March 4, 2025 • 44 mins
Happy Tax Season! We’re celebrating Season 3 of Grown-Up Stuff by filling you in on how to file your taxes. Hosts Lea Palmieri and Matt Stillo speak with Rus Garofalo of Brass Taxes about how you can save time, money, and your sanity as you tackle your taxes this year. From basic tax terms to loopholes and laws, Rus explains it all to have you feeling confident about your cash this year.
For more information, visit BrassTaxes.com.
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Episode Transcript
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Speaker 1 (00:03):
Ruby. Hello to all our favorite grown ups, and welcome
back to grown up Stuff How to Adult. I'm Matt
Stillo and.
Speaker 2 (00:14):
I'm Leah paul Mary, your brand new host for season three.
Speaker 1 (00:18):
That's right. We are so excited to have Leah joining
the show. And before we jump into our first episode,
a round of applause to Mollie, who not only co
hosted the show's first two seasons, but was the show's creator.
We love her so much. She's off to bigger and
better things, and we wish her all the best of
luck and her future endeavors.
Speaker 2 (00:36):
And I know I'm stepping into big and also very
cute shoes here, so I promise I'm going to do
my best to make Molly proud with my curiosity and
naturally am I humor?
Speaker 1 (00:46):
Okay, So Leah, why don't you tell us a little
bit about yourself?
Speaker 2 (00:49):
Well, a little bit is that I'm a Gemini.
Speaker 1 (00:51):
Okay, that's actually a lot of bit. Yeah, what are
you Sagittarius? That's right, December.
Speaker 2 (00:57):
Baby, Yes, okay, I'm a June girl.
Speaker 1 (00:59):
So well, this is good yin yang. Yeah, it's balancing out.
Speaker 2 (01:02):
Those two are actually like they're a good pair together.
They're the opposites of each other, but they have a
lot in common, so they're a good match.
Speaker 1 (01:08):
Like all melding well for the new season.
Speaker 2 (01:10):
Yeah, it really is. I'm so excited to be joining
the show. I'm so excited to be chatting with you,
and I'm mostly so excited to learn. We're going to
learn so many new things.
Speaker 1 (01:20):
We've already learned so much.
Speaker 2 (01:21):
Yeah, that's true.
Speaker 1 (01:22):
We really have amazing Well, we're so happy to have
you here, grown up stuff, and we have quite an
exciting season ahead. We're going to revamp your cars, your mornings,
and starting today, your tax returns.
Speaker 2 (01:34):
That is right, Matt. So coming up, we're going to
be talking to Russ Garoffloe, who is the founder of
Brass Taxes.
Speaker 3 (01:42):
Well, Hi, my name is Russ. I founded Brass Taxes
in two thousand and eight when the economy slumped. My
money job was as a video editor, and so I
realized I needed a day job and I just happened
to get one with a friend of a friend's parents
who is a tax preparer in Brooklyn. And within about
(02:03):
three weeks I realized I was doing my own taxes badly.
Probably so we're all my friends. I was losing out
on money from what I didn't understand. And then I
was curious why no one had come and sold me
something to tell me this. Why didn't somebody come and say,
if you make your taxes more complicated by dealing with
(02:23):
this other stuff, it will save you more money than
it costs additionally.
Speaker 1 (02:27):
To do them.
Speaker 3 (02:28):
And you really have very little experience of doing taxes
because you do them once a year. So I feel
like it's like a video game you play once.
Speaker 1 (02:34):
Ye, you forget every time.
Speaker 3 (02:35):
Yeah, so you're terrible.
Speaker 1 (02:37):
Yeah, every year feels new to me. I'm like, oh,
what did I do?
Speaker 3 (02:39):
I forgot all anything you learned, you'll have forgotten. Yeah,
And then really started to focus on those things that
I didn't understand of when it makes sense to get
tax help and when it does not make sense to
get tax help, and do it hopefully in a way
that is even keeled enough that you engender enough trust
that people believe you. And now we're foy Vote and
(03:00):
there's twenty five of us and we have about five
thousand clients.
Speaker 2 (03:06):
You're going to tell us a lot today, Russ, and
we're going to feel so much better going into the world.
I think just to start, could you give us a
small history lesson on taxes, just so we understand what
we're even dealing with here, like what our taxes, what
do they do? And why are they so complicated?
Speaker 3 (03:23):
Most of the time we say taxes and we're not
defining what we're talking about. Normally, what we're talking about
is income taxes. So when they discuss cutting taxes, they're
talking about income taxes. There's also other taxes, but generally
we're talking about income taxes. They started after the Civil
War to try and deal with the debts that everyone incurred,
and we created the concept that the federal government was
(03:46):
going to help pay for state debts, otherwise each was
going to kind of be left on their own. Initially,
taxes were only for the very wealthy, and that has
slowly become to everyone pays taxes, and that's largely how
we fund the government. It's a series of like cheating
and then changing the laws so that cheating is not allowed.
Most of the illegal stuff is not having the largest impact.
(04:09):
It's figuring out how to get around tax rules is
its own game, and that's what a lot of lobbying
is for. And when you hear Trump paid seven hundred
and fifty dollars for taxes for a year. That's why, Like,
he didn't do anything illegal, he just helped craft a
system that benefited him. So when clients come in and
they're like, how do I do that, they're directly questioning
(04:31):
income inequality. Those people have lobbied spending five million dollars
to save twenty million dollars and you have a different
set of rules. But across the world, this is the
best way we've come up with. And despite what you hear,
it's largely an honor system. And Americans are, on the
scale of people in the world, very forthcoming with just
(04:54):
paying their taxes and being like, this is my share.
I have to deal with it. I remember right a
client from Greece who said, we have a saying in
Greece that only the stupid pay taxes, meaning everybody else
knows how to get around them. And this was like
twenty fourteen, and in my head I was like, yeah,
but look at Greece.
Speaker 1 (05:09):
Yeah.
Speaker 3 (05:10):
And one piece I didn't realize about this before I
kind of got learning about it more was that the
IRS is a really efficient organization, Like it's kind of demonized,
but for every dollar you fund it, it returns over
six dollars. So it's really good at utilizing the money
you give it. And from a business perspective, that means
(05:32):
you should keep giving the IRS money a dollar until
it returns ninety nine cents as long as they're keep
returning more than they're taking, Like, that's an efficient use
of business. But traditionally, when the Republicans come into government,
in addition to cutting taxes, they underfund the IRS. And
when you underfund the IRS, less people get audited, checked
(05:54):
in on, and there's less compliance with just what the
rules are. Therefore, the country brings in less money, and
then you can say we can't afford all these social programs,
so it's kind of a backdoor to being like these
are too expensive. But you also undercut the funding by
lowering the money that the IRS gets. And most tax people,
(06:14):
I know, we like the RS like we want them
to be easier to get a hold of.
Speaker 2 (06:19):
Yeah, well, speaking of rules too, I know, even during
an election, we hear a lot about tax brackets. What
are tax brackets and what buckets can people fall into?
Speaker 3 (06:30):
So picture five buckets from left to right. The bucket
on the left most is the zero percent tax bracket.
Another word for that is the standard deduction. So the
first fourteen thousand dollars of the money you earn go
into that bucket, so you pay zero percent income tax
on that money, and then the next dollar you get
(06:52):
falls in the ten percent bucket, and the next ten
thousand or so dollars falls in the ten percent bucket.
Once you fill up that bucket, you move to the
next one to the right, and the next thirty thousand
dollars go in the twelve percent bucket. And then after
you fill that bucket, your next dollar goes in the
twenty two percent bracket. So you only ever moved to
(07:14):
the next tax bracket when you filled the previous bucket.
So a question we get that shows the misunderstanding is
people are like, I just got a raise at work
to fifty thousand dollars, but should I turn it down
because It's going to put me in a higher tax
bracket and I'm going to end up with less money
than I got when I was earning forty five thousand
dollars in the lower tax bracket. And the answers, no,
(07:37):
you should always take more money because the next money
you make only ever goes into the next tax bracket
when you filled the previous bucket.
Speaker 1 (07:46):
So basically, are you saying that, like just for simple numbers,
like if you're making forty five thousand dollars and paying
ten percent tax, and you go to fifty thousand and
you're paying now you're paying fifteen percent tax, it's only
that five thousand dollars that's being taxed at the higher rate. Correct. Okay,
that's interesting. So now that we've laid this baseline on taxes,
for those people who are out there who are like
(08:06):
it's March, I got to start, what are the first
steps that they should take when trying to file your taxes.
Speaker 3 (08:12):
I mean, there's a big separation between are you self
employed or are you an employee? And part of that
is what does self employed even mean? There's a lot
of verbiage and monikers under self employed labeling, which is
the gig economy, freelancing contractor. The answer is you're self
employed anytime someone gives you money for doing something without
(08:33):
taxes taken out.
Speaker 1 (08:34):
That's it.
Speaker 3 (08:35):
And that's where you enter that gray area of doing
your taxes. And then at that point you need to
understand that there's separate rules for you as a person
versus you as a business. And I think with some caveats,
it makes sense to get help on your taxes as
long as the person you're working with understand your industry
and you feel comfortable talking to them. Otherwise you're collecting
a bunch of papers that are sent to you and
(08:57):
trying to remember all the things. Very good place to
start is look at your last year's taxes and be like,
did anything go wrong with this? Did I get any letters?
Because people forget like, oh, I have some random stock
my grandma gamey. That's always like twenty four dollars.
Speaker 1 (09:13):
This is me every year. It takes Morgan Stanley into
like March eighteenth, and I'm like, oh right, that one thing,
God damn it.
Speaker 3 (09:19):
So essentially it's gathering up all those papers, filling them
out either yourself with some anguished hours in front of
the computer or paying someone else to do, and then
sending them in to the government to be like, yep,
that matches what we got.
Speaker 2 (09:34):
I had to log into ADP this year to get
a W two. It just wasn't sent to me in
the mail, and it was all of my previous employers
were in there, and I was like, oh, this website
has all of my everything from like the last fifteen years.
So that is a tip for other people too that like,
if you didn't get your W two in the mail
or something, go to your ADP and look at it
(09:56):
there because it might be there.
Speaker 3 (09:57):
Yeah, there's only a few big payroll processors ADP Gusto,
there's probably three, four or five, but yeah, they have
all your stuff. They're supposed to send you a W
two and they send one to the government to the irs,
so they have one on file.
Speaker 1 (10:11):
Tax day is April fifteenth, right, and you typically get
these forms. You're talking about wtwo form if you're employed,
maybe ten ninety nine if you're self employed, in January.
So like when should we start? Is it better to
file earlier? Is it better to file at the last second.
Speaker 3 (10:26):
The answer to that is going to be largely dependent
on what is going to happen at the end of
this process and what is it that you want from
this process. Some people are just thinking about like is
there a best money result? Am I going to get
a letter result? And then there's the how long am
I going to think about this question? So I think
for most people they want to get this over with,
(10:48):
and the only reason it goes on longer is because
they're not able to bring themselves to do it without
an impending deadline. Other people think that they owe money,
and so they're delaying that realization. You could do your
taxes and not pay them immediately. The irs is actually
very considerate. Oh, they just want to not be ignored. Yeah,
(11:09):
but like they don't put you in debtor's prison or
like take all your money from you. Think of them
as like a really nice credit card or an underfunded mafia.
That's how they work. So you can do your taxes
and then figure out payment separately. But I think for
most people they want to get it over with, move
on with their lives, not think about this. So yeah,
i'd recommend getting started and getting it out of your head.
Speaker 1 (11:31):
Does that affect like your refund, No, so you wouldn't
get it sooner if you filed sooner.
Speaker 3 (11:36):
Oh yeah, you would get it sooner. Yeah, not the amount,
That's what I meant, like, you'll get the refund soon.
Speaker 1 (11:41):
Yeah, Cause I think that's where I've landed, Like I
used to panic about it and wait until last second,
and now I'm just like I agree with you, Like
I just want to get it over with. And I
also think it can be helpful for people to try,
like the one thing I always forget ab I'm like,
oh I donated so much money. It's all these different
causes throughout the year. So I've started keeping a little
fulder whenever I make a transaction like that to like
make sure that I document what I can deduct from
charitable donations and stuff. So that's another thing that's helped
(12:04):
me not panic. It's brain that I have a record
of stuff.
Speaker 2 (12:07):
I've done a spreadsheet too, because every year, if you
need to be thinking about, well, how much should I
spend on my internet this year and things like that,
And so I've been trying to be better about listing
the things that I'm spending money on that are going
towards my work, so that I have them throughout the
year and so I'm not just in January like oh God,
what do I do. But on top of that too,
(12:29):
you know, again we were talking about W two's there's
ten ninety nine. There's all these letters and numbers being
thrown about. Can you explain a little bit the difference
of those when it comes to like W four's W
two's ten ninety nine ten forties, like all these different things,
what are each of these and what information and documents
(12:49):
do we need to have handy and ready to go
when we're actually ready for tax time.
Speaker 3 (12:54):
So a good way to figure out even how you're
about to get paid at a job is if they
give you a W four. So a W four you
fill out and that ends up with you getting a
W two later, OK, so that means you're an employee officially.
If they give you a W nine, that means they're
going to pay you as a contractor without taxes taken out.
(13:15):
So suddenly, like the roads have diverged. One, you're going
to have all the protections of an employee, minimum wage, unemployment,
potentially benefits, and they're going to take taxes out as
you get stuff. And the other way is that's your
responsibility at the end of the year and you better
save that money. There's a bunch of different ten ninety nine's,
(13:37):
so we kind of use them colloquially to mean your
freelancing money, but those are ten ninety nine miscellaneous or NEECs.
But there's also ten ninety nine its for interest, ten
ninety nine divs for dividends, ten ninety nine b's for
your brokerage ten nine nine R for retirement. Generally, I
would say, if you get something with very boring bolds,
(13:59):
graphic design and boxes, you probably need that for your taxes.
Speaker 1 (14:03):
Yeah, good, wait to put it. Yeah. And I feel
like I onlyly in the last couple of years started
investing in having a four to one K and stuff
like that, and so I started getting the ten ninety
nine div and I was like, oh God, the boxes
and the bold letters. This seems important.
Speaker 3 (14:17):
Yep.
Speaker 2 (14:18):
I guess also, if you're getting a lot of those
papers with the boring boxes and letters too, is that
when you sort of know, okay, I'm probably going to
need some professional help. How do you break that down?
How do you know, like, I got this, I can
do it myself, or when should you say, you know what,
let me let a professional come in here and save
my ass.
Speaker 3 (14:37):
I would not say the ubiquity of weird forms means
you need to get any help at that point. I
think there needs to be a something else. Okay, just
getting those forms is still just type them right into
the computer. When you get into self employed gig economy, airbnb,
getting paid money without taxes, taken out. I think that's
(14:59):
when it makes sense to get tax help. The other
times that it makes sense to get help is if
whatever you want to be happening isn't happening. Like we
have people come every year. All they have is two
W two's, but every year they owe. They don't know why,
no one will explain it, and nobody's incentivized, Like your
job can't tell you how to fill out your W
(15:19):
four to change the results on your W two. So
every year people just live with it. There's no other
time in life where you're like, am I going to
get back for one thousand dollars? Or am I going
to owe ten thousand dollars. It's like the crappiest casino
in the world with such variability, and it's like weird
that it's normal to us.
Speaker 1 (15:40):
So I'm a W two and Lee is a ten
ninety nine girl. So for the people on the W side,
can I change my W FORO it work? Because I
feel like the same thing I always lose and I'm like,
how do I fix this?
Speaker 3 (15:51):
Yeah, And that's an important thing to recognize is what
you fill out on your W four to get a
W two is not legally binding. The goal of the
W four is just to get your W two to
turn out the way you want it. So for most
of my clients, I tell them to choose single or
married filing separately. That's usually one selection. And don't claim
(16:12):
any of your kids if you have kids. For most
of my clients, that's the one that makes sense. Because
your spouse is not not working, they're just going to
come and throw more money on the pile. So we
don't want to account for them being a tax benefit.
We just are saying, hey, this money, should pull out
taxes for this money and assume no other benefits somewhere else.
(16:34):
So even if you're going to file married filing jointly
on your W four, you can still select single or
married filing separately, And the goal is just to get
it to come out the way you want it to
at the end. But that whole system is pretty opaque
because it just wasn't designed for the way we're using it.
Like you weren't supposed to have ten W two jobs.
Speaker 2 (16:55):
Yeah, it's like do I put a zero? Do I
put a one?
Speaker 1 (16:58):
In?
Speaker 3 (16:58):
Like?
Speaker 2 (16:58):
How is this going to change my whole higher life
right now? With like one stupid number?
Speaker 3 (17:03):
Right where you don't really understand what's going on and
what it's going to mean later. And then it also
changed in twenty seventeen with the Trump tax changes.
Speaker 1 (17:12):
I think this ends with me hiring you rest to help. Yeah, Like,
now that you've said that, I like totally forgot, because
I basically like, I've been working with this cover for
five years and I did the four or five years
ago and I don't even remember what I put and
it's probably affecting every single year that I'm filing taxes.
Speaker 2 (17:26):
Well, that brings us to a great point Matt too,
which is how do you find a good tax person?
How do you know if this guy is going to
be good or this lady is going to be good,
or they're like not great, or they're going to be
a little bit shady, or like no, they're really on
top of it and they know the loopholes. You know.
I tend to go with if somebody that I know
in my life recommends somebody, then at least I have
(17:47):
somebody to blame so that I don't have to take
full responsibility. But what are some of the things that
you should look for in somebody that's going to prepare
your taxes for you if you're going to go to
the professional route.
Speaker 3 (17:57):
My mentor Harvey said, take what you're entitled to, but
don't be greedy, and I've kind of come to agree
with that. I will also point out there's no accreditation
necessary to do taxes. That's why the industry feels kind
of shady. All you have to do is convince someone
to trust you, and then you have to go through
the process of being allowed to e file taxes. Not
(18:18):
a high bar. On the other end of that, just
someone having letters after their name does not indicate they
will be good at your taxes. So just because somebody
is a CPA, I'm an enrolled agent, which is an
IRS designation versus CPA is a third party organization, it
doesn't mean I'm going to be good at your taxes.
Brass taxes is good at what we do a lot
(18:38):
of Just like you wouldn't hire like a real estate
lawyer if you were on trial for murder. It's like
just being a lawyer does not mean they will be helpful.
And so I tell everybody you need to work with
someone who understands your industry and you feel comfortable talking to.
I put the limit of feel comfortable talking to of
(18:59):
you would ask them the same question four times. If
you don't get it, you're like, sorry, still don't get it.
Speaker 2 (19:04):
Can we try it again?
Speaker 3 (19:05):
That level of comfort and if you can do that,
they've established themselves as a good repository and a good communicator,
which is not inherent to people who choose this job.
And they've also shown you that they're not maximizing their
profit by cutting your conversation short. Because the fastest way
(19:26):
for me to make money is for you to drop
off your papers and then come take your tax return
when I'm done with it and pay me money.
Speaker 1 (19:33):
I could talk to you all day to emphasize your point.
I can't believe that I haven't had these conversations with
my guy. I don't know why I haven't done it.
I should do it.
Speaker 3 (19:42):
What's fascinating, Matt, is that default interpretation is this is
gonna suck. This process is gonna suck. I'm going to
feel terrible at the end of it, a little violated,
a little like over shared. And my attitude is like,
it doesn't need to be that bad. On the back
of our business cards, it says taxes shouldn't suck so much.
Speaker 1 (20:05):
My favorite thing to say, which is so lame, is
a knowledge is power. But it really is, like, if
you know this stuff, you really can change your life,
even if it's in a small way to help yourself
out down the road. So you're not confused about it.
Speaker 2 (20:18):
And people feel dumb. They feel dumb like they should
know this, but it's like, why would we know this?
This was actually not a class that I ever had anywhere,
and so why would we know this? But like, the
more you learn about it, the more also confident you
will feel going into this and understanding it. And even
if you're paying, if you sort of understand why you're paying,
(20:39):
I think you feel slightly better about it rather than
just I don't even know why I'm doing this and
here's all this money to the government.
Speaker 3 (20:46):
Yeah. I think that's a great point. There's a huge
amount of shame around this and nobody talks about it. Yeah,
it's much more taboo than talking about sex.
Speaker 1 (20:54):
Yeah, in certain situations, absolutely we talk about that. I
mean at least somewhat.
Speaker 2 (20:59):
Yeah.
Speaker 3 (21:00):
I went around at dinner table and said there was
I think twelve or thirteen people and I was like,
all right, tell your income or an awkward sex story
eleven awkward sex stories.
Speaker 2 (21:09):
Yeah, we'll be right back after a quick.
Speaker 1 (21:15):
Break and we're back with more grown up stuff. How
do I don't I actually have a few terms that
I would love for you to define for us. So
I'm just going to rattle these off and I'd love
for you to give me, like, you know, the bullet
(21:36):
point on them, just for people to understand a little
bit of the terminology we're talking the right, So withholding.
Speaker 3 (21:41):
Withholding is money that they take from you before you
get your money. So that was designed to passively take
taxes from you so you don't spend what you're not
entitled to. And so when you get a tax refund,
this is a good reminder you're getting your own money
back that they took from you previously. Most of the time,
not all the time, but most of the time it's
(22:02):
just you getting your money back. But that was previous
you and now present you is like, this is awesome.
Just got three thousand dollars, not remembering that they took
that incrementally from you.
Speaker 1 (22:12):
You did the work and you were paid for it,
and that is your money. And that actually gets back
to W four, right, because you're withholding is determined correct
by what you claim or right.
Speaker 3 (22:22):
What you put on the W four determines what you're
withholding per paycheck and throughout the course of the year.
So the issue is if you get that wrong by
fifty bucks and then you get paid twenty six times,
now you owe thirteen hundred dollars. So it's the repetitive
incremental change where it's like, that's how you end up
with a five thousand dollars refund or owing five thousand dollars.
(22:46):
It's not a huge shift one way or the other.
It's like, oh, one hundred eleven dollars twenty six times
is a lot of money in the end of the year,
so it's not something you necessarily notice.
Speaker 1 (22:58):
The next one is deductions.
Speaker 3 (23:00):
Deductions Usually the way people use it is things the
government has said if you have these things, you can
lower the amount of income you pay tax on, so
you can lower your taxable income with deductions. So common
deductions are a student loan interest if you put money
in a traditional IRA, and then the standard deduction is
(23:22):
also a deduction, and that is the first right now
fourteen thousand dollars that you don't have to pay tax on.
These are all things that lower your taxable income that
you pay taxes on.
Speaker 1 (23:32):
So if I earned fifty thousand dollars and I put
a thousand of it in a retirement account, my taxable
income is now forty nine thousand dollars. Correct. Cool. So
the next one is dependence. And I'm kind of curious
because I think that they're children. And if they are children,
then do pets count.
Speaker 3 (23:49):
Pets are not given the regard that we hold for
them in the US tax system. Rude Dependents are people
that you take care of. It could be your parents,
even if they don't live with you. It's basically you
pay for more than fifty percent of their lives.
Speaker 1 (24:06):
Interesting, I've never heard the definition before.
Speaker 3 (24:09):
So usually kids, your girlfriend or boyfriend could potentially be
your dependent.
Speaker 2 (24:13):
Oh damn, choose wisely some upside to the downside.
Speaker 1 (24:18):
Yeah, okay? Interesting? And then what about credits?
Speaker 3 (24:22):
So deductions are like a discount, like we'll give you
twenty five percent off. Credits are like we'll give you
a refund of the money you spent. So a deduction
is money you don't have to pay tax on, and
a credit is dollar for dollar giving back of your tax.
The major credits are the Earned Income Credit, the child
(24:43):
tax credit, The savers credit is a good one that
people don't know about. If your income is below a
certain threshold and you save for retirement, the government will
give you a credit to encourage that behavior. So that's
a dollar for dollar payback or reduction of tax. So
if you owe two thousand dollars in taxes and you
have a thousand dollars tax credit, now you owe one
(25:05):
thousand dollars in taxes because you know.
Speaker 1 (25:07):
And then there's three more here, and then we'll move
on adjusted gross income.
Speaker 3 (25:11):
Adjusted gross income or AGI if you want. The verbage
is a set series of things they say, don't include
these or include these in your income and how much
income do you have? So gross income is before they
take anything out. This is your adjusted gross income. So
they've taken some things out but left some things in.
(25:33):
So often when you're applying for an apartment or a house,
they'll ask for your adjusted gross income.
Speaker 1 (25:39):
Got it, And then we'll pair these together. Tax refund
and tax liability.
Speaker 3 (25:45):
So tax refund is when all that money filters together.
When we take your W two, your gig economy, whatever
was left over from your self employed business you made
this much, you spent this much. This is the profit
or loss leftover. We got your dividends, your interest, your brokerage,
your stocks, sales, losses and gains. The end result is
(26:08):
this much money based on that much money, you owe
this much tax?
Speaker 1 (26:12):
How much did you.
Speaker 3 (26:13):
Pay so far? If anything from your withholdings or your
estimated taxes, and then what's left over. So if you
overpaid or there's credits to help buoy up the amount
that you did pay, then you get a refund. If
you didn't pay enough, then you owe and you have
a tax liability.
Speaker 1 (26:32):
Wonderful, Thank you so much.
Speaker 2 (26:34):
So, Russ. I mean, let's just get to the question
that I'm sure is the first thing that people ask you.
Speaker 3 (26:40):
But way you need to know I'm single.
Speaker 2 (26:44):
Great, then I'm done. Yeah, okay. The second question they
ask is how do I just get a bunch of
money back? So where do you even start with that?
Speaker 1 (26:56):
Yeah?
Speaker 3 (26:56):
I've had people when they find out I'm doing taxes
like unprompted and ask them. They're like, I have a
guy in Long Island who gets me six thousand dollars back,
and I'm always like cool, yeah, like maybe maybe cool, Yeah,
maybe you should be getting eight thousand dollars back, or
maybe he's just like making some crap up that you'd
have to live with.
Speaker 1 (27:15):
Yeah, maybe in a couple years fro now you're gonna
get a letter from the IRS. Actually you ask all.
Speaker 3 (27:20):
Of that, and suddenly six thousand bucks doesn't seem worth
a felon Sadly. That's the tricky part is some of
these credits are really great, and they're actually giving you
money that you didn't already have taken from yourself. But
for most people, if you get a big refund, you're
usually just getting your own money back. So from a
(27:40):
financial perspective, people are like, you should never do that.
You never want a refund. You always want to owe
them a little get a free loan from the RS.
But I think in the actual experience of being a human,
we do like getting refunds. Yeah, so don't discredit that.
But there's not a magical way or like a simple
way without a good amount of tax planning to really
(28:01):
get your taxes down to a level of like Trump
paid seven hundred and fifty dollars in taxes, right, And
I totally understand the like, how can I pay less?
Is a valid question, but part of our goal, since
we don't have skin in the game with the results
that are happening, is we want to take care of
present you who wants to pay no taxes, but also
(28:22):
future you that would have to deal with these things
and may not want to deal with these things. So
we try and be the arbiter between those two versions
of yourself that are going to exist. And yeah, I
think it falls in the like take what you're entitled to,
but don't be greedy, right, and kind of draw that
line where it's like, this is allowed, this is aggressive,
this is illegal.
Speaker 2 (28:42):
Yeah, not to be greedy, but also when will I
get it? Like how long typically does it take for
it to show up? And if you were to advise
somebody what they should do with that money, is it
run to them all or is it maybe do something
a little bit smarter with it?
Speaker 3 (28:58):
Yeah, I mean refunds come much faster now. If you
give people are wary of giving the Irs their bank
info or anything, you're really underestimating the power of the
federal government. You'll get your refund within usually one to
three weeks, and sometimes it's just a few days. The
way people treat that money really varies widely. Some people,
(29:20):
especially for the earned income Credit, are counting on that
money as part of their yearly budget. So it either
can get people out of debt or it can just
become that thing that gets them through the next six months.
Speaker 2 (29:33):
Like maybe tickets to the Cowboy Carter Tour because they
need to see Beyonce.
Speaker 3 (29:37):
That's totally vouid Yeah.
Speaker 2 (29:38):
Okay, great. Just wanted to make sure.
Speaker 3 (29:39):
It's also a passive way of saving, like if you
had the wherewithal to make estimated taxes since you're freelancing
and knowing you're like, I'd rather get this money out
of my face, which I strongly recommend either put it
in a separate bank account that you don't see at
the ATM, or go ahead and send it to the
government and just settle up at the end of the year.
(30:00):
But you have to make choices like that based on
like will you be cash poor all year or will.
Speaker 2 (30:04):
I go to Beyonce? Yeah?
Speaker 3 (30:06):
Yeah, but you're just saving for things. It could be
really valuable to be like I just have two thousand dollars,
I know what I want to do with this.
Speaker 2 (30:11):
Yeah, okay. Flip side of this too is ugh, what
if I do have to pay money, you know, and
I'm going to believe you when you tell me that
the irs is actually really nice. But when do I
have to pay it by? And also like where is
that money even going? What are they doing with it?
Speaker 3 (30:30):
Yeah, that money when you're doing your taxes is do
April fifteenth, whatever that bill is.
Speaker 2 (30:36):
Okay, you can.
Speaker 3 (30:37):
Get an extension of time to file, but the money
still do April fifteenth. If you're not able to pay
that money. This is where the government is much more
kind than any other person you.
Speaker 2 (30:50):
Have a debt.
Speaker 3 (30:51):
With that said, the states are not as kind as
the federal government.
Speaker 1 (30:56):
Okay, So if.
Speaker 3 (30:56):
You can only afford to pay one, pay your state first.
The states, by law have to have balanced budgets, so
they can't run a deficit every year, whereas the federal
government does run a deficit every year, and when they
need more money, they print more money. But states can't
do that. So you pay more interest on your taxes
to the state than you will to the federal government.
(31:20):
But if you owe money to either, they have things
like payment plans, and the interest is not exorbitant. It's
not like credit cards where it's like suddenly twenty nine
percent every year, Like, they don't want to bury you,
They just want to bleed you, okay slowly, Yeah, Okay,
as long as you're not ignoring them for months at
(31:40):
a time. Yeah, they're fine. They don't want to come
chase you if you do ignore them. The power they
have is really outside of our normal way of thinking,
Like if you ignore them forever. They are the foundation
that makes your bank account secure. That's the federal government.
So if you don't pay them, they will just go
find your bank account and take their money. And then
(32:02):
that's when you realize, like the security you feel is
a function of what they provide.
Speaker 2 (32:08):
Yeah, and I know we talked a little bit about
making sure we fill out our w fours correctly. Is
there anything else to think about or be doing throughout
the year to prevent having to owe money? If you
just are like I don't want to have to do that.
Speaker 1 (32:23):
Yeah.
Speaker 3 (32:23):
A big part of not owing money is figuring out,
for self employed people, how to track your expenses. And
you talked about this, Leah. At the end of the year,
you don't want to be sitting with a digital or
physical pile of receipts. That's mentally exhausting and you just
won't do it. So when people track receipts, they realize
they spend a lot more money than they expected. So
(32:47):
I tell anybody there's no perfect system. We have a
couple on our website that you can download for free.
You need to have a system that you use at
least monthly or more often that will capture a thing
three dollars receipt And the reason that's important is because
you'll spend three dollars hundreds of times during the year.
You're going to remember the MacBook Pro you bought. You're
(33:09):
not going to remember that you took this person for
coffee and got website advice. But all those expenses over
the course of the year lower your profit and you
only pay tax on the profit. So that's why expenses
are important. That's the whole game is. I tell people
track your expenses and know roughly how much you're going
to owe and have that amount of money. Beyond that,
(33:31):
you don't really have to understand income tax brackets or
why bonds go up when stocks go down, or whatever.
You can go back to your life.
Speaker 2 (33:38):
Thank you.
Speaker 1 (33:38):
Yeah, And you had mentioned about freelancers keeping track of
their expenses so they know how much tax to expect
to pay. Just as a rule of thumb, like, what
is a good percentage of each paycheck or invoice or
whatever for freelancers to save so that they're prepared come
tax day.
Speaker 3 (33:57):
Yeah, this depends largely based on where you're living, because
your state in local taxes, and also the amount you're making. Generally,
I would say there's two main ways of thinking about it.
You can take a percentage of every check that you're paid,
or you can have an estimate of your profit and
take a percentage of that. So if you're taking a
percentage of every check you get, I would start at
(34:18):
twenty five percent. So if you're paid ten thousand bucks,
take two thousand, five hundred, put it in a high
yield savings account and get it out of your face,
because that's not your money, you're just holding it for
the government. Or if you have an estimate of your
income and expenses, you can look at your profit and
take thirty percent of that number and stick it in
(34:39):
a high yield savings account, get it out of your face,
or pay it to the government for estimated taxes. But
the most important thing is just to have that amount
of money. I really saw how quickly. Those numbers can
get so large that unless you're prepared for them, you
do not have that amount of money sitting around.
Speaker 2 (34:56):
Ready to go.
Speaker 3 (34:57):
They just get far too large, too quickly.
Speaker 1 (35:00):
That's great advice. And putting in high yield savings account
where you're going to get at least five percent back,
you know, depending on the high yield saving account they choose,
is just great advice because then you're earning some interest
on it and you'll definitely be able to pay it off.
That's lovely, Okay. So I want to talk about the
a word audit and how we can avoid it. How
(35:20):
do we give the government off our backs?
Speaker 3 (35:22):
This comes up often. An audit is just a scary
word for show us how you got these numbers. And
just as a reminder for everybody, when you sign a
tax return, it says, under penalty of perjury, I swear
everything in here is true to the best. So just
because you're working with a tax person or you're using software,
that liability is yours. So you should understand what your
(35:46):
tax person is putting down. I have clients who came
to us because they realized their tax person was putting
a kid on their return and they suddenly realized because
it showed up in a different place because they change
the forms, and she's like, I don't have any kids.
Oh he was just doing it to get her money back,
to make her happy, but it's her liability.
Speaker 2 (36:05):
Yikes. Oh my god, that's a big Gikes.
Speaker 3 (36:09):
The tax prepayer would get in trouble for something like that.
But like it's still you. It's like in the moment,
you're like, I have a guy in Long Island. It
gets me six thousand bucks back. I'm always like.
Speaker 1 (36:17):
Great, maybe, but he's telling the government you've got three kids.
Speaker 2 (36:20):
Yeah.
Speaker 1 (36:21):
Yeah.
Speaker 3 (36:22):
It's like you can put whatever on there. It doesn't
mean it's a good choice or something you want to
live with. And I will say, if you get a
letter and the return address is the Internal Revenue Service,
it's scary. That doesn't mean you're getting audited. Like we
have these visions of Wesley Snipes and like they have
high profile cases because they help everybody else be compliant.
(36:45):
But an audit is just a scary word for show
us how you got these numbers. And so when we
work with clients, we try and help them get a
reasonable level of how much of a pain in the
butt would this be if you had to show where
these numbers came from. For example, a credit card statement
is not sufficient to show where you got these numbers.
It can't just say Amazon, that is not clear that
(37:07):
what you bought was a business thing. It's like they're
allowed to assign you a research paper if you're self
employed and say show me how you got all these numbers.
If you just get a letter and the irs is like, Matt,
you didn't include this ten ninety nine dive And you're like,
oh yeah, they're like, we think you owe us thirty
nine dollars and seven cents. You're like, yeah, okay, Like
that's not an audit. That's just the stupid system of
(37:30):
you writing down everything and send it to us, and
us looking at everything we already have for you didn't match.
But yeah, the audit that people are scared of is
like they're going to come to your house and be like,
how'd you pay for this couch that's a mighty big
TV for your income that you say, you know, like
that is not really what happens. It's just something to
know as a possibility, But there's a very low percentage
(37:52):
of when that actually happens.
Speaker 1 (37:54):
Something really funny that my tax prepair said to me though,
when I was worried about this is he goes to
be honest, you don't make enough money for them to
care about you. I was like, okay, cool, that hurt
my feelings a little bit, but it's good to know.
Speaker 2 (38:06):
I also just think of the Real Housewives too. When
heathery're Gay from Salt Lake City was saying receipts, proof screenshots,
she had a right. I mean, you just need to
make sure that things are documented and that you can
point to them and be able to show the government like, hey, look, no,
this was what I was paying for this, and this
is what it did for my business and that's why
I needed it.
Speaker 3 (38:24):
Yeah, And I always tell people like, don't prepare for
an audit, but know that it might happen, because like,
it's not worth you spending that three weeks preemptively. But yeah,
it's helpful to have a system of organization where if
you need to unwind that number that you put in
supplies what's in there? Right, how am I going to
figure that out? That process should be reasonable and it's
(38:46):
something that you get better at as you do it.
Speaker 2 (38:49):
Russ I can see our tiny little brains absorbing all
of this information that you have presented to us today,
and we thank you already for making us slightly smarter
when it comes to taxes. Is there anything that we
did not cover that you think that people should know
about preparing, or doing, or just even thinking about their taxes?
Speaker 3 (39:08):
For people who are self employed, gig economy, contractors, freelancers,
the thing that surprises and makes that number get big
fast is self employment tax. So self employment tax is
just another word for Social Security and Medicare, the employer
side and the employee side. So when you have a
(39:28):
W two job, your employer pays half of your Social
Security and Medicare and you pay half of your SOLI
Security and Medicare. And that's one of the main reasons
people don't want you to be an employee is because
you cost more. But self employment tax is not a
progressive tax. So what we describe with the buckets moving
up the more you earn, the more you pay, is
(39:49):
a progressive tax. So self employment tax is a flat tax.
You're going to pay fifteen percent. So, for example, if
you earned a profit of ten thousand dollars as a
free answer, you don't know any income tax, because that's
all in the zero percent tax bucket. But you owe
about fifteen hundred dollars in self employment tax.
Speaker 2 (40:09):
They'll get you one way or another.
Speaker 3 (40:12):
That's what's only money we're paying to ourselves later. So
that's what goes in our sohol sacred focus. Sure if
they're social security.
Speaker 2 (40:19):
Yeah, sure, believe it when I see it.
Speaker 1 (40:22):
Well, Russ, thank you so much for coming on the
show today. I knew that it was going to be really,
really insightful, but I'm like blown away with how much
information you just dropped on us. So thank you so
much for all of that valuable information. And let people
know where they can go find you if they want to.
Speaker 3 (40:37):
Yeah, you can find us at Brass Taxes dot com.
If you have any questions, feel free to throw them
at info Brass Taxes dot com. I would check out
our podcast. I think the way to lower the anxiety
and shame and increase the understanding and education is just
to hear about a lot more people and the way
they deal with finance and the way they think about finance,
because a lot of us just think money is the
(40:59):
way it is, and we don't realize that that feeling
can change, and that the anxiety we feel about this
is not just the way money is, it's the way
we're interacting with it. I'd encourage people don't go for
perfect with any of this stuff. With understanding money, finances, taxes,
don't go for perfect, focus on better. It's iterative, Like
(41:20):
people work with us, and within a couple years you
see some changes start to take hold. But in a
couple of years they've only done it twice. It's not
going to be fast changes, but incrementally it starts to
like have a lower volume in our lives the stress
about this stuff. But it takes learning about it, and
it's not rocket science. You just need somebody who cares
(41:40):
to explain it. And yeah, our FAQ on Brass Taxes
dot com is completely geared around people who want to
understand this stuff, and especially freelancers and creatives to just
get answers that you otherwise can't find anywhere because nobody
really cares to provide it or is not good at communicating.
Speaker 2 (41:59):
Yeah, I'll just say I can confirm so Russ, thank
you so much. It was great to have you here today.
Good Luck on the rest of tax season for you,
and hopefully there's a nice Marguerita waiting for you after
April fifteenth.
Speaker 3 (42:11):
Yeah, thank you so much for having me. I really
appreciate you guys doing this stuff.
Speaker 2 (42:19):
Our thanks to Russ for not only all of that
incredible information, but also for changing Matt's life.
Speaker 1 (42:25):
I think will see, but I think it is going
to I've already emailed Russ. I'm like, you're my guy.
The old guy's out.
Speaker 2 (42:31):
What are you mean going to? I was watching you
absorb all of this information. I was like, he's a
changed man.
Speaker 1 (42:36):
Like the W four thing specifically that he talked about.
I haven't even thought about my W four in years,
and the fact that it's probably what's been messing me
up all this time.
Speaker 2 (42:45):
Yeah, it's changed your life, and it's changed the life
of the HR department after God, because you're like, hey,
can I get a look at that form again? And
they're like, who is this guy?
Speaker 1 (42:53):
And I'm going to send this to every iHeart employee
and be like, hey, change you W four do it now?
So it might have changed everyone's life at this company
at least, and hopefully the life of our listeners.
Speaker 2 (43:01):
Yep, to start in a revolution, one tax form at
a time, but we hope everyone learned a little or
a lot of something from Russ and you can check
out Brasstaxes dot com for any other help and questions.
So happy tax season to everyone.
Speaker 1 (43:15):
Oh what tax season isn't over just yet? Leah. We
learned so much from us about doing our taxes ourselves,
but I feel like we've only scratched the surface. So
we'll actually be back later this week with another episode.
We'll be joined by a turbo tax business expert who
will break down even more of what we need to
know when it comes to filing taxes for your small business.
(43:35):
So if you've got a startup or a side hustle
or another fund small business, this is the one for you.
Speaker 2 (43:41):
Spoiler aler, but that's me, so I am going to
need that one until then, good luck being a grownup.
Speaker 1 (43:48):
This is a production of Ruby Studio from iHeartMedia. Our
executive producers are.
Speaker 2 (43:52):
Lea Palmary and Matt Stillo. This episode was edited and
engineered by Sierra Spreen.
Speaker 1 (43:57):
We wanted to thank our teammates at Ruby Studio in
Sarah you, Ethan Fixel, Racisjan Krasnoff, Amber Smith, Deborah Garrett,
and Andy Kelly
Ruby. Hello to all our favorite grown ups, and welcome
back to grown up Stuff How to Adult. I'm Matt
Stillo and.
Speaker 2 (00:14):
I'm Leah paul Mary, your brand new host for season three.
Speaker 1 (00:18):
That's right. We are so excited to have Leah joining
the show. And before we jump into our first episode,
a round of applause to Mollie, who not only co
hosted the show's first two seasons, but was the show's creator.
We love her so much. She's off to bigger and
better things, and we wish her all the best of
luck and her future endeavors.
Speaker 2 (00:36):
And I know I'm stepping into big and also very
cute shoes here, so I promise I'm going to do
my best to make Molly proud with my curiosity and
naturally am I humor?
Speaker 1 (00:46):
Okay, So Leah, why don't you tell us a little
bit about yourself?
Speaker 2 (00:49):
Well, a little bit is that I'm a Gemini.
Speaker 1 (00:51):
Okay, that's actually a lot of bit. Yeah, what are
you Sagittarius? That's right, December.
Speaker 2 (00:57):
Baby, Yes, okay, I'm a June girl.
Speaker 1 (00:59):
So well, this is good yin yang. Yeah, it's balancing out.
Speaker 2 (01:02):
Those two are actually like they're a good pair together.
They're the opposites of each other, but they have a
lot in common, so they're a good match.
Speaker 1 (01:08):
Like all melding well for the new season.
Speaker 2 (01:10):
Yeah, it really is. I'm so excited to be joining
the show. I'm so excited to be chatting with you,
and I'm mostly so excited to learn. We're going to
learn so many new things.
Speaker 1 (01:20):
We've already learned so much.
Speaker 2 (01:21):
Yeah, that's true.
Speaker 1 (01:22):
We really have amazing Well, we're so happy to have
you here, grown up stuff, and we have quite an
exciting season ahead. We're going to revamp your cars, your mornings,
and starting today, your tax returns.
Speaker 2 (01:34):
That is right, Matt. So coming up, we're going to
be talking to Russ Garoffloe, who is the founder of
Brass Taxes.
Speaker 3 (01:42):
Well, Hi, my name is Russ. I founded Brass Taxes
in two thousand and eight when the economy slumped. My
money job was as a video editor, and so I
realized I needed a day job and I just happened
to get one with a friend of a friend's parents
who is a tax preparer in Brooklyn. And within about
(02:03):
three weeks I realized I was doing my own taxes badly.
Probably so we're all my friends. I was losing out
on money from what I didn't understand. And then I
was curious why no one had come and sold me
something to tell me this. Why didn't somebody come and say,
if you make your taxes more complicated by dealing with
(02:23):
this other stuff, it will save you more money than
it costs additionally.
Speaker 1 (02:27):
To do them.
Speaker 3 (02:28):
And you really have very little experience of doing taxes
because you do them once a year. So I feel
like it's like a video game you play once.
Speaker 1 (02:34):
Ye, you forget every time.
Speaker 3 (02:35):
Yeah, so you're terrible.
Speaker 1 (02:37):
Yeah, every year feels new to me. I'm like, oh,
what did I do?
Speaker 3 (02:39):
I forgot all anything you learned, you'll have forgotten. Yeah,
And then really started to focus on those things that
I didn't understand of when it makes sense to get
tax help and when it does not make sense to
get tax help, and do it hopefully in a way
that is even keeled enough that you engender enough trust
that people believe you. And now we're foy Vote and
(03:00):
there's twenty five of us and we have about five
thousand clients.
Speaker 2 (03:06):
You're going to tell us a lot today, Russ, and
we're going to feel so much better going into the world.
I think just to start, could you give us a
small history lesson on taxes, just so we understand what
we're even dealing with here, like what our taxes, what
do they do? And why are they so complicated?
Speaker 3 (03:23):
Most of the time we say taxes and we're not
defining what we're talking about. Normally, what we're talking about
is income taxes. So when they discuss cutting taxes, they're
talking about income taxes. There's also other taxes, but generally
we're talking about income taxes. They started after the Civil
War to try and deal with the debts that everyone incurred,
and we created the concept that the federal government was
(03:46):
going to help pay for state debts, otherwise each was
going to kind of be left on their own. Initially,
taxes were only for the very wealthy, and that has
slowly become to everyone pays taxes, and that's largely how
we fund the government. It's a series of like cheating
and then changing the laws so that cheating is not allowed.
Most of the illegal stuff is not having the largest impact.
(04:09):
It's figuring out how to get around tax rules is
its own game, and that's what a lot of lobbying
is for. And when you hear Trump paid seven hundred
and fifty dollars for taxes for a year. That's why, Like,
he didn't do anything illegal, he just helped craft a
system that benefited him. So when clients come in and
they're like, how do I do that, they're directly questioning
(04:31):
income inequality. Those people have lobbied spending five million dollars
to save twenty million dollars and you have a different
set of rules. But across the world, this is the
best way we've come up with. And despite what you hear,
it's largely an honor system. And Americans are, on the
scale of people in the world, very forthcoming with just
(04:54):
paying their taxes and being like, this is my share.
I have to deal with it. I remember right a
client from Greece who said, we have a saying in
Greece that only the stupid pay taxes, meaning everybody else
knows how to get around them. And this was like
twenty fourteen, and in my head I was like, yeah,
but look at Greece.
Speaker 1 (05:09):
Yeah.
Speaker 3 (05:10):
And one piece I didn't realize about this before I
kind of got learning about it more was that the
IRS is a really efficient organization, Like it's kind of demonized,
but for every dollar you fund it, it returns over
six dollars. So it's really good at utilizing the money
you give it. And from a business perspective, that means
(05:32):
you should keep giving the IRS money a dollar until
it returns ninety nine cents as long as they're keep
returning more than they're taking, Like, that's an efficient use
of business. But traditionally, when the Republicans come into government,
in addition to cutting taxes, they underfund the IRS. And
when you underfund the IRS, less people get audited, checked
(05:54):
in on, and there's less compliance with just what the
rules are. Therefore, the country brings in less money, and
then you can say we can't afford all these social programs,
so it's kind of a backdoor to being like these
are too expensive. But you also undercut the funding by
lowering the money that the IRS gets. And most tax people,
(06:14):
I know, we like the RS like we want them
to be easier to get a hold of.
Speaker 2 (06:19):
Yeah, well, speaking of rules too, I know, even during
an election, we hear a lot about tax brackets. What
are tax brackets and what buckets can people fall into?
Speaker 3 (06:30):
So picture five buckets from left to right. The bucket
on the left most is the zero percent tax bracket.
Another word for that is the standard deduction. So the
first fourteen thousand dollars of the money you earn go
into that bucket, so you pay zero percent income tax
on that money, and then the next dollar you get
(06:52):
falls in the ten percent bucket, and the next ten
thousand or so dollars falls in the ten percent bucket.
Once you fill up that bucket, you move to the
next one to the right, and the next thirty thousand
dollars go in the twelve percent bucket. And then after
you fill that bucket, your next dollar goes in the
twenty two percent bracket. So you only ever moved to
(07:14):
the next tax bracket when you filled the previous bucket.
So a question we get that shows the misunderstanding is
people are like, I just got a raise at work
to fifty thousand dollars, but should I turn it down
because It's going to put me in a higher tax
bracket and I'm going to end up with less money
than I got when I was earning forty five thousand
dollars in the lower tax bracket. And the answers, no,
(07:37):
you should always take more money because the next money
you make only ever goes into the next tax bracket
when you filled the previous bucket.
Speaker 1 (07:46):
So basically, are you saying that, like just for simple numbers,
like if you're making forty five thousand dollars and paying
ten percent tax, and you go to fifty thousand and
you're paying now you're paying fifteen percent tax, it's only
that five thousand dollars that's being taxed at the higher rate. Correct. Okay,
that's interesting. So now that we've laid this baseline on taxes,
for those people who are out there who are like
(08:06):
it's March, I got to start, what are the first
steps that they should take when trying to file your taxes.
Speaker 3 (08:12):
I mean, there's a big separation between are you self
employed or are you an employee? And part of that
is what does self employed even mean? There's a lot
of verbiage and monikers under self employed labeling, which is
the gig economy, freelancing contractor. The answer is you're self
employed anytime someone gives you money for doing something without
(08:33):
taxes taken out.
Speaker 1 (08:34):
That's it.
Speaker 3 (08:35):
And that's where you enter that gray area of doing
your taxes. And then at that point you need to
understand that there's separate rules for you as a person
versus you as a business. And I think with some caveats,
it makes sense to get help on your taxes as
long as the person you're working with understand your industry
and you feel comfortable talking to them. Otherwise you're collecting
a bunch of papers that are sent to you and
(08:57):
trying to remember all the things. Very good place to
start is look at your last year's taxes and be like,
did anything go wrong with this? Did I get any letters?
Because people forget like, oh, I have some random stock
my grandma gamey. That's always like twenty four dollars.
Speaker 1 (09:13):
This is me every year. It takes Morgan Stanley into
like March eighteenth, and I'm like, oh right, that one thing,
God damn it.
Speaker 3 (09:19):
So essentially it's gathering up all those papers, filling them
out either yourself with some anguished hours in front of
the computer or paying someone else to do, and then
sending them in to the government to be like, yep,
that matches what we got.
Speaker 2 (09:34):
I had to log into ADP this year to get
a W two. It just wasn't sent to me in
the mail, and it was all of my previous employers
were in there, and I was like, oh, this website
has all of my everything from like the last fifteen years.
So that is a tip for other people too that like,
if you didn't get your W two in the mail
or something, go to your ADP and look at it
(09:56):
there because it might be there.
Speaker 3 (09:57):
Yeah, there's only a few big payroll processors ADP Gusto,
there's probably three, four or five, but yeah, they have
all your stuff. They're supposed to send you a W
two and they send one to the government to the irs,
so they have one on file.
Speaker 1 (10:11):
Tax day is April fifteenth, right, and you typically get
these forms. You're talking about wtwo form if you're employed,
maybe ten ninety nine if you're self employed, in January.
So like when should we start? Is it better to
file earlier? Is it better to file at the last second.
Speaker 3 (10:26):
The answer to that is going to be largely dependent
on what is going to happen at the end of
this process and what is it that you want from
this process. Some people are just thinking about like is
there a best money result? Am I going to get
a letter result? And then there's the how long am
I going to think about this question? So I think
for most people they want to get this over with,
(10:48):
and the only reason it goes on longer is because
they're not able to bring themselves to do it without
an impending deadline. Other people think that they owe money,
and so they're delaying that realization. You could do your
taxes and not pay them immediately. The irs is actually
very considerate. Oh, they just want to not be ignored. Yeah,
(11:09):
but like they don't put you in debtor's prison or
like take all your money from you. Think of them
as like a really nice credit card or an underfunded mafia.
That's how they work. So you can do your taxes
and then figure out payment separately. But I think for
most people they want to get it over with, move
on with their lives, not think about this. So yeah,
i'd recommend getting started and getting it out of your head.
Speaker 1 (11:31):
Does that affect like your refund, No, so you wouldn't
get it sooner if you filed sooner.
Speaker 3 (11:36):
Oh yeah, you would get it sooner. Yeah, not the amount,
That's what I meant, like, you'll get the refund soon.
Speaker 1 (11:41):
Yeah, Cause I think that's where I've landed, Like I
used to panic about it and wait until last second,
and now I'm just like I agree with you, Like
I just want to get it over with. And I
also think it can be helpful for people to try,
like the one thing I always forget ab I'm like,
oh I donated so much money. It's all these different
causes throughout the year. So I've started keeping a little
fulder whenever I make a transaction like that to like
make sure that I document what I can deduct from
charitable donations and stuff. So that's another thing that's helped
(12:04):
me not panic. It's brain that I have a record
of stuff.
Speaker 2 (12:07):
I've done a spreadsheet too, because every year, if you
need to be thinking about, well, how much should I
spend on my internet this year and things like that,
And so I've been trying to be better about listing
the things that I'm spending money on that are going
towards my work, so that I have them throughout the
year and so I'm not just in January like oh God,
what do I do. But on top of that too,
(12:29):
you know, again we were talking about W two's there's
ten ninety nine. There's all these letters and numbers being
thrown about. Can you explain a little bit the difference
of those when it comes to like W four's W
two's ten ninety nine ten forties, like all these different things,
what are each of these and what information and documents
(12:49):
do we need to have handy and ready to go
when we're actually ready for tax time.
Speaker 3 (12:54):
So a good way to figure out even how you're
about to get paid at a job is if they
give you a W four. So a W four you
fill out and that ends up with you getting a
W two later, OK, so that means you're an employee officially.
If they give you a W nine, that means they're
going to pay you as a contractor without taxes taken out.
(13:15):
So suddenly, like the roads have diverged. One, you're going
to have all the protections of an employee, minimum wage, unemployment,
potentially benefits, and they're going to take taxes out as
you get stuff. And the other way is that's your
responsibility at the end of the year and you better
save that money. There's a bunch of different ten ninety nine's,
(13:37):
so we kind of use them colloquially to mean your
freelancing money, but those are ten ninety nine miscellaneous or NEECs.
But there's also ten ninety nine its for interest, ten
ninety nine divs for dividends, ten ninety nine b's for
your brokerage ten nine nine R for retirement. Generally, I
would say, if you get something with very boring bolds,
(13:59):
graphic design and boxes, you probably need that for your taxes.
Speaker 1 (14:03):
Yeah, good, wait to put it. Yeah. And I feel
like I onlyly in the last couple of years started
investing in having a four to one K and stuff
like that, and so I started getting the ten ninety
nine div and I was like, oh God, the boxes
and the bold letters. This seems important.
Speaker 3 (14:17):
Yep.
Speaker 2 (14:18):
I guess also, if you're getting a lot of those
papers with the boring boxes and letters too, is that
when you sort of know, okay, I'm probably going to
need some professional help. How do you break that down?
How do you know, like, I got this, I can
do it myself, or when should you say, you know what,
let me let a professional come in here and save
my ass.
Speaker 3 (14:37):
I would not say the ubiquity of weird forms means
you need to get any help at that point. I
think there needs to be a something else. Okay, just
getting those forms is still just type them right into
the computer. When you get into self employed gig economy, airbnb,
getting paid money without taxes, taken out. I think that's
(14:59):
when it makes sense to get tax help. The other
times that it makes sense to get help is if
whatever you want to be happening isn't happening. Like we
have people come every year. All they have is two
W two's, but every year they owe. They don't know why,
no one will explain it, and nobody's incentivized, Like your
job can't tell you how to fill out your W
(15:19):
four to change the results on your W two. So
every year people just live with it. There's no other
time in life where you're like, am I going to
get back for one thousand dollars? Or am I going
to owe ten thousand dollars. It's like the crappiest casino
in the world with such variability, and it's like weird
that it's normal to us.
Speaker 1 (15:40):
So I'm a W two and Lee is a ten
ninety nine girl. So for the people on the W side,
can I change my W FORO it work? Because I
feel like the same thing I always lose and I'm like,
how do I fix this?
Speaker 3 (15:51):
Yeah, And that's an important thing to recognize is what
you fill out on your W four to get a
W two is not legally binding. The goal of the
W four is just to get your W two to
turn out the way you want it. So for most
of my clients, I tell them to choose single or
married filing separately. That's usually one selection. And don't claim
(16:12):
any of your kids if you have kids. For most
of my clients, that's the one that makes sense. Because
your spouse is not not working, they're just going to
come and throw more money on the pile. So we
don't want to account for them being a tax benefit.
We just are saying, hey, this money, should pull out
taxes for this money and assume no other benefits somewhere else.
(16:34):
So even if you're going to file married filing jointly
on your W four, you can still select single or
married filing separately, And the goal is just to get
it to come out the way you want it to
at the end. But that whole system is pretty opaque
because it just wasn't designed for the way we're using it.
Like you weren't supposed to have ten W two jobs.
Speaker 2 (16:55):
Yeah, it's like do I put a zero? Do I
put a one?
Speaker 1 (16:58):
In?
Speaker 3 (16:58):
Like?
Speaker 2 (16:58):
How is this going to change my whole higher life
right now? With like one stupid number?
Speaker 3 (17:03):
Right where you don't really understand what's going on and
what it's going to mean later. And then it also
changed in twenty seventeen with the Trump tax changes.
Speaker 1 (17:12):
I think this ends with me hiring you rest to help. Yeah, Like,
now that you've said that, I like totally forgot, because
I basically like, I've been working with this cover for
five years and I did the four or five years
ago and I don't even remember what I put and
it's probably affecting every single year that I'm filing taxes.
Speaker 2 (17:26):
Well, that brings us to a great point Matt too,
which is how do you find a good tax person?
How do you know if this guy is going to
be good or this lady is going to be good,
or they're like not great, or they're going to be
a little bit shady, or like no, they're really on
top of it and they know the loopholes. You know.
I tend to go with if somebody that I know
in my life recommends somebody, then at least I have
(17:47):
somebody to blame so that I don't have to take
full responsibility. But what are some of the things that
you should look for in somebody that's going to prepare
your taxes for you if you're going to go to
the professional route.
Speaker 3 (17:57):
My mentor Harvey said, take what you're entitled to, but
don't be greedy, and I've kind of come to agree
with that. I will also point out there's no accreditation
necessary to do taxes. That's why the industry feels kind
of shady. All you have to do is convince someone
to trust you, and then you have to go through
the process of being allowed to e file taxes. Not
(18:18):
a high bar. On the other end of that, just
someone having letters after their name does not indicate they
will be good at your taxes. So just because somebody
is a CPA, I'm an enrolled agent, which is an
IRS designation versus CPA is a third party organization, it
doesn't mean I'm going to be good at your taxes.
Brass taxes is good at what we do a lot
(18:38):
of Just like you wouldn't hire like a real estate
lawyer if you were on trial for murder. It's like
just being a lawyer does not mean they will be helpful.
And so I tell everybody you need to work with
someone who understands your industry and you feel comfortable talking to.
I put the limit of feel comfortable talking to of
(18:59):
you would ask them the same question four times. If
you don't get it, you're like, sorry, still don't get it.
Speaker 2 (19:04):
Can we try it again?
Speaker 3 (19:05):
That level of comfort and if you can do that,
they've established themselves as a good repository and a good communicator,
which is not inherent to people who choose this job.
And they've also shown you that they're not maximizing their
profit by cutting your conversation short. Because the fastest way
(19:26):
for me to make money is for you to drop
off your papers and then come take your tax return
when I'm done with it and pay me money.
Speaker 1 (19:33):
I could talk to you all day to emphasize your point.
I can't believe that I haven't had these conversations with
my guy. I don't know why I haven't done it.
I should do it.
Speaker 3 (19:42):
What's fascinating, Matt, is that default interpretation is this is
gonna suck. This process is gonna suck. I'm going to
feel terrible at the end of it, a little violated,
a little like over shared. And my attitude is like,
it doesn't need to be that bad. On the back
of our business cards, it says taxes shouldn't suck so much.
Speaker 1 (20:05):
My favorite thing to say, which is so lame, is
a knowledge is power. But it really is, like, if
you know this stuff, you really can change your life,
even if it's in a small way to help yourself
out down the road. So you're not confused about it.
Speaker 2 (20:18):
And people feel dumb. They feel dumb like they should
know this, but it's like, why would we know this?
This was actually not a class that I ever had anywhere,
and so why would we know this? But like, the
more you learn about it, the more also confident you
will feel going into this and understanding it. And even
if you're paying, if you sort of understand why you're paying,
(20:39):
I think you feel slightly better about it rather than
just I don't even know why I'm doing this and
here's all this money to the government.
Speaker 3 (20:46):
Yeah. I think that's a great point. There's a huge
amount of shame around this and nobody talks about it. Yeah,
it's much more taboo than talking about sex.
Speaker 1 (20:54):
Yeah, in certain situations, absolutely we talk about that. I
mean at least somewhat.
Speaker 2 (20:59):
Yeah.
Speaker 3 (21:00):
I went around at dinner table and said there was
I think twelve or thirteen people and I was like,
all right, tell your income or an awkward sex story
eleven awkward sex stories.
Speaker 2 (21:09):
Yeah, we'll be right back after a quick.
Speaker 1 (21:15):
Break and we're back with more grown up stuff. How
do I don't I actually have a few terms that
I would love for you to define for us. So
I'm just going to rattle these off and I'd love
for you to give me, like, you know, the bullet
(21:36):
point on them, just for people to understand a little
bit of the terminology we're talking the right, So withholding.
Speaker 3 (21:41):
Withholding is money that they take from you before you
get your money. So that was designed to passively take
taxes from you so you don't spend what you're not
entitled to. And so when you get a tax refund,
this is a good reminder you're getting your own money
back that they took from you previously. Most of the time,
not all the time, but most of the time it's
(22:02):
just you getting your money back. But that was previous
you and now present you is like, this is awesome.
Just got three thousand dollars, not remembering that they took
that incrementally from you.
Speaker 1 (22:12):
You did the work and you were paid for it,
and that is your money. And that actually gets back
to W four, right, because you're withholding is determined correct
by what you claim or right.
Speaker 3 (22:22):
What you put on the W four determines what you're
withholding per paycheck and throughout the course of the year.
So the issue is if you get that wrong by
fifty bucks and then you get paid twenty six times,
now you owe thirteen hundred dollars. So it's the repetitive
incremental change where it's like, that's how you end up
with a five thousand dollars refund or owing five thousand dollars.
(22:46):
It's not a huge shift one way or the other.
It's like, oh, one hundred eleven dollars twenty six times
is a lot of money in the end of the year,
so it's not something you necessarily notice.
Speaker 1 (22:58):
The next one is deductions.
Speaker 3 (23:00):
Deductions Usually the way people use it is things the
government has said if you have these things, you can
lower the amount of income you pay tax on, so
you can lower your taxable income with deductions. So common
deductions are a student loan interest if you put money
in a traditional IRA, and then the standard deduction is
(23:22):
also a deduction, and that is the first right now
fourteen thousand dollars that you don't have to pay tax on.
These are all things that lower your taxable income that
you pay taxes on.
Speaker 1 (23:32):
So if I earned fifty thousand dollars and I put
a thousand of it in a retirement account, my taxable
income is now forty nine thousand dollars. Correct. Cool. So
the next one is dependence. And I'm kind of curious
because I think that they're children. And if they are children,
then do pets count.
Speaker 3 (23:49):
Pets are not given the regard that we hold for
them in the US tax system. Rude Dependents are people
that you take care of. It could be your parents,
even if they don't live with you. It's basically you
pay for more than fifty percent of their lives.
Speaker 1 (24:06):
Interesting, I've never heard the definition before.
Speaker 3 (24:09):
So usually kids, your girlfriend or boyfriend could potentially be
your dependent.
Speaker 2 (24:13):
Oh damn, choose wisely some upside to the downside.
Speaker 1 (24:18):
Yeah, okay? Interesting? And then what about credits?
Speaker 3 (24:22):
So deductions are like a discount, like we'll give you
twenty five percent off. Credits are like we'll give you
a refund of the money you spent. So a deduction
is money you don't have to pay tax on, and
a credit is dollar for dollar giving back of your tax.
The major credits are the Earned Income Credit, the child
(24:43):
tax credit, The savers credit is a good one that
people don't know about. If your income is below a
certain threshold and you save for retirement, the government will
give you a credit to encourage that behavior. So that's
a dollar for dollar payback or reduction of tax. So
if you owe two thousand dollars in taxes and you
have a thousand dollars tax credit, now you owe one
(25:05):
thousand dollars in taxes because you know.
Speaker 1 (25:07):
And then there's three more here, and then we'll move
on adjusted gross income.
Speaker 3 (25:11):
Adjusted gross income or AGI if you want. The verbage
is a set series of things they say, don't include
these or include these in your income and how much
income do you have? So gross income is before they
take anything out. This is your adjusted gross income. So
they've taken some things out but left some things in.
(25:33):
So often when you're applying for an apartment or a house,
they'll ask for your adjusted gross income.
Speaker 1 (25:39):
Got it, And then we'll pair these together. Tax refund
and tax liability.
Speaker 3 (25:45):
So tax refund is when all that money filters together.
When we take your W two, your gig economy, whatever
was left over from your self employed business you made
this much, you spent this much. This is the profit
or loss leftover. We got your dividends, your interest, your brokerage,
your stocks, sales, losses and gains. The end result is
(26:08):
this much money based on that much money, you owe
this much tax?
Speaker 1 (26:12):
How much did you.
Speaker 3 (26:13):
Pay so far? If anything from your withholdings or your
estimated taxes, and then what's left over. So if you
overpaid or there's credits to help buoy up the amount
that you did pay, then you get a refund. If
you didn't pay enough, then you owe and you have
a tax liability.
Speaker 1 (26:32):
Wonderful, Thank you so much.
Speaker 2 (26:34):
So, Russ. I mean, let's just get to the question
that I'm sure is the first thing that people ask you.
Speaker 3 (26:40):
But way you need to know I'm single.
Speaker 2 (26:44):
Great, then I'm done. Yeah, okay. The second question they
ask is how do I just get a bunch of
money back? So where do you even start with that?
Speaker 1 (26:56):
Yeah?
Speaker 3 (26:56):
I've had people when they find out I'm doing taxes
like unprompted and ask them. They're like, I have a
guy in Long Island who gets me six thousand dollars back,
and I'm always like cool, yeah, like maybe maybe cool, Yeah,
maybe you should be getting eight thousand dollars back, or
maybe he's just like making some crap up that you'd
have to live with.
Speaker 1 (27:15):
Yeah, maybe in a couple years fro now you're gonna
get a letter from the IRS. Actually you ask all.
Speaker 3 (27:20):
Of that, and suddenly six thousand bucks doesn't seem worth
a felon Sadly. That's the tricky part is some of
these credits are really great, and they're actually giving you
money that you didn't already have taken from yourself. But
for most people, if you get a big refund, you're
usually just getting your own money back. So from a
(27:40):
financial perspective, people are like, you should never do that.
You never want a refund. You always want to owe
them a little get a free loan from the RS.
But I think in the actual experience of being a human,
we do like getting refunds. Yeah, so don't discredit that.
But there's not a magical way or like a simple
way without a good amount of tax planning to really
(28:01):
get your taxes down to a level of like Trump
paid seven hundred and fifty dollars in taxes, right, And
I totally understand the like, how can I pay less?
Is a valid question, but part of our goal, since
we don't have skin in the game with the results
that are happening, is we want to take care of
present you who wants to pay no taxes, but also
(28:22):
future you that would have to deal with these things
and may not want to deal with these things. So
we try and be the arbiter between those two versions
of yourself that are going to exist. And yeah, I
think it falls in the like take what you're entitled to,
but don't be greedy, right, and kind of draw that
line where it's like, this is allowed, this is aggressive,
this is illegal.
Speaker 2 (28:42):
Yeah, not to be greedy, but also when will I
get it? Like how long typically does it take for
it to show up? And if you were to advise
somebody what they should do with that money, is it
run to them all or is it maybe do something
a little bit smarter with it?
Speaker 3 (28:58):
Yeah, I mean refunds come much faster now. If you
give people are wary of giving the Irs their bank
info or anything, you're really underestimating the power of the
federal government. You'll get your refund within usually one to
three weeks, and sometimes it's just a few days. The
way people treat that money really varies widely. Some people,
(29:20):
especially for the earned income Credit, are counting on that
money as part of their yearly budget. So it either
can get people out of debt or it can just
become that thing that gets them through the next six months.
Speaker 2 (29:33):
Like maybe tickets to the Cowboy Carter Tour because they
need to see Beyonce.
Speaker 3 (29:37):
That's totally vouid Yeah.
Speaker 2 (29:38):
Okay, great. Just wanted to make sure.
Speaker 3 (29:39):
It's also a passive way of saving, like if you
had the wherewithal to make estimated taxes since you're freelancing
and knowing you're like, I'd rather get this money out
of my face, which I strongly recommend either put it
in a separate bank account that you don't see at
the ATM, or go ahead and send it to the
government and just settle up at the end of the year.
(30:00):
But you have to make choices like that based on
like will you be cash poor all year or will.
Speaker 2 (30:04):
I go to Beyonce? Yeah?
Speaker 3 (30:06):
Yeah, but you're just saving for things. It could be
really valuable to be like I just have two thousand dollars,
I know what I want to do with this.
Speaker 2 (30:11):
Yeah, okay. Flip side of this too is ugh, what
if I do have to pay money, you know, and
I'm going to believe you when you tell me that
the irs is actually really nice. But when do I
have to pay it by? And also like where is
that money even going? What are they doing with it?
Speaker 3 (30:30):
Yeah, that money when you're doing your taxes is do
April fifteenth, whatever that bill is.
Speaker 2 (30:36):
Okay, you can.
Speaker 3 (30:37):
Get an extension of time to file, but the money
still do April fifteenth. If you're not able to pay
that money. This is where the government is much more
kind than any other person you.
Speaker 2 (30:50):
Have a debt.
Speaker 3 (30:51):
With that said, the states are not as kind as
the federal government.
Speaker 1 (30:56):
Okay, So if.
Speaker 3 (30:56):
You can only afford to pay one, pay your state first.
The states, by law have to have balanced budgets, so
they can't run a deficit every year, whereas the federal
government does run a deficit every year, and when they
need more money, they print more money. But states can't
do that. So you pay more interest on your taxes
to the state than you will to the federal government.
(31:20):
But if you owe money to either, they have things
like payment plans, and the interest is not exorbitant. It's
not like credit cards where it's like suddenly twenty nine
percent every year, Like, they don't want to bury you,
They just want to bleed you, okay slowly, Yeah, Okay,
as long as you're not ignoring them for months at
(31:40):
a time. Yeah, they're fine. They don't want to come
chase you if you do ignore them. The power they
have is really outside of our normal way of thinking,
Like if you ignore them forever. They are the foundation
that makes your bank account secure. That's the federal government.
So if you don't pay them, they will just go
find your bank account and take their money. And then
(32:02):
that's when you realize, like the security you feel is
a function of what they provide.
Speaker 2 (32:08):
Yeah, and I know we talked a little bit about
making sure we fill out our w fours correctly. Is
there anything else to think about or be doing throughout
the year to prevent having to owe money? If you
just are like I don't want to have to do that.
Speaker 1 (32:23):
Yeah.
Speaker 3 (32:23):
A big part of not owing money is figuring out,
for self employed people, how to track your expenses. And
you talked about this, Leah. At the end of the year,
you don't want to be sitting with a digital or
physical pile of receipts. That's mentally exhausting and you just
won't do it. So when people track receipts, they realize
they spend a lot more money than they expected. So
(32:47):
I tell anybody there's no perfect system. We have a
couple on our website that you can download for free.
You need to have a system that you use at
least monthly or more often that will capture a thing
three dollars receipt And the reason that's important is because
you'll spend three dollars hundreds of times during the year.
You're going to remember the MacBook Pro you bought. You're
(33:09):
not going to remember that you took this person for
coffee and got website advice. But all those expenses over
the course of the year lower your profit and you
only pay tax on the profit. So that's why expenses
are important. That's the whole game is. I tell people
track your expenses and know roughly how much you're going
to owe and have that amount of money. Beyond that,
(33:31):
you don't really have to understand income tax brackets or
why bonds go up when stocks go down, or whatever.
You can go back to your life.
Speaker 2 (33:38):
Thank you.
Speaker 1 (33:38):
Yeah, And you had mentioned about freelancers keeping track of
their expenses so they know how much tax to expect
to pay. Just as a rule of thumb, like, what
is a good percentage of each paycheck or invoice or
whatever for freelancers to save so that they're prepared come
tax day.
Speaker 3 (33:57):
Yeah, this depends largely based on where you're living, because
your state in local taxes, and also the amount you're making. Generally,
I would say there's two main ways of thinking about it.
You can take a percentage of every check that you're paid,
or you can have an estimate of your profit and
take a percentage of that. So if you're taking a
percentage of every check you get, I would start at
(34:18):
twenty five percent. So if you're paid ten thousand bucks,
take two thousand, five hundred, put it in a high
yield savings account and get it out of your face,
because that's not your money, you're just holding it for
the government. Or if you have an estimate of your
income and expenses, you can look at your profit and
take thirty percent of that number and stick it in
(34:39):
a high yield savings account, get it out of your face,
or pay it to the government for estimated taxes. But
the most important thing is just to have that amount
of money. I really saw how quickly. Those numbers can
get so large that unless you're prepared for them, you
do not have that amount of money sitting around.
Speaker 2 (34:56):
Ready to go.
Speaker 3 (34:57):
They just get far too large, too quickly.
Speaker 1 (35:00):
That's great advice. And putting in high yield savings account
where you're going to get at least five percent back,
you know, depending on the high yield saving account they choose,
is just great advice because then you're earning some interest
on it and you'll definitely be able to pay it off.
That's lovely, Okay. So I want to talk about the
a word audit and how we can avoid it. How
(35:20):
do we give the government off our backs?
Speaker 3 (35:22):
This comes up often. An audit is just a scary
word for show us how you got these numbers. And
just as a reminder for everybody, when you sign a
tax return, it says, under penalty of perjury, I swear
everything in here is true to the best. So just
because you're working with a tax person or you're using software,
that liability is yours. So you should understand what your
(35:46):
tax person is putting down. I have clients who came
to us because they realized their tax person was putting
a kid on their return and they suddenly realized because
it showed up in a different place because they change
the forms, and she's like, I don't have any kids.
Oh he was just doing it to get her money back,
to make her happy, but it's her liability.
Speaker 2 (36:05):
Yikes. Oh my god, that's a big Gikes.
Speaker 3 (36:09):
The tax prepayer would get in trouble for something like that.
But like it's still you. It's like in the moment,
you're like, I have a guy in Long Island. It
gets me six thousand bucks back. I'm always like.
Speaker 1 (36:17):
Great, maybe, but he's telling the government you've got three kids.
Speaker 2 (36:20):
Yeah.
Speaker 1 (36:21):
Yeah.
Speaker 3 (36:22):
It's like you can put whatever on there. It doesn't
mean it's a good choice or something you want to
live with. And I will say, if you get a
letter and the return address is the Internal Revenue Service,
it's scary. That doesn't mean you're getting audited. Like we
have these visions of Wesley Snipes and like they have
high profile cases because they help everybody else be compliant.
(36:45):
But an audit is just a scary word for show
us how you got these numbers. And so when we
work with clients, we try and help them get a
reasonable level of how much of a pain in the
butt would this be if you had to show where
these numbers came from. For example, a credit card statement
is not sufficient to show where you got these numbers.
It can't just say Amazon, that is not clear that
(37:07):
what you bought was a business thing. It's like they're
allowed to assign you a research paper if you're self
employed and say show me how you got all these numbers.
If you just get a letter and the irs is like, Matt,
you didn't include this ten ninety nine dive And you're like,
oh yeah, they're like, we think you owe us thirty
nine dollars and seven cents. You're like, yeah, okay, Like
that's not an audit. That's just the stupid system of
(37:30):
you writing down everything and send it to us, and
us looking at everything we already have for you didn't match.
But yeah, the audit that people are scared of is
like they're going to come to your house and be like,
how'd you pay for this couch that's a mighty big
TV for your income that you say, you know, like
that is not really what happens. It's just something to
know as a possibility, But there's a very low percentage
(37:52):
of when that actually happens.
Speaker 1 (37:54):
Something really funny that my tax prepair said to me though,
when I was worried about this is he goes to
be honest, you don't make enough money for them to
care about you. I was like, okay, cool, that hurt
my feelings a little bit, but it's good to know.
Speaker 2 (38:06):
I also just think of the Real Housewives too. When
heathery're Gay from Salt Lake City was saying receipts, proof screenshots,
she had a right. I mean, you just need to
make sure that things are documented and that you can
point to them and be able to show the government like, hey, look, no,
this was what I was paying for this, and this
is what it did for my business and that's why
I needed it.
Speaker 3 (38:24):
Yeah, And I always tell people like, don't prepare for
an audit, but know that it might happen, because like,
it's not worth you spending that three weeks preemptively. But yeah,
it's helpful to have a system of organization where if
you need to unwind that number that you put in
supplies what's in there? Right, how am I going to
figure that out? That process should be reasonable and it's
(38:46):
something that you get better at as you do it.
Speaker 2 (38:49):
Russ I can see our tiny little brains absorbing all
of this information that you have presented to us today,
and we thank you already for making us slightly smarter
when it comes to taxes. Is there anything that we
did not cover that you think that people should know
about preparing, or doing, or just even thinking about their taxes?
Speaker 3 (39:08):
For people who are self employed, gig economy, contractors, freelancers,
the thing that surprises and makes that number get big
fast is self employment tax. So self employment tax is
just another word for Social Security and Medicare, the employer
side and the employee side. So when you have a
(39:28):
W two job, your employer pays half of your Social
Security and Medicare and you pay half of your SOLI
Security and Medicare. And that's one of the main reasons
people don't want you to be an employee is because
you cost more. But self employment tax is not a
progressive tax. So what we describe with the buckets moving
up the more you earn, the more you pay, is
(39:49):
a progressive tax. So self employment tax is a flat tax.
You're going to pay fifteen percent. So, for example, if
you earned a profit of ten thousand dollars as a
free answer, you don't know any income tax, because that's
all in the zero percent tax bucket. But you owe
about fifteen hundred dollars in self employment tax.
Speaker 2 (40:09):
They'll get you one way or another.
Speaker 3 (40:12):
That's what's only money we're paying to ourselves later. So
that's what goes in our sohol sacred focus. Sure if
they're social security.
Speaker 2 (40:19):
Yeah, sure, believe it when I see it.
Speaker 1 (40:22):
Well, Russ, thank you so much for coming on the
show today. I knew that it was going to be really,
really insightful, but I'm like blown away with how much
information you just dropped on us. So thank you so
much for all of that valuable information. And let people
know where they can go find you if they want to.
Speaker 3 (40:37):
Yeah, you can find us at Brass Taxes dot com.
If you have any questions, feel free to throw them
at info Brass Taxes dot com. I would check out
our podcast. I think the way to lower the anxiety
and shame and increase the understanding and education is just
to hear about a lot more people and the way
they deal with finance and the way they think about finance,
because a lot of us just think money is the
(40:59):
way it is, and we don't realize that that feeling
can change, and that the anxiety we feel about this
is not just the way money is, it's the way
we're interacting with it. I'd encourage people don't go for
perfect with any of this stuff. With understanding money, finances, taxes,
don't go for perfect, focus on better. It's iterative, Like
(41:20):
people work with us, and within a couple years you
see some changes start to take hold. But in a
couple of years they've only done it twice. It's not
going to be fast changes, but incrementally it starts to
like have a lower volume in our lives the stress
about this stuff. But it takes learning about it, and
it's not rocket science. You just need somebody who cares
(41:40):
to explain it. And yeah, our FAQ on Brass Taxes
dot com is completely geared around people who want to
understand this stuff, and especially freelancers and creatives to just
get answers that you otherwise can't find anywhere because nobody
really cares to provide it or is not good at communicating.
Speaker 2 (41:59):
Yeah, I'll just say I can confirm so Russ, thank
you so much. It was great to have you here today.
Good Luck on the rest of tax season for you,
and hopefully there's a nice Marguerita waiting for you after
April fifteenth.
Speaker 3 (42:11):
Yeah, thank you so much for having me. I really
appreciate you guys doing this stuff.
Speaker 2 (42:19):
Our thanks to Russ for not only all of that
incredible information, but also for changing Matt's life.
Speaker 1 (42:25):
I think will see, but I think it is going
to I've already emailed Russ. I'm like, you're my guy.
The old guy's out.
Speaker 2 (42:31):
What are you mean going to? I was watching you
absorb all of this information. I was like, he's a
changed man.
Speaker 1 (42:36):
Like the W four thing specifically that he talked about.
I haven't even thought about my W four in years,
and the fact that it's probably what's been messing me
up all this time.
Speaker 2 (42:45):
Yeah, it's changed your life, and it's changed the life
of the HR department after God, because you're like, hey,
can I get a look at that form again? And
they're like, who is this guy?
Speaker 1 (42:53):
And I'm going to send this to every iHeart employee
and be like, hey, change you W four do it now?
So it might have changed everyone's life at this company
at least, and hopefully the life of our listeners.
Speaker 2 (43:01):
Yep, to start in a revolution, one tax form at
a time, but we hope everyone learned a little or
a lot of something from Russ and you can check
out Brasstaxes dot com for any other help and questions.
So happy tax season to everyone.
Speaker 1 (43:15):
Oh what tax season isn't over just yet? Leah. We
learned so much from us about doing our taxes ourselves,
but I feel like we've only scratched the surface. So
we'll actually be back later this week with another episode.
We'll be joined by a turbo tax business expert who
will break down even more of what we need to
know when it comes to filing taxes for your small business.
(43:35):
So if you've got a startup or a side hustle
or another fund small business, this is the one for you.
Speaker 2 (43:41):
Spoiler aler, but that's me, so I am going to
need that one until then, good luck being a grownup.
Speaker 1 (43:48):
This is a production of Ruby Studio from iHeartMedia. Our
executive producers are.
Speaker 2 (43:52):
Lea Palmary and Matt Stillo. This episode was edited and
engineered by Sierra Spreen.
Speaker 1 (43:57):
We wanted to thank our teammates at Ruby Studio in
Sarah you, Ethan Fixel, Racisjan Krasnoff, Amber Smith, Deborah Garrett,
and Andy Kelly
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