November 20, 2024 • 10 mins
Join us as we challenge common tax myths that we hear often from clients. We explain why your CPA doesn't need a collection of every single receipt, thanks to the magic of bank statements, and how the progressive tax system really works.
Listen to this quick 10 minute episode to learn what's true and what's false (& impress your CPA this tax season)!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Your money you get back from the government when
you file your tax return iscalled a return.
Speaker 2 (00:07):
False.
Welcome to what your CPA Wantsyou To Know.
Speaker 1 (00:16):
Tax and accounting help can be expensive, so we've
created this podcast to helpguide you through it all and
make you feel like you have aCPA in your back pocket.
Speaker 2 (00:27):
I'm Carson Sands.
Speaker 1 (00:28):
And I'm Taryn Sands.
Speaker 2 (00:30):
I'm a CPA with over 10 years of experience helping
people start and grow theirbusinesses.
Speaker 1 (00:35):
And I'm an MBA with a specialization in marketing and
entrepreneurship.
Taxes suck and we want to makesure you don't pay more than
your fair share.
Speaker 2 (00:45):
We're here to share everything your CPA wants you to
know in a fun and easy tounderstand way.
Let's get started.
Speaker 1 (00:54):
Let's do it Today.
We are not accountants, we areactually myth busters.
Speaker 2 (01:04):
Myth busters.
So that sounds way moreexciting than most of our
episodes, but it's still aboutaccounting, so if you ever watch
the show Myth Busters, you knowthat they're at least as nerdy
as accountants, maybe even more.
So, you know, I think we couldfit in.
Speaker 1 (01:19):
Definitely makes sense.
Today, we're going to bust allof the myths that we hear time
and time again, either throughclients or submitted on our
Instagram page, about whatpeople think is correct but
actually isn't, with filing yourtaxes and things like that.
So these are things that werevery easy for us to make a list,
because it just seems that mostpeople get the same things
(01:41):
wrong.
The first myth we have today isyou need to give your CPA all
of your receipts in order todeduct things on your tax return
.
Speaker 2 (01:52):
False.
You do not need to do that.
Speaker 1 (01:54):
You do not need to give your CPA your receipts and
he or she likely does not wantthem.
Speaker 2 (02:01):
Don't need them, won't use them, won't look at
them.
Speaker 1 (02:03):
The only reason that you would need those is if you
were to be audited.
They might ask you to pull someof those out.
But for us to do your taxreturn.
We are not the IRS.
We are not looking at everysingle receipt.
We do not need your receipt, sosave those this tax year.
Speaker 2 (02:19):
And typically your checking account bank statement
will be a much better use thanyour receipts for any IRS audit,
unless you were paying cash forthings, and then in that case
you definitely want to keep thereceipt.
But other than that it's prettyeasy to go down your bank
statement and say, okay, I spentthis much money at this place,
and so on and so forth, andthat's just as good as a receipt
.
Speaker 1 (02:39):
Exactly so.
Myth number two all of yourincome is taxed at the same rate
, meaning if you're in a certaintax bracket, then that's just
how much taxes you pay on yourincome.
Speaker 2 (02:53):
False.
That is not the case, and it'sa good thing that it's not.
People are often worried thatif they are right at the top of
their tax bracket, if they makeone more dollar, then their
taxes will increase so much thatthey end up with less money
than if they didn't make thatextra dollar.
That's not the case.
The way the tax brackets workare and I'll just give you an
(03:13):
example because it will be wayeasier to explain it For 2023,
the tax bracket was that you pay10% on your income up to
$22,000 if you're married, andthen you pay 12% on every dollar
above that, up to $89,450.
So what does that mean?
Does that mean that if you make$50,000, you pay 12% on all
(03:33):
your income?
No, you pay 10% on the first$22,000, no matter what, and
then you don't pay 12% onanything except everything from
$22,000 to $50,000.
So you're only paying thathigher tax rate on $28,000 of
income, not the full 50 that youmade.
Speaker 1 (03:51):
So that is false because we have a progressive
tax system and you are not justtaxed on where your highest
income fall.
Speaker 2 (04:01):
Right.
So even the highest earnerswill still pay only 10% tax on
the first $11,000 they make, andthen 12% tax on the next
$33,000 of income they makeapproximately, and so on all the
way up the tax brackets.
And they only pay 37%, which isthe highest tax rate right now,
on any income they make over$578,000.
Speaker 1 (04:26):
Right.
So if you didn't know that, nowyou know.
Now this is a big one that wesee all the time, and this one
had to be included in thisepisode.
Okay, myth number three yourtax entity is LLC.
Speaker 2 (04:41):
False LLC is something that you file with
your state, usually to create alegal classification for your
business.
An LLC can choose to be taxedas an S-corp or a C-corp, or a
partnership or a soleproprietorship.
So an LLC is not your taxentity.
(05:02):
Your tax entity would bewhether you're a C-corp, s-corp,
partnership or soleproprietorship.
Speaker 1 (05:07):
An LLC is not for the IRS, that is just for legal
protection.
And so if your CPA or new CPAsays, okay, like what is your
business, and they're asking youwhat you file, they're not
really asking you do you have anLLC?
Okay, myth number four they'renot really asking you.
Do you have an LLC?
(05:28):
Okay, myth number fourself-employed people pay taxes
the same way that everyone elsepays taxes.
Speaker 2 (05:31):
False.
Self-employed people do not paytaxes the exact same way.
They pay income tax, the sameway that everyone else does, on
their net income from theirbusiness, but they also have to
pay self-employment tax.
The reason for that is thatthere's no payroll taxes on any
of the income that they'reearning through that business,
so self-employment taxes takesthe place of payroll taxes.
(05:54):
It covers your social securityand your Medicare, to make sure
that you're able to get thosewhen you reach retirement age.
Speaker 1 (06:01):
This is shocking to many new business owners because
that is a pretty big percentageon top of your normal income
taxes that you're paying.
So they're pretty shocked tofind out that they also have to
pay that 15% on top of whatevertaxes they're already paying.
Speaker 2 (06:17):
It can be pretty shocking for two reasons when
you start a business.
I mean, one is you're used tothe withholding covering all of
your taxes, so you never reallyowe if you've always had a W-2
job.
But the other reason is that,yes, you have your income tax
rate plus your self-employmenttax rate, so you're used to
being in the 22% tax rate.
You think maybe you make$100,000, you're going to owe
(06:38):
$22,000.
Wrong, you're going to oweabout $37,300.
Speaker 1 (06:44):
The next myth is that you can deduct your working
expenses as a W-2 employee onyour tax return.
Speaker 2 (06:51):
False.
Now this one is only false asof recently, because the Tax
Cuts and Jobs Act took away theability to deduct what they call
unreimbursed employee expenses,and these are just expenses
that you can deduct as a W-2employee, that your boss or your
company does not cover.
This has caused a lot ofproblems for several industries,
(07:13):
for example, pipeline welders.
They spend a lot of money.
Usually they're required tospend this out of pocket, but if
they're paid as W-2 employeesinstead of contract labor, then
this causes a major problem.
Because it's not only thatthey're not allowed to deduct
those expenses, there's not evena form to deduct them on
anymore.
They took it away.
Speaker 1 (07:32):
Yeah, it's really just not possible for us to do
that, and I think some peopleare shocked by that, because
they did used to be able to dothat, and so when we go, oh no,
we can't, it's more like theythink maybe we don't know how to
, but really we just can'tanymore.
Speaker 2 (07:48):
We've been telling people for a couple of years
ever since the Tax Cut and JobsAct changed the rules on that
that you need to tell youremployer that they either need
to reset everything up so thatyou're a contractor if that's
possible within the law, and ifit's not, then they need to pay
for the things that are requiredfor you to do your job.
It's not fair for you to haveto pay them out of pocket when
you don't get to deduct it.
(08:09):
If they pay it out of pocket,they get to deduct it, so that
makes way more sense.
Speaker 1 (08:16):
And the last one for today, one of our very favorites
your money.
You get back from thegovernment when you file your
tax return is called a return.
Speaker 2 (08:26):
False.
It is not called a return, it'scalled a refund.
Speaker 1 (08:31):
We always joke about this because people often ask us
where's my return?
Well, your tax return is piecesof paper.
Speaker 2 (08:40):
We already filed that .
Speaker 1 (08:41):
Yeah, that has been filed with the.
Irs.
But if you're getting moneyback, it's called a refund.
And if you ask your CPA foryour tax return, they might not
tell you.
But they're definitely going toget a little laugh every single
time they hear someone saywhere's my return?
And you're like, I already sentit to you, do you not have it?
Speaker 2 (08:59):
Yeah, we don't correct people.
I'm not trying to be apretentious jerk about it, we
just think it's funny.
Speaker 1 (09:04):
But if you didn't know, now you know and you'll
never ask again because you'llknow you need to ask for your
refund, not your return.
So I hope you found somethinghelpful in this episode today.
It was a little bit funny, butalso a good way to teach you
some of the things that we seeall the time, that people just
mistakenly think are true.
I don't know.
Speaker 2 (09:23):
And now you can laugh at all your friends when they
say things wrong and pretendlike you're so much smarter.
Speaker 1 (09:28):
Absolutely Until next time.
Thank you so much for listeningto.
Speaker 2 (09:33):
What your CPA Wants you to Know.
Speaker 1 (09:35):
Podcast.
Speaker 2 (09:42):
This podcast is intended to provide accounting
and tax information foreducational purposes only.
All tax situations are uniqueand should be handled with the
assistance of a tax professionalBye.
Your money you get back from the government when
you file your tax return iscalled a return.
Speaker 2 (00:07):
False.
Welcome to what your CPA Wantsyou To Know.
Speaker 1 (00:16):
Tax and accounting help can be expensive, so we've
created this podcast to helpguide you through it all and
make you feel like you have aCPA in your back pocket.
Speaker 2 (00:27):
I'm Carson Sands.
Speaker 1 (00:28):
And I'm Taryn Sands.
Speaker 2 (00:30):
I'm a CPA with over 10 years of experience helping
people start and grow theirbusinesses.
Speaker 1 (00:35):
And I'm an MBA with a specialization in marketing and
entrepreneurship.
Taxes suck and we want to makesure you don't pay more than
your fair share.
Speaker 2 (00:45):
We're here to share everything your CPA wants you to
know in a fun and easy tounderstand way.
Let's get started.
Speaker 1 (00:54):
Let's do it Today.
We are not accountants, we areactually myth busters.
Speaker 2 (01:04):
Myth busters.
So that sounds way moreexciting than most of our
episodes, but it's still aboutaccounting, so if you ever watch
the show Myth Busters, you knowthat they're at least as nerdy
as accountants, maybe even more.
So, you know, I think we couldfit in.
Speaker 1 (01:19):
Definitely makes sense.
Today, we're going to bust allof the myths that we hear time
and time again, either throughclients or submitted on our
Instagram page, about whatpeople think is correct but
actually isn't, with filing yourtaxes and things like that.
So these are things that werevery easy for us to make a list,
because it just seems that mostpeople get the same things
(01:41):
wrong.
The first myth we have today isyou need to give your CPA all
of your receipts in order todeduct things on your tax return
.
Speaker 2 (01:52):
False.
You do not need to do that.
Speaker 1 (01:54):
You do not need to give your CPA your receipts and
he or she likely does not wantthem.
Speaker 2 (02:01):
Don't need them, won't use them, won't look at
them.
Speaker 1 (02:03):
The only reason that you would need those is if you
were to be audited.
They might ask you to pull someof those out.
But for us to do your taxreturn.
We are not the IRS.
We are not looking at everysingle receipt.
We do not need your receipt, sosave those this tax year.
Speaker 2 (02:19):
And typically your checking account bank statement
will be a much better use thanyour receipts for any IRS audit,
unless you were paying cash forthings, and then in that case
you definitely want to keep thereceipt.
But other than that it's prettyeasy to go down your bank
statement and say, okay, I spentthis much money at this place,
and so on and so forth, andthat's just as good as a receipt
.
Speaker 1 (02:39):
Exactly so.
Myth number two all of yourincome is taxed at the same rate
, meaning if you're in a certaintax bracket, then that's just
how much taxes you pay on yourincome.
Speaker 2 (02:53):
False.
That is not the case, and it'sa good thing that it's not.
People are often worried thatif they are right at the top of
their tax bracket, if they makeone more dollar, then their
taxes will increase so much thatthey end up with less money
than if they didn't make thatextra dollar.
That's not the case.
The way the tax brackets workare and I'll just give you an
(03:13):
example because it will be wayeasier to explain it For 2023,
the tax bracket was that you pay10% on your income up to
$22,000 if you're married, andthen you pay 12% on every dollar
above that, up to $89,450.
So what does that mean?
Does that mean that if you make$50,000, you pay 12% on all
(03:33):
your income?
No, you pay 10% on the first$22,000, no matter what, and
then you don't pay 12% onanything except everything from
$22,000 to $50,000.
So you're only paying thathigher tax rate on $28,000 of
income, not the full 50 that youmade.
Speaker 1 (03:51):
So that is false because we have a progressive
tax system and you are not justtaxed on where your highest
income fall.
Speaker 2 (04:01):
Right.
So even the highest earnerswill still pay only 10% tax on
the first $11,000 they make, andthen 12% tax on the next
$33,000 of income they makeapproximately, and so on all the
way up the tax brackets.
And they only pay 37%, which isthe highest tax rate right now,
on any income they make over$578,000.
Speaker 1 (04:26):
Right.
So if you didn't know that, nowyou know.
Now this is a big one that wesee all the time, and this one
had to be included in thisepisode.
Okay, myth number three yourtax entity is LLC.
Speaker 2 (04:41):
False LLC is something that you file with
your state, usually to create alegal classification for your
business.
An LLC can choose to be taxedas an S-corp or a C-corp, or a
partnership or a soleproprietorship.
So an LLC is not your taxentity.
(05:02):
Your tax entity would bewhether you're a C-corp, s-corp,
partnership or soleproprietorship.
Speaker 1 (05:07):
An LLC is not for the IRS, that is just for legal
protection.
And so if your CPA or new CPAsays, okay, like what is your
business, and they're asking youwhat you file, they're not
really asking you do you have anLLC?
Okay, myth number four they'renot really asking you.
Do you have an LLC?
(05:28):
Okay, myth number fourself-employed people pay taxes
the same way that everyone elsepays taxes.
Speaker 2 (05:31):
False.
Self-employed people do not paytaxes the exact same way.
They pay income tax, the sameway that everyone else does, on
their net income from theirbusiness, but they also have to
pay self-employment tax.
The reason for that is thatthere's no payroll taxes on any
of the income that they'reearning through that business,
so self-employment taxes takesthe place of payroll taxes.
(05:54):
It covers your social securityand your Medicare, to make sure
that you're able to get thosewhen you reach retirement age.
Speaker 1 (06:01):
This is shocking to many new business owners because
that is a pretty big percentageon top of your normal income
taxes that you're paying.
So they're pretty shocked tofind out that they also have to
pay that 15% on top of whatevertaxes they're already paying.
Speaker 2 (06:17):
It can be pretty shocking for two reasons when
you start a business.
I mean, one is you're used tothe withholding covering all of
your taxes, so you never reallyowe if you've always had a W-2
job.
But the other reason is that,yes, you have your income tax
rate plus your self-employmenttax rate, so you're used to
being in the 22% tax rate.
You think maybe you make$100,000, you're going to owe
(06:38):
$22,000.
Wrong, you're going to oweabout $37,300.
Speaker 1 (06:44):
The next myth is that you can deduct your working
expenses as a W-2 employee onyour tax return.
Speaker 2 (06:51):
False.
Now this one is only false asof recently, because the Tax
Cuts and Jobs Act took away theability to deduct what they call
unreimbursed employee expenses,and these are just expenses
that you can deduct as a W-2employee, that your boss or your
company does not cover.
This has caused a lot ofproblems for several industries,
(07:13):
for example, pipeline welders.
They spend a lot of money.
Usually they're required tospend this out of pocket, but if
they're paid as W-2 employeesinstead of contract labor, then
this causes a major problem.
Because it's not only thatthey're not allowed to deduct
those expenses, there's not evena form to deduct them on
anymore.
They took it away.
Speaker 1 (07:32):
Yeah, it's really just not possible for us to do
that, and I think some peopleare shocked by that, because
they did used to be able to dothat, and so when we go, oh no,
we can't, it's more like theythink maybe we don't know how to
, but really we just can'tanymore.
Speaker 2 (07:48):
We've been telling people for a couple of years
ever since the Tax Cut and JobsAct changed the rules on that
that you need to tell youremployer that they either need
to reset everything up so thatyou're a contractor if that's
possible within the law, and ifit's not, then they need to pay
for the things that are requiredfor you to do your job.
It's not fair for you to haveto pay them out of pocket when
you don't get to deduct it.
(08:09):
If they pay it out of pocket,they get to deduct it, so that
makes way more sense.
Speaker 1 (08:16):
And the last one for today, one of our very favorites
your money.
You get back from thegovernment when you file your
tax return is called a return.
Speaker 2 (08:26):
False.
It is not called a return, it'scalled a refund.
Speaker 1 (08:31):
We always joke about this because people often ask us
where's my return?
Well, your tax return is piecesof paper.
Speaker 2 (08:40):
We already filed that .
Speaker 1 (08:41):
Yeah, that has been filed with the.
Irs.
But if you're getting moneyback, it's called a refund.
And if you ask your CPA foryour tax return, they might not
tell you.
But they're definitely going toget a little laugh every single
time they hear someone saywhere's my return?
And you're like, I already sentit to you, do you not have it?
Speaker 2 (08:59):
Yeah, we don't correct people.
I'm not trying to be apretentious jerk about it, we
just think it's funny.
Speaker 1 (09:04):
But if you didn't know, now you know and you'll
never ask again because you'llknow you need to ask for your
refund, not your return.
So I hope you found somethinghelpful in this episode today.
It was a little bit funny, butalso a good way to teach you
some of the things that we seeall the time, that people just
mistakenly think are true.
I don't know.
Speaker 2 (09:23):
And now you can laugh at all your friends when they
say things wrong and pretendlike you're so much smarter.
Speaker 1 (09:28):
Absolutely Until next time.
Thank you so much for listeningto.
Speaker 2 (09:33):
What your CPA Wants you to Know.
Speaker 1 (09:35):
Podcast.
Speaker 2 (09:42):
This podcast is intended to provide accounting
and tax information foreducational purposes only.
All tax situations are uniqueand should be handled with the
assistance of a tax professionalBye.
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