to buying stuff just so you can take the deduction. Um,
Speaker 1: but it is nice because you can essentially a discount
Speaker 1: on something that you need for your business. But that
Speaker 1: being said, Matt, let's talk about what that means for
Speaker 1: people's personal tax returns because you know, most of our
Speaker 1: listeners are not business owners and they're just individuals in
Speaker 1: the UH. So when they're thinking about writing something off, well,
Speaker 1: you're gonna need to itemize your deductions in order to
Speaker 1: write anything off. But most Americans take the standard deductions,
Speaker 1: which means they won't be able to write anything off
Speaker 1: on their taxes. It's estimated that around nine of folks
Speaker 1: are taking the standard deduction, and honestly, there's there's not
Speaker 1: really a surprise because the standard deduction was more than
Speaker 1: doubled from a couple of years ago to twelve four
Speaker 1: hundred if you're single, or eight hundred dollars if you're
Speaker 1: married filing jointly. It's a lot of money. That's a
Speaker 1: lot of money. That's a huge standard deduction. So the
Speaker 1: likelihood that you're going to exceed that and itemize your
Speaker 1: deductions is is unlikely for most folks. So that just
Speaker 1: means that if you want to be able to deduct
Speaker 1: specific items like your mortgage interest, your student loan interest,
Speaker 1: charitable giving, if you think all that totals more than
Speaker 1: what you'd get with the standard deduction, that's when you're
Speaker 1: gonna want to itemize, that's right. Uh. And so kind
Speaker 1: of on that note too, you know, there actually isn't
Speaker 1: a standard deduction when it comes to businesses, so if
Speaker 1: you're a small business owner, you gotta itemize all your expenses. Uh.
Speaker 1: And one of the deductions that a lot of folks
Speaker 1: might be wondering about is the home office deduction. Many
Speaker 1: folks think that because they started to work from home
Speaker 1: full time last year, or because maybe they have a
Speaker 1: desk in a room, that they can deduct that entire
Speaker 1: space on their taxes. But it needs to be the
Speaker 1: primary location of the business, uh, and that needs to
Speaker 1: be the only thing that that space is used for
Speaker 1: in order to qualify for that deduction. So it won't
Speaker 1: apply to you unless you're self employed, if you're an
Speaker 1: independent contractor or a gig worker. And you know, the
Speaker 1: tax law overhaul of late eliminated the home office deduction
Speaker 1: for most traditional employees from eighteen through and this is
Speaker 1: from the I r S website, but they say that
Speaker 1: employees who received a paycheck or a W two exclusively
Speaker 1: from an employer are not eligible for the deduction, even
Speaker 1: if they are currently working from home. So unfortunately, that's
Speaker 1: where things stand right now. A lot of folks are
Speaker 1: thinking that they can take that home office deduction, but
Speaker 1: not if you are a traditional W two earner. Yeah,
Speaker 1: and obviously you know, this was put in place before
Speaker 1: the pandemic um and not great timing for a lot
Speaker 1: of people because you might have been able under previous
Speaker 1: I r S rules to take some sort of a deduction,
Speaker 1: but not now. All right, man, let's get to the
Speaker 1: next misconception that we hear. Uh. Basically a tax delusion
Speaker 1: that I've seen people believe, and it's if I get
Speaker 1: a raise, I'm actually gonna lose money, so I don't
Speaker 1: want to make more. The assumption is that earning more
Speaker 1: money is going to push somebody into a higher tax bracket,
Speaker 1: and therefore you're gonna owe a whole lot more in
Speaker 1: tax because of the increased paycheck that you're gonna be getting.
Speaker 1: There are lots of people that assume that their tax
Speaker 1: bracket is equivalent to their tax rate. But that's just
Speaker 1: not true, right, because we live in a country where
Speaker 1: there are marginal tax rates, because we have a progressive
Speaker 1: tax system in the United States, the dollars you earn
Speaker 1: or tax at a lower rate than the dollars you
Speaker 1: earned later in the year. It's actually getting a raise
Speaker 1: isn't bad for you. It's it's it's only good. Yeah,
Speaker 1: And that's actually called your effective tax rate. And that's
Speaker 1: a far better judge for most folks to see what
Speaker 1: they're paying in tax each year. Because you know, let's
Speaker 1: say you're single and you make eight thousand dollars annually.
Speaker 1: You might think that you're incent tax bracket, and you
Speaker 1: know what, three thousand dollars of your income will be
Speaker 1: taxed at that rate, But huge chunks of your income
Speaker 1: will be taxed at and at twelve percent, respectively, so
Speaker 1: you're effective tax rate won't. It'll actually kind of be
Speaker 1: somewhere closer to So you know what, go ahead, get
Speaker 1: that raise. It won't bump you up into a new
Speaker 1: bracket uh and cost you a ton of money. Uh.
Speaker 1: You know, and even if some of those increased earnings
Speaker 1: will be taxed at a higher rate, you will still
Speaker 1: easily be coming out ahead by growing your income. This
Speaker 1: is an instance where you know you don't want to
Speaker 1: like chop off your nose in order to spite your
Speaker 1: face just because you don't want to pay that additional
Speaker 1: higher rate of tax on those additional dollars. I feel
Speaker 1: like there was a dad saying, my dad, you say
Speaker 1: that to me a life, I find myself saying more
Speaker 1: of those things, like the older I get, yeah, I'm
Speaker 1: a dad. I want to know where that's saying came
Speaker 1: from too. But is there actually somebody who did that?
Speaker 1: I don't know. I don't know, maybe in some sort
Speaker 1: of fairy tale or something. I'm gonna look that one
Speaker 1: up maybe after we get done with this episode. But
Speaker 1: all right, so let's get into the next big misconception
Speaker 1: that people have when it comes to taxes. And here's
Speaker 1: one that could cause people a lot of money. Matt. Uh,
Speaker 1: this is a lot of heartache and a lot of heartache. Yeah,
Speaker 1: a lot of back and forth with the I R S.
Speaker 1: That's never fun. This one is if I can't afford
Speaker 1: to pay the tax I owe, I don't need to
Speaker 1: file my taxes at all. And this is something Matt,
Speaker 1: I've heard over the years and people wonder like, well,
Speaker 1: why should I file my taxes if I can't pay
Speaker 1: the bill? It seems like a waste of time, right,
Speaker 1: If I can't also send them the money that's due,
Speaker 1: why do I even bother filing? And in actuality, you
Speaker 1: have to file your taxes even if you can't pay
Speaker 1: the tax you Oh, and if not, you're gonna owe
Speaker 1: more in the end, because the I R S can
Speaker 1: assess a failure to file penalty that can increase your
Speaker 1: tax bill even more than it originally was. The fee
Speaker 1: is literally four and a half percent per month that
Speaker 1: you're late, up to a total of Yeah, so the
Speaker 1: failure to file penalty and the failure to pay can
Speaker 1: add up to almost fifty percent if you drag it
Speaker 1: out that long. So even if you can't pay, file
Speaker 1: your taxes. And even if you can't pay the full
Speaker 1: amount of what you owe, pay what you can because
Speaker 1: if not whatever you're unable to pay, you're gonna owe
Speaker 1: increased penalties on that money, and that can really add up.
Speaker 1: That's right, YOU'RENNA. You're gonna be paying off the nose.
Speaker 1: That's another nose saying, not if you cut it off. Uh.
Speaker 1: You know this kind of makes me think about like
Speaker 1: the movies where like somebody owes a bookiees some money.
Speaker 1: You know, like you can try running away, and if
Speaker 1: you do that, they assume the worst. You know, they're
Speaker 1: gonna find you and they're gonna hut you down. They're
Speaker 1: gonna do something awful like like break your knees or
Speaker 1: cut your nose off. Uh. And now you know, obviously
Speaker 1: the i r S doesn't inflict physical harm on that
Speaker 1: we know of, not yet, but it's important to note
Speaker 1: that that the response you get is gonna be far superior.
Speaker 1: It's gonna be way better when you stay in contact
Speaker 1: with the I r S and follow those procedures. Even
Speaker 1: if you don't have any money at all, they just
Speaker 1: want to keep tabs on you. Yeah, yeah, And I
Speaker 1: think that the Bookie reference is true, right, Like if
Speaker 1: you go up to and you know, hey, I can't pay,
Speaker 1: they're like, all right, well the juice is running right, Like,
Speaker 1: so you're you're gonna owe them more, but they're like
Speaker 1: rough you up a little bit. But yeah, they're not
Speaker 1: gonna break your knees. Yeah, I mean they break your
Speaker 1: knees and then you can't work exactly. They still want
Speaker 1: to get paid. So there's that. Uh, it's probably not
Speaker 1: a great reference, but referencing like nineties mobster movies like
Speaker 1: Good Fellas, yeah, um. And to following those procedures means
Speaker 1: signing up for an installment agreement with the I r
Speaker 1: S to pay the tax you. Oh, you've got to
Speaker 1: do that too. That's what it means. By like going
Speaker 1: back to the Bookie and saying like, I don't have
Speaker 1: the money yet. That's the equivalent of an installment agreement.
Speaker 1: And if you owe like an insurmountable amount of tax,
Speaker 1: you can attempt and offer and compromise which might allow
Speaker 1: you to actually pay less than the full amount you owe.
Speaker 1: But those can be a little difficult. The I r
Speaker 1: S reviews every one of those, and you'll have to
Speaker 1: meet certain criteria to qualify, and we would say too,
Speaker 1: because this can be a complicated process, you might want
Speaker 1: to consult a tax professional before giving it a go.
Speaker 1: And giving it a go on your own is probably
Speaker 1: ill advised. But basically, don't not file your taxes just
Speaker 1: because you can't pay. That's a misconception that can cost
Speaker 1: you dearly. That's right, all right, we're gonna get to
Speaker 1: a few more misconceptions. Uh, We're gonna continue to attempt
Speaker 1: to clear the air when it comes to taxes, including
Speaker 1: we're gonna talk about audits. We're gonna get to that one,
Speaker 1: plus a few others right after the break. All right,
Speaker 1: we're back. We're talking about taxes, Matt. There's so much
Speaker 1: that confuses people when it comes to taxes, and so
Speaker 1: we wanted to clear up some of the biggest misconceptions.
Speaker 1: That's what we're doing today. Let's keep going. The next
Speaker 1: misconception we want to cover applies to married folks. A
Speaker 1: lot of people assume that if they're married, they have
Speaker 1: to file jointly with their spouse. No, you don't. You
Speaker 1: can choose to file separately as a married couple if
Speaker 1: you want. And although most folks choose to file together,
Speaker 1: and that is then the best move from a tax standpoint.
Speaker 1: For a really high percentage of married folks, filing jointly
Speaker 1: just makes the most sense, um because filing separately, for instance,
Speaker 1: that will disqualify you from getting the child tax Credit,
Speaker 1: which is a pretty big one if you have kids,
Speaker 1: and that's going to be an even bigger deal this year,
Speaker 1: as the child tax credit has expanded from two thousand
Speaker 1: dollars per child to three thousand dollars per child or
Speaker 1: even thirty per younger child. And so changes like that
Speaker 1: should make you think twice about your filing status and
Speaker 1: maybe you need to change it, because that's a whole
Speaker 1: lot of money you could be missing out on if
Speaker 1: you're just filing the wrong way. That's true, man, you know,
Speaker 1: but in some cases it does or it could make
Speaker 1: more sense to file separately as a married couple. So,
Speaker 1: for instance, let's say that one spouse has a lot
Speaker 1: of student loan debt uh but also has a lower
Speaker 1: salary UH. If if that were the case, then filing
Speaker 1: separately could lower the necessary student loan payment and allow
Speaker 1: for more of that student loan debt to ultimately be
Speaker 1: forgiven so in that way, it's a little more strategic, right,
Speaker 1: But filing separately also means that you won't be able
Speaker 1: to deduct the interest you paid on the student loans,
Speaker 1: so you know, you need to kind of weigh the
Speaker 1: pros and the console. Oftentimes it kind of comes down to,
Speaker 1: you know, it's a simple math problem. It's not simple,
Speaker 1: but it's a math problem. That's maybe what we should say. Uh.
Speaker 1: There are other situations too, like if your marriage is
Speaker 1: maybe headed for a divorce, that you'll want to file separately.
Speaker 1: But again, for most folks, filings together is going to
Speaker 1: be the best route from a tax standpoint, even though
Speaker 1: you don't have to take it truth all right, now,
Speaker 1: let's get to the next one. This one is one
Speaker 1: I'm sure you've heard before and people, Uh, this this
Speaker 1: one has to do with debt. I've heard people say
Speaker 1: I don't want to pay off a loan because I
Speaker 1: can deduct the interest from my tax bill. Another another
Speaker 1: deductions question here, but this sounds a little bit different. Yeah,
Speaker 1: And so like, basically someone is thinking that they should
Speaker 1: hold on to debt in their life because it gives
Speaker 1: some a tax break. That's their assumption, but most people
Speaker 1: actually overestimate the tax break that they get from a
Speaker 1: home mortgage or other interest deductions let's say student loan
Speaker 1: interest deduction that they're allowed. And in fact, because most Americans,
Speaker 1: again like we said earlier in the episode, take the
Speaker 1: standard deduction, under today's current tax rules, you aren't getting
Speaker 1: any mortgage interest deduction. And so, you know what's happening
Speaker 1: here is that a lot of folks might be thinking
Speaker 1: the same way they had been for years, but due
Speaker 1: to the law change, uh and the change in tax
Speaker 1: code structure, that strategy has now become a misconception. The
Speaker 1: mortgage interest deduction used to apply to a whole lot
Speaker 1: more folks, and there's just very few people that actually
Speaker 1: qualify that actually take a mortgage interest deduction on their
Speaker 1: taxes these days. Yeah, so keeping debt around in order
Speaker 1: to deduct that interest has Yeah, it's become a strategy
Speaker 1: that no longer works for a lot of folks. And really, like,
Speaker 1: it only makes sense to keep debt hanging around if
Speaker 1: you're going to be incredibly proactive and intentional with that money,
Speaker 1: you know, Like we're talking about some of the different
Speaker 1: money gears, like creating an emergency fund, investing that money
Speaker 1: saving for some important goals or life events. It's almost
Speaker 1: less about the different numbers and the percentages, uh, And
Speaker 1: it's more about the kind of mental shift that takes
Speaker 1: place when you're able to wipe out that debt completely.
Speaker 1: For some folks, when they're able to solely focus on
Speaker 1: a single goal like a you know, like a laser, uh,
Speaker 1: they're going to be able to achieve that much better.
Speaker 1: So this is an instance where it helps and to
Speaker 1: know what types of goals you need to you know,
Speaker 1: set for yourself in order to be successful at achieving
Speaker 1: those goals. Yeah, So if you're holding on to debt
Speaker 1: on purpose, even though you can pay it off and
Speaker 1: you know you should be paying it off because you're
Speaker 1: assuming there's a tax break associated with it, we'll dig
Speaker 1: a little further. Did you itemize your deductions last year?
Speaker 1: Are you planning on itemizing your deductions this year? And
Speaker 1: even so, even if you are itemizing, it might make
Speaker 1: sense to pay off that debt anyway, because the tax
Speaker 1: deduction isn't as big as you thought it was going
Speaker 1: to be. And otherwise maybe you'd be tempted to spend
Speaker 1: the money, right and we we certainly don't want that
Speaker 1: to be the case. That's right. Another misconception, Matt, is
Speaker 1: people being scared about getting audited. I don't know if
Speaker 1: it's like eighties movies that have us thinking that the
Speaker 1: I R S is is going to come to our
Speaker 1: home and just like terrorize our families or something like
Speaker 1: that if we screwed up on our taxes. But that's
Speaker 1: kind of like the bookie A K A I R. Yeah,
Speaker 1: there's like some fear for people in that. And they're like, man,
Speaker 1: they either think, one, I don't make enough money thinking
Speaker 1: audited basically, like I make so little, they don't. They're
Speaker 1: not gonna care about me, and I can do whatever
Speaker 1: I want. Um, that's not a good way to think
Speaker 1: about things. Uh. And other people would say I should
Speaker 1: be really scared of getting audited, and they're freaking out
Speaker 1: about every little thing because they think there's this just
Speaker 1: high risk of being audited, and actually neither of those
Speaker 1: things is true. First of all, the I R S
Speaker 1: can audit you if you make ten thousand bucks or
Speaker 1: ten million dollars right that they can still take a
Speaker 1: look at your tax return and flag some stuff and
Speaker 1: say that's not accurate. We need more information, and they
Speaker 1: can go down that path with you, So there's no
Speaker 1: guarantee that they're just gonna ignore you because you don't
Speaker 1: make very much money. But before you start freaking out,
Speaker 1: it's also worth noting that the I r S doesn't
Speaker 1: audit that many returns. We're literally talking about half a
Speaker 1: percent of overall returns, So they're very picky, they're very choosy.
Speaker 1: They don't actually have all that much staff to be
Speaker 1: able to do a lot of audits, so very few
Speaker 1: people are getting audited. And then even more relief, if
Speaker 1: you make less than two hundred thousand dollars, you haven't
Speaker 1: even lesser likelihood of being audited, although like glaring errors
Speaker 1: like we said, could still make you a target. If
Speaker 1: you make a hundred thousand dollars a year and you're
Speaker 1: doing a bunch of crazy stuff on your taxes, there
Speaker 1: is a much higher likelihood that you are going to
Speaker 1: be the person that's singled out foreign audit. That's right, man,
Speaker 1: This guy says he's got twenty two kids and all
Speaker 1: these social Security numbers are made up, Like that's not
Speaker 1: gonna fly, Like, maybe we should audit that. Felon yea
Speaker 1: not saying I tried that or anything but uh. And
Speaker 1: you know to the idea too that you should be
Speaker 1: scared of getting audited, like most audits are are fairly painless.
Speaker 1: The most common version of an audit is called the
Speaker 1: correspondence audit, or also it's also known as the male audit.
Speaker 1: Is a it's it's just simply a letter asking for
Speaker 1: some clarification on your income or on a deduction that
Speaker 1: you took, and if you answer it in a satisfactory way,
Speaker 1: that's the end of the audit. The end. So you know,
Speaker 1: don't let the fear of an audit prevents you from
Speaker 1: taking a deduction that you know that you're entitled to.
Speaker 1: You can file your your returns with confidence. Yeah, I
Speaker 1: think that's a good point to Matt, Like, if there's
Speaker 1: something that you qualify for yet don't be afraid to
Speaker 1: take advantage of it. You're not going to get audited
Speaker 1: for playing by the rules. And if you make a
Speaker 1: minor mistake and do get audited, it's in all likelihood
Speaker 1: going to be the most painless audit of all the
Speaker 1: mail audit where you're able to clarify that really simply,
Speaker 1: and it's not something that most people need to worry
Speaker 1: about unless you are, like you said, completely fudging things up,
Speaker 1: and you're you're saying you're saying something like I do
Speaker 1: have a bunch of kids that I don't actually have,
Speaker 1: and there's a bunch of weird stuff on your return.
Speaker 1: That's when you're gonna raise those chances. It's like, yeah,
Speaker 1: I've claimed all my pets as dependents, uh, and I
Speaker 1: would like child tax credit for them as well. You're
Speaker 1: not allowed to do that, right, And so hopefully we
Speaker 1: were able to debunk a few of the major tax
Speaker 1: misconceptions in this episode. You know, if if you're in
Speaker 1: real tax trouble, like we would recommend that you get
Speaker 1: some professional help, right, if you've been contacted by their
Speaker 1: I R s and they're looking at running a field
Speaker 1: audit on you, you don't want those. That's where they
Speaker 1: like they like show up at your house and like
Speaker 1: set up camp. Yeah, that's bad news. And that's like
Speaker 1: when you show up in court and you're like, I'm
Speaker 1: gonna defend myself and the judges like, are you sure?
Speaker 1: You should probably get some representation, And if there's a
Speaker 1: field not involved, you should also get some representation. Things
Speaker 1: get a lot more complicated than but you know, You
Speaker 1: can also reach out to the I R S Taxpayer
Speaker 1: Assistance or the taxpayer Advocate if you have bigger issues
Speaker 1: and you're not totally sure how to proceed. But most
Speaker 1: of the things that we mentioned today are are you know,
Speaker 1: they're more in the good to know so that you
Speaker 1: don't make a minor goof and run a foul of
Speaker 1: the I R S category like these aren't gonna this
Speaker 1: isn't you know, the end of the story for you.
Speaker 1: If you make a small mistake out a lot of times,
Speaker 1: you can easily remedy that mistake. And so that's why
Speaker 1: we wanted to cover some of these misconceptions ahead of time.
Speaker 1: And so, yeah, if you had any of these misconceptions,
Speaker 1: hopefully they're cleared up and you can abide by the rules,
Speaker 1: because not abiding by some of them could cost you
Speaker 1: a lot of money in a lot of aggravation. All right,
Speaker 1: let's get back to the beer that we had on
Speaker 1: the show. This one's called sponso Via and it's by
Speaker 1: Jay Wakefield and Arcane Ale Works or your thoughts on
Speaker 1: this sour ale with strawberries, coconut marshmallows and lactose and
Speaker 1: maybe it's called sponso Via instead of poncho via. Maybe
Speaker 1: because it's spontaneously fermented. I don't know. It actually doesn't
Speaker 1: say that here on the cane, but this one kind
Speaker 1: of poured a nice strawberry kind of reddish orange color,
Speaker 1: really pretty, uh, and it was super fruity, like big time.
Speaker 1: I mean, like you cannot deny that there are strawberry
Speaker 1: in here. Uh, coconut like less so like the coconut
Speaker 1: and marshmallow, I got a lot of marshmallow. Really. Yeah,
Speaker 1: I feel like I picked up on like marshmallow weight,
Speaker 1: like like if it drank kind of fluffy. I don't
Speaker 1: know what that means, but like I felt like I
Speaker 1: was drinking something that was a little bit fluffier but
Speaker 1: not I feel like not a lot of the marshmallow
Speaker 1: sweetness that you know, that like that you would get
Speaker 1: with like s'mores or something like. That's so funny because
Speaker 1: I feel like I got a ton of sweet really,
Speaker 1: I feel like it's the strawberry sweetness that I taste
Speaker 1: that it's not like that candy sweetness. In my mind,
Speaker 1: it's like, I don't know, I associate it more with
Speaker 1: the strawberries because you get a good ripe strawberry so sweet,
Speaker 1: that's true. Sadly though, on this one, I felt like
Speaker 1: I got a little bit of like a chemical flavor.
Speaker 1: I don't know if you were feeling that, Like, um,
Speaker 1: I did like some of the vice, but there's this aftertaste.
Speaker 1: It was a little off pudding, so what I would
Speaker 1: call that? Like Initially I think I kind of chocolate
Speaker 1: up to kind of like a like a pepperinus, but
Speaker 1: really it's like a clove like flavor. I'm it really
Speaker 1: does taste like, you know, like the clothes that you
Speaker 1: like shove into a you know, New Year's Day ham
Speaker 1: or whatever, Like when do people eat hams? I don't know, Christmas,
Speaker 1: New Year's but it's it's got that Easter Really people
Speaker 1: to Easter ham's. Yeah, yeah, I don't know, we don't
Speaker 1: really have like a big Eastern meal in tradition, but
Speaker 1: it totally has that flavor. It tastes like clothes to me.
Speaker 1: Uh And so I'm not Yeah, I'm not sure if
Speaker 1: that was intentional because it doesn't say anything about that
Speaker 1: on here. But simultaneously, it wasn't like a necessarily a
Speaker 1: big turn off for me. Yeah, I mean I thought
Speaker 1: it was a really good beer, but I will say
Speaker 1: the aftertaste left a little something to be desired for me.
Speaker 1: So not my favorite that we found on the show,
Speaker 1: but still strong. Still got to enjoy a craft beer
Speaker 1: with you, buddy. And for listeners who once to find
Speaker 1: our show notes up there, we'll have some of the
Speaker 1: different resources that we mentioned during this episode, will link
Speaker 1: to those and you can find those notes up at
Speaker 1: how to money dot com. Al Right, well, that's gonna
Speaker 1: do it for this episode. Until next time, Best Friends Out,
Speaker 1: Best Friends Out, bo