Tax Strategies You Might Be Missing, with Natalie Kolodij

Tax day is right around the corner. If you're like most people, you might be leaving thousands of dollars on the table without even realizing it. So today I'm talking with Natalie Kaladi. She's a tax strategist, IRS enrolled agent, national tax educator, IRS CE instructor, and founder of the Certified Real Estate Tax Strategist Credential.

There's a lot of information out there about tax strategies for small business owners and real estate investors. But a lot of times when it comes to talking about taxes, W-2 employees get overlooked. So we're going to focus on what you can do if you're a salaried employee.

We'll talk about commonly overlooked tax deductions. We're going to bust through some persistent tax myths that could be costing you a lot of money. And we're going to reveal some strategic approaches to tax planning that you can use to really... If you're a W-2 employee, you're going to get a lot of value. If you're a small business owner or a real estate investor, of course.

There's going to be loads in here for you as well. So no matter what situation you're in, you're going to walk away from this episode with actionable insights. to potentially save thousands of dollars on your taxes. Welcome to the Afford Anything podcast, the show that understands you can afford anything. But not everything. Every choice carries a trade-off.

And that applies not just to your money, but to your time, your focus, your energy. So what matters most and how do you make choices accordingly? This show covers five pillars, financial psychology, increasing your income, investing, real estate, and entrepreneurship. It's double I fire. I'm your host, Paula Pant, and with all of that said, enjoy today's interview. Hi, Natalie. Hi, Paula. Thanks so much for having me. Thank you for being here. Tax Day is coming up.

I want to talk about three different things during today's interview. I'd like to start by discussing what deductions people might be missing. What deductions are people overlooking? How can people save money on their taxes? The second thing are common misunderstandings that people have about the tax system. And then the third and final thing, tips for real estate investors and small business owners. But let's start.

With the advice that applies to everyone, including all of the W-2 salaried workers who are out there, what are common ways that everyday people can save on their taxes? Yeah, absolutely. When it comes to your taxes, the tax code is 70,000 pages. There's so much. So I really like to have people focus in on a handful of things to be mindful of, to look at, and to see if you qualify for. So at a starting point, what I would say everyone should do before they do anything with their taxes this year.

is look at their prior year tax return and use that as a roadmap. Look at what you had on it, what you didn't have, what you thought you would have, like you spent some money and thought you'd get a deduction, but don't see it. And find out why before you dive into this year. So really understanding what your situation is, is a phenomenal starting point. For the majority of people, when it comes to their taxes, if you don't have a business, if you're just a W-2 employee,

then you're going to be in the worst position possible tax wise. There's so much less you can do. And we really have. Only one main benefit, which is looking at our personal deductions. You either get a standard deduction or some itemized deductions. And this is where a lot of the misconceptions come into play for people. And I'd love to start with just explaining the difference there so people know what they will actually get. Absolutely.

So at a starting point, everyone who files a 1040 personal tax return is entitled to receiving a standard deduction. For 2025, this is $15,000 if you're single, $30,000 if you're married. So what this means is even if you don't Spend any money donating to charity on...

mortgage interest, on medical expenses, if you do nothing at all, you just work your job and file your taxes, you get that deduction. It's just a freebie. Everyone gets it. If you do have some of these other deductions, mortgage interest, charity, these other items, Then you get whatever's better. You don't get both. So then they look at, do you have the standard amount?

Are all of your other ones equal to more than that? And if that's the case, this is where now you can actually start doing some planning. and really thinking about what it is you're spending your money on. And make sure we're not missing the really easy items to capture in that bucket. So if you don't own a home, this probably won't be you. You're going to get that freebie standard deduction. If we get into the itemized deductions.

Now there are several things that you should be paying attention to every single year. And even across a few years, and I'll give an example of that. The first one would be, for those itemized deductions, the most common things you get are taxes, mortgage interest, medical expense donations.

So if we start with taxes, most people think about paying their property taxes if they own a house, but a lot of people forget two other buckets that might apply to them. The first one is any personal property taxes. When you go in and you renew your car every year, you file for your tabs, your registration, there's a good chance part of that fee is a tax. It's a personal property tax.

And a lot of people just completely forget that come tax time. In their head, that's a totally different item in their adult life list. can potentially increase those itemized deductions so making sure if you pay taxes on vehicles registration boats rvs anything else you are including that in your total for those itemized taxes the next item Most of us don't get a benefit for this because you get to take either sales tax or income tax. And most of us live in a state where we pay income tax.

But if you don't, if you live in Florida or Washington, one of the states without income tax, well, then you don't have that benefit. So you get sales tax. So for anyone who is based... In a state that does not have income tax, Keep track of your sales tax on any large things. If you renovated your house, bought a new car, bought a boat, bought an RV, any of these big purchases. You can then utilize the tax from that purchase. This is something a lot of people completely overlook.

Because it doesn't apply to most of the states. I'll pause you there. So for the average person, and I used to live in Nevada, which also is a state without any state income tax. And I remember wondering, and I don't know if I ever really found the answer in the five years that I lived there, most of my expenses when it came to state taxes were... Nothing major, but a $50 pair of pants here and there, a $50 sweater. But over the span of the year, that adds up.

Can you just take your credit card statements and say, hey, here's how much I spent? the tax would be based on that level of spending? So I wouldn't do it off of a general statement. You want to be real cautious to have your actual receipts in case they ever want to look at it. But you can. Typically, a state will give you kind of a starting amount. They'll use an estimate and say, this is probably about what you spent on sales tax.

So from there, you can add those big items. You can also track every single thing through the year. It's a lot of work, but I guess depending on how many pairs of pants you buy, that might be the way to go. But the easier thing would be... Simply to take the estimate that the state gives you. And what is that estimate based on? It's just based on kind of a standard table they're going to use. So it's sort of a starting point. And then on top of that.

They let you add in those big ticket item tax amounts as well. Commonly missed deductions for W-2 employees. One is sales tax for people who live. in states that don't have a state income tax. One is personal property tax. What are some of the others? Yeah, from there, these are where some people might have it, some people won't.

And there's a little misunderstanding. So a big one that comes up is medical expenses. I think we've all heard you can get a tax deduction or you can get a benefit for your medical expenses. And this is true. But there's sort of a limitation to it. So because of the current tax code we have in place, the current tax law we're under, you can deduct any medical expenses that are above.

7.5% of your adjusted gross income. So what this means is, you know, you had a crummy year, you twisted your ankle, you went to the ER, you've got that thousand dollar bill and you're like, oh God, this is the worst, but at least I get a write-off. you probably won't. It probably won't help you yet. But the thing to be mindful of with this...

is things that you can control spending on when it comes to medical. If you know you have an upcoming surgery or multiple procedures or you are buried and you guys both have things coming up. Considering what year these events happen in, if it's something that's not. accidental, planning to have it in the same year so that in that year you do get above that 7.5% and you can receive a benefit. Whereas if they were just sort of sprinkled across a three or five year.

you might not get a benefit in any of the years. So really being mindful of the spending on any kind of deduction where there's sort of a floor you need to get above. So medical is a great example of that. And we're a little bit of preemptive planning. can provide you a benefit in some years, whereas if you were just sort of living life and letting it lay where it might.

You could go every single year without receiving any benefit, even with spending some money on it. Right. So if you have several elective procedures, consolidating them into a single tax year. such that you get above that 7.5% threshold. Exactly. If your adjusted gross income is $100,000, that's $7,500. And so for a lot of people, hopefully, knock on wood, they're not incurring that.

But there might be a year where suddenly you have to have something that your insurance doesn't cover or your spouse needs a root canal. And any of these things you're paying for out of pocket are going to add up. And if you can get above that seven and a half percent. It's every dollar spent above that where you're going to receive a benefit. So by having that preemptive planning, you can strategically place it into some years and get an actual benefit instead of just...

And that's for any qualifying medical procedure? Yep. So it doesn't count for like paying your health insurance, your like monthly fee. But anything you pay out of pocket to doctors, any medical hospital bills, anything that's not a cosmetic procedure or not over-the-counter medications like vitamins. So anything that's a required medical expense. Another consideration for it is sometimes there's a much bigger expense.

that you may qualify for. And these are kind of the things you see on Instagram reels, I think, where people are like, you can write off your swimming pool. I'm going to tell you how most people can't. But if you have a health condition where moving in water is a significant benefit and your doctor says this is prescribed, like you need to swim daily to keep your joints. you know, functioning with this disease or whatever it is.

There are cases where if you've spent a large amount of money, on something related to accommodating your home or like a service animal, like a seeing eye pet or making a house accessible with handicapped ramps and showers and things like that. If there are costs that are being literally required by a doctor, not just like this could help you, you know, having a better rest could help you. Having a pool could relax you. Not that. If a doctor specifically says you need this.

That can qualify towards those medical costs as well. Excellent. All right. So personal property tax. Sales tax, if you don't have state income tax, and medical expenses, qualified medical expenses, those are three areas where W-2 employees who don't have any other forms of write-offs could find additional tax savings. Absolutely. And in that same bucket of the final item that goes into kind of those itemized deductions is charitable giving.

And I love this bucket because there's so many little unique ways to increase what's in this bucket. So the first one overlooked for charitable giving. Any kind of charitable miles driven. A lot of people volunteer for charity. And for example, I used to work with a cancer care alliance and they would have volunteer positions where you would drive people to treatments. So if you're using your vehicle and incurring miles related to volunteering with a qualified nonprofit.

you can receive 14 cents a mile for those miles you drove. Charitable miles is a commonly overlooked item that can be utilized. Another great one is anything charitable that relates to if you are fostering any pets.

If you are fostering puppies or kittens, they often provide you with a lot of stuff. But if you are paying for things out of pocket, you are buying cat food and all of that stuff, it counts as though you are donating to that qualified charity. So that's another way you can bump up those.

charitable deductions there are also a few other things i get a little more complicated but i'll just kind of touch on them because i think they're important to know so another option with charitable giving that a lot of people don't even consider is when you do a renovation in your home or your office, when you are tearing parts out of your house instead of just tossing them into a dumpster. There are different organizations, different qualified nonprofits where you can donate.

those house pieces. So Habitat for Humanity is a common one we think of where you can donate light fixtures and fireplace mantles and all kinds of pieces from a house. to a qualified charity so instead of just gutting your house tossing it in a dumpster if you're careful with removing these things and choose to donate them you can receive a charitable donation for those items you've given over as well and a lot of people

Don't even consider that as part of a home renovation project. And a more unique way to take advantage of charity is a donor advised fund. So this is an option where if you have. stock, appreciated assets, and your plan was you're going to sell them, get some money for the year, and then do your normal donation to charities you support. Instead, you can donate those appreciated stock to one of these funds.

And you will receive the benefit at... the amount of their current value so instead of paying gain on the difference you'll get a charitable contribution credit for that amount for what their value is on that day And then that fund allows you to choose what charity the money goes to later on. But you get the actual charitable write-off today. You get to count that amount for the stock you donated in this year.

So if you are someone with a lot of appreciated assets in your portfolio, you have a lot of stock that has gone up in value. Instead of cashing it out, paying tax on it, then using the funds, this is a great way to kind of cut out the middleman and take advantage of a charitable donation. Directly. I have a donor advised fund and I set that up. In a year in which I knew I was going to be making more money than I did in a typical year, or at least more money than I historically had.

And so the way that I kind of viewed it was consolidated a lot of my charitable giving into this one particular year. So I basically compressed. three years worth of charitable giving into one mega year. And all I had to do was set up the fund, you know, and then I could drip those payments out over the next few years. Absolutely. And that is one of my favorite...

concepts that I think a lot of people overlook is the timing. Timing on anything related to taxes, right? We're looking at it on a finite timeline. So anything you can control and shift, like with those donations. is tremendous. And charitable donations are such an important example of that. Like we were just talking about how you get either this standard deduction amount. or the total of itemized. Literally last week I was looking over a tax return

where every year this person itemized their taxes and every year they donated about $18,000 to charity. With that $18,000 donation, they received a benefit, an additional benefit tax-wise, of $200 more a year. With that additional charitable donation, it was still only barely more. then that standard deduction they would have received had they donated nothing. So they were spending a significant amount every single year for the last 10 years donating to their favorite charity.

and only receiving about $200 more tax benefit than had they donated $0. So by literally shifting their timing to an every other year model. they were able to put themselves in a much better place for tax savings instead of $18,000 a year. they would do $0 year one, $36,000 year two. So they would just stagger it to an every other year. So across that two-year period, they're still giving the same amount to their favorite charity. The difference now is in those zero years.

They're getting that standard deduction and they're only missing out on $200. But in those every other years, they were literally receiving a deduction that was almost $18,000 more. So like you said, condensing your donations into a singular year or being mindful of when they happen can have a tremendous impact on your tax savings. And it's something I strongly encourage taxpayers to sit down.

And look at kind of a three to five year horizon and be mindful of those items. And I would imagine then. If you're planning out years in which you anticipate getting a standard deduction versus years in which you anticipate getting itemized deductions, you could then, if you had elective medical expenses,

place your high charitable donation years into the same year where you have an elective qualified medical procedure. And so basically you're timing all of your... elective decisions to be made in one big consolidated year. Absolutely. And if you are a W-2 worker where you don't have a business or other items to really flex with, this is your planning. It's really looking at things on a longer horizon, seeing what you can shift.

And really considering what upcoming events do I have, either an increase in income for some reason, I know I'm going to sell some stock, sell a house, any big ticket item. Or what upcoming events do I have that are going to cost me money? I have to pay for medical. I'm going to donate to charity. and really mapping them out to see if by moving the puzzle pieces a little bit.

You can come out ahead across a multi-year span. I think a lot of people dread taxes. They don't want to think about it more than once a year. But if you can step back and look at kind of the chessboard instead of just the next move. It can really take you a lot farther with your overall savings. We've received a lot of questions lately from W-2 employees who have some type of stock-based compensation. How should that be considered when it comes to tax planning for W-2 employees?

Yeah, it depends on the type of plan they have and what they are. how they are receiving that compensation. In some circumstances, there's going to be a vesting schedule they need to be mindful of. There's going to be, in many cases, if they receive like an RSU, they might pay tax on it in their W-2 the year they receive it. And then down the road if they're not cautious many people end up paying tax again.

because they're not considering what they've already paid for it, because it's not always on your statements. It's not on your account when you get the 1099 saying, here's the stock you sold. As far as that custodian knows, they don't know what you paid for it because it was granted to you through your employer.

So the biggest thing when it comes to any kind of stock compensation is to keep track of what you have, keep track of what has been reported and taxed on your W-2 already, and look at if you are going to sell it, the impact. in that year. So if you will have to pay any additional tax, if it is going to

Create a situation where you might have other capital assets that have losses that you can use in the same year. So just looking at the big picture again of what's happened. Did you already pay tax? Keeping track of it. and not just getting caught off guard when you go to dispose of them. So those are things that a W-2 employee who has the least amount of tax flexibility should think about when they're looking for savings in their tax bill.

Let's talk about myths and misconceptions, commonly held misconceptions that people tend to have about taxes and including some misconceptions that even tax professionals hold. Absolutely. I think these misconceptions are such a dangerous thing for taxpayers.

Because I think what happens is someone has this idea in their head of how something will play out. And that is what you're planning for. If that's not what happens and the situation is now done, you've made like you've reached the end of the tax year. you're out of time to really change things. So understanding them ahead of time is crucial. So for me,

This is sort of my Roman Empire, the item I will always, always mention because it affects so many people and is misunderstood in so many ways. That is going to be the 121 exclusion. This is a tax code section that allows any taxpayer who owns and occupies their primary home to typically sell it tax-free. And for me, the reason this is such a crucial item to mention This is something that's not just affecting business owners or investors. This is a ton of Americans who own their own home.

And it's a lot of money we're talking about. There are very few provisions in the tax code. That would allow you to have up to a half million dollars tax free. You don't want to mess that up. Like we want to make sure we have that correct. This is an area there's misconceptions both ways. And both are pretty harmful.

So the first misconception is people take it at just that high level where the general requirement is as long as you've owned and occupied the house for two out of the most recent five years, you can sell it tax-free. So people don't dig farther into like the fine print. And what they think they can do is like if they rent a house for 30 years, but then move into it for two, sell it tax free. or if there's a house that...

They weren't living in for years and years. It was just empty, but they move into it for only to sell it tax-free. that they can move in and out of a house, like all of these different circumstances where people think their sort of end game is, well, I'll just move back into it for two years and then there's no time. And that is not the case. There is a provision in the tax code known as non-qualified use.

So any of that time before that most recent two years you lived in it, if it was used for something that does not qualify as your primary home, if it was a rental first. the gain related to those years is still going to be taxable. So I see a lot of people really upset. Because they really thought it was going to be tax-free. They shifted their whole life around. They moved back into a house for two years only for this tax benefit. And that's not how it works.

On this, the big misconception is that if you've rented a house, if you've used it for any of these other business income producing uses. Moving back into it for two years will not just wipe out any gain from those earlier years. There's going to be a prorated amount between taxable years. And only your two years would be tax-free. Wow. That's a huge distinction. Yeah. It breaks my heart, honestly, seeing people expecting this easy-peasy $500,000 tax-free situation and then...

finding out they're actually going to have a large tax bill. What if something is used as a second home? So let's say in two out of the last five years, it was your primary residence. It started off as your second home and it was initially your second home at the time that you bought it. Then you moved into it for a little while. Then you moved out of it again. How would that be treated? Yeah, similar circumstance.

The best way I recap it is with that code section being called non-qualified use. So any of that time it wasn't used as your qualified primary home is going to work against you. There's one small exception. This is where tax professionals often mess up. And for me, this is equally heartbreaking is watching a taxpayer pay tax when they shouldn't be. So that non-qualified use, any rental time works against you.

The exception is, if there's any time that property is used as a rental for business income producing activities, if it is after... the most recent time you use that house as your primary home within that five-year window because it's a two out of five-year rule so we've really only got this little five-year window to play in But if that rental time occurred after you lived in it, that non-qualified use split doesn't count. It doesn't work against you.

So what you can't do is rent a house for decades and then try to move into it for two years and erase all the gains. What you can do is live in a house as your primary home for two or more years. And then you're not sure if you want to sell it or rent it or keep it. So you move out. You can rent it for up to three years and stay in that five-year window.

and still sell it and receive that tax-free 121 exclusion and a lot of tax professionals don't understand that time difference of the having it be after the use not working against them So if you lived in it for two or more years, two years, 10 years, any amount beyond two, as long as you haven't rented it for more than three, when you sell, you will still receive that full exclusion. But how would that work?

So in the example that I gave, you've got somebody who their two years of occupancy was somewhere in the middle of their ownership of that property. Would that mean that... The time prior to when they occupied it as a primary residence would be non-qualified youth. Would be qualified use, assuming that they occupied it in two out of the last five years. Exactly.

So it's really tricky, honestly, because there are a lot of people who will move in and out of a primary home. They'll occupy it for a while, move for work, move back. and there's a ton of additional exceptions related to temporary moves for work or military moves or medical reasons. What I would sort of recap this misconception as is if you've rented a house for decades and it's gone up in value and your end game plan is moving back in and selling tax free.

Assume that won't work. We need a plan B. If you are selling a house that you have lived in at any point as your primary and it's showing you owe some amount of tax on that. Investigate farther because there are a lot of nuances like that time after you most recently lived in it or those medical exceptions or military rules. If your end game is planning to not pay tax on something that was a rental forever.

Probably you might have to pay tax, assume that's what's happening. If its main intent was your primary home, and maybe you rented it sometimes, you moved in and out. If on your tax return, it does show an amount owing, that might be correct. But that's the circumstance where it's worth it to dig a little farther to say.

well, is there any other exception I qualify for? Or does this full amount actually belong as taxable? Or is there an exception because I moved to take care of my sick mother or moved because the military stationed me somewhere else? In many situations, there might be something that can help you. So that's one to question is if you have tax on a sale of a home that you lived in. In this example, because I know you've mentioned use of this property as a rental, but to be clear, this.

isn't just a conversation for real estate investors. This also applies if something was a vacation home. Absolutely, yeah, it applies to any of those years, you're just not living in it as your main home for the year. In any given year, you can only have one primary residence. So there might be circumstances where someone has, you know, two different homes. They kind of split their time between them. They snowbird, something like that.

And in one year, one might be where they spend 51% of their time and the other might be 49. So there's still going to be a winner for each year. And sometimes it's a little harder to determine that, but there always has to be one winner. But if across a five-year window, they've spent... Two of the years won that top contender and was their primary home. And in the other two years...

The other home qualified as their primary home. In year five, if they were going to sell one, they could technically sell either one and qualify, just not both. so there's a ton of nuance to this code section so anyone who owns a home and may ever sell it This is the area to really question if you think you might pay tax.

All right. So section 121 of the tax code is an area where a lot of people have these misconceptions and I can see why. What are some other areas where people hold major misconceptions about the tax code? Yeah, other misconceptions and things that we should kind of take a look at now preemptively. A big one right now is withholding. So if you work a W-2 job, the W-4, the form you fill out for how much tax is being withheld, that changed in the last few years.

So really go back and look at your most recent pay stub or look at your W-2 from this year. and figure out what percentage of your income is being withheld for taxes. A lot of people are being caught really off guard by this. They didn't update that form when the new version came out that is calculating differently. And this year they're finding out my employer only held 2% for taxes. That's crazy. Why did they do that?

It's because that's what was on the form. So at this point, put down what you're doing, go log into your online HR and check your most recent pay stub and look at that now. to make sure that if it seems way too low if you know every year you end up being in a 25 tax bracket and your paycheck shows that only three percent six percent is being withheld for taxes well that math doesn't that doesn't line up too well so you want to be cautious

and change it before you get to the end of the year. What is your take on the argument? You know, I've heard tax professionals make the argument both ways when it comes to withholding. where some people say withhold as little as possible because why would you give the government an interest-free loan? Others say have high withholdings because that's, for the average person, better for budgetary purposes. What is your take on that split?

Yeah, this is one of those circumstances where a lot of things tax-wise to me are kind of like a diet where there's many that might be a good idea, but only if you'll actually do it or stick to it. So what works really well for one person? might be terrible for you if you just aren't willing to give up bread or whatever the case is. So for the withholding, ideally, yes, withhold.

a perfect scenario is where you owe zero at the end of the year and get zero back you haven't loaned the government any money tax like without interest all year but you're not at risk of penalties or you owing because you didn't give them enough money by the end of the year. But that takes really careful tax planning.

So if you are someone who, at the beginning of this episode I mentioned, start by looking over your most recent tax return and really just familiarizing yourself with what's on there. If you can look at that and say, okay, I know I make this amount. I pay this amount in tax. My situation is going to be very similar. I got back a bunch. Depending on what caused that, it might be worth it to... withhold less if it was from credits and not just because you paid them too much so they gave it back.

But if you paid in $20,000 during a year, but you're only ever going to owe 15, they're just borrowing that extra $5,000 of your money and not paying you interest on it throughout the year. Being cautious with that, I don't think there's a right or wrong way.

If it is going to absolutely blow your budget, if you might owe when you go to file, err on the side of caution. If you are someone who really struggles with budgeting and the only way you can get $3,000 saved, is to not be able to access it, is to know that the IRS is holding it and you'll get it in April.

If that's all you've got for a tool in your tool belt right now, keep doing that. If you've reached a level of... control and sophistication with your finances where you feel like you can look at those numbers, adjust and really be on track with it and not have it swing your life one way or the other if something goes differently. then it is better to plan and have it to where you are withholding the ideal amount. No more, no less. to protect what matters most.

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Just go to indeed.com slash P-O-D-K-A-T-Z 5 right now and support our show by saying you heard about Indeed on this podcast. Terms and conditions apply. Hiring? Indeed is all you need. We've talked about section 121. We've talked about adjusting your withholdings. What are some other misconceptions, myths? erroneous ideas that people have. Yeah. When it comes to the tax code, there's a lot of things that can be incredibly beneficial for some people.

and very detrimental for others. So the other kind of misconceptions or myths or things I would warn people to err on the side of caution is anything that sounds... so sexy when you're hearing about it. It is presented to you as the greatest thing you've ever heard of. You're going to get all this money back. And if it's being presented as sort of this broad strategy, something that isn't being detailed out, be really cautious. You see this a lot on social media where...

It's really just for that sort of smoke and awe effect. And then when you dig into it, if you, based on your tax circumstance, utilized this thing you're told. it could put you in a much worse position. So another misconception is with social media, there's a ton of information that gets in front of a lot of people. And it's just sort of a thousand foot view.

So being really cautious of anything that sounds too good to be true, anything that just sounds like, well, I've never heard this before. This is incredible. Well, yeah, there could be a reason this has never been brought up before. So just being leery of anything that just sounds perfect, like there's no additional planning or not really much to it, if it's oversimplified, be cautious going into these.

Many of these strategies, and you'll hear certain ones online a lot, how anyone can employ your kids. Starting a business is good for taxes. You just set up an LLC and put everything in there. Everything that you hear in that kind of bucket. stems from somewhere. There's some truth to it, and I think it's worth finding out what the truth is, dig into it more. It might apply to you, and that would be fantastic. But just be cautious enough.

to know that when you're hearing these things there's kind of a half truth in a lot of them and to take it as your initiative to kind of learn more, not to just assume it's going to work. Can you give some examples of some fallacies that you've heard on social media? Yeah. So like I said, many of these stem from a real tax strategy. And so what we end up seeing is twofold where either.

Someone hears it online, goes to a professional, the professional's like, oh my gosh, you heard this on Instagram and they just won't even entertain it. And that's not fair because part of it is valid. And this comes up, I think, the most often with employing your children. If you have a business, it is an excellent tax strategy. And anyone who has a business or rental. should look at employing your kids. It's a great strategy. It's completely legal.

But like with most things, there's restrictions, there's nuances, there's a correct way to do it. And this is one that I like to mention and warn people about because it's talked about often. It has a huge benefit, but if you do it incorrectly... It can create a huge hassle and unintended outcomes. When you hire your kids, you have to pay them like an employee, just like any other employee, and they have to do work and be paid a good wage for what they're doing, your toddler.

isn't going to be earning $50 an hour. So like you had to pay them in a reasonable amount and you have to treat it like they're an employee with a W-2. A lot of people want to shortcut this and they're like, oh, just give your kid a 1099. Instead, issue them a 1099 form. It's so much easier. There's way less headache. The requirements... if a child gets a 1099 are very different and can lead to additional taxes.

If a child receives a W2, And it's for less than that standard deduction amount we talked about earlier, which would be like $15,000. They're not going to owe tax. They don't have to file a tax return. Easy peasy. The amount for someone to receive in 1099 income or to have earned is self-employment income. They're one in the same to the IRS is only $400. So if you have your child working in your business and to kind of.

streamline the process. You give them a 1099 for $10,000 or whatever you paid them during the year. Now they have to file a tax return. Now they can have self-employment income. Now there can be all of these negative tax outcomes. Excellent strategy. Completely valid. One small shift in how it's executed. And things are so far off the rails that now...

It's so much worse than if you hadn't done it to begin with. There are also I mean, child labor laws that you have to be conscious of when you're employing your children. Absolutely. Strict states have very specific laws around this and there are some nuances to them if they're working in a family business. So often this is allowed. But this is one of those strategies that, like I said, is valid. You have to follow the laws. You have to follow kind of the checklist of what you need to do.

But a lot of people have gotten really over encouraging of it. So you'll see people saying, oh, you know, pay your three year old $10,000 this year. Say they were a model. You shared one photo on Instagram. That's not the way to do it. So like it's a valid strategy. Follow it the correct way and there's a huge benefit to be had. What other myths or misconceptions? To me, those are kind of top of the line, see over and over again items that get mixed up on both sides.

Another common one worth understanding is a big misconception I've seen from a lot of W-2 employees is this idea that if they receive a bonus at work, it's going to have more tax taken from it and that it is. So I've heard people almost dread receiving a bonus at work because they're like, I hate when I get paid a bonus. I pay 50% tax on that or whatever they think is being taxed on this bonus income.

And it's important for people to understand that's not the case either. We should never say no to more money because we'll have to pay tax on it. Like always yes to more money is the answer. When it comes to receiving a bonus, your employer might withhold more from that check. For a number of reasons, but at sort of a high level view, the payroll software doesn't know that you don't make $10,000 every paycheck. So it's just withholding a proportionate amount.

You're not actually paying more tax. When you file your taxes at the end of the year is when, you know, you submit your personal tax return and it says, oh, you made this amount. You've paid in this amount.

paying more tax at the end point you're just sort of having to preemptively prepay a little more than you should but you'll get it back later so this is another misconception that i think is huge I have seen people literally try to avoid getting a raise or getting a bonus because they think they're going to end up. making less afterwards because they think it's going to be taxed so much higher. And that's not the outcome. They're just holding a little more of it for taxes.

You will get it back later. It's based on your earnings for the whole year. With tax day coming up soon, what should people be checking on their tax return before they submit it? Yeah, absolutely. Even if you pay a tax professional to do your taxes. that you are ultimately who is responsible. So if there's something wrong or something is found out later, it comes back to you. So it's always worth looking over your taxes.

And there's a few key things that sound like obviously I would look at that, but these get overlooked really often. The first thing that sounds like common sense but we all need to check. is the spelling on things. Check the spelling on your name, on your kids' names, your address, these little standard things that you know your address, like that should be really clear to you.

But for your tax professional, if you entered it wrong on one intake, they might have the wrong thing and they wouldn't really have that heads up. So checking those kind of standard basic information items like your name, your address, your updated information. goes a long way. It saves you a lot of headache if later on you get a notice because your name doesn't match what the IRS has on file or they sent a check to the wrong address. Just check your basic.

The next item I have to say, because it's happened to me before, is... Making sure you have all of your children listed on your tax return as dependents. I have had clients who have had children not mention that they had a child, and it's years later. And suddenly I'm like, what child are we talking about daycare for? This was never put on here. So making sure.

That if you have a child during the year, you let your tax professional know there's a new person to be on this tax return. You have to give them that information. They should be asking, but sometimes it just slips through. Again, just kind of the standard things. Past that, so looking at the standards, and then I would say anything you know happened during your year.

You're much more familiar with your situation than a tax professional is. Even though they're the expert, they talk to thousands of people. If you know something big happened for you, you sold a house, you had a child, you... had a second job and you made a million dollars.

If you don't see that easily when you're looking over your tax return, ask about it. It could be that it was overlooked or it could be that they didn't get that information or maybe you didn't qualify for the credit or whatever thing. But if you're expecting to see something on your tax return, you know you spent money or received money or any big event happened and you don't see it at a glance.

anything large like that. The last thing that I always mention to people is especially with online software now, many people do their own tax returns, then things get complicated, they go to a tax firm, they get easy again, they do it themselves again. Many of us do not have just our tax situation in one software for perpetuity. Like it switches around between your software, professionals back to you. It's really easy to lose track of things that connect year to year.

So examples of these would be any kind of a carryover or anything that is on a worksheet or a schedule that carries forward. If you're using the same software, it's going to track it for you. But if you go to a tax professional when you've been doing it yourself, They have to start off by entering all of those kind of little details from the prior year. And these carryovers are something that are easily overlooked. They just kind of get missed.

Because it's just a little detail, everyone has different circumstances with it. So always check. Your return for anything on a worksheet that says carryover or disallowed or anything that might have been a credit or a loss or a deduction, something that would give you a benefit. but for some reason you couldn't use that benefit in an earlier year, you don't want to just erase it accidentally. You still want it to continue moving forward till when you can use it. Your tax circumstance changes.

and it's really common for that to kind of fall off in between software or in between tax preparers. So being mindful of that and kind of keeping an eye on that, especially in those years when you switch who you're working with or what software is being used. This is tremendous because otherwise it can be years, it can be decades before you get to use some of these benefits.

It doesn't mean you should just forfeit them accidentally. You want that piggy bank there ready to use when you have a circumstance letting you use it. So keywords that a person should be looking for then, you said carry over and disallowed. Any other keywords? I would say another good trick to look for these things is if you self prepare in software.

Many of them have a hidden sort of more detailed version of your tax return to print. It's not just the standard one it plops out. You're going to want to dig and find the one that says it is the return with all worksheets and schedule. Make sure you have a copy of that because those worksheets and schedules are what are going to show you those carryover items, anything that you couldn't deduct in that year and why. So having that extra form with those details.

That's what you want to make sure you're not losing track of. So make sure you have that very full version of the return that's like four times as long as you expect it to be. Right. For a W-2 employee who does not have a small business and does not have any rental real estate, how should they decide if they should do their own taxes or use a professional?

I find this with any professional we're looking to hire, right? It's really hard to know what you don't know. It's really hard to know how skilled someone is. how complicated what you need really is. So for the standard W-2 employee, if that's really all someone has, There's a good chance you can do your taxes yourself and not need a professional. Having an online software help you should handle it pretty much correctly.

As you kind of slide into anything that's a little more nuanced, like we talked about, if that is the year you're going to be selling a house or... If you are opening a business or if any of these sort of additional, more complicated things come into play, to me, that's when it's worth finding a professional. But I'll also note that not all professionals are on the same par.

And finding someone who actually fits what you need and has qualifications that you can look into is a big thing as well. There's not actually a barrier to entry to be a tax professional. You can do it without a license. So if you are going to a professional, you've gotten to the point where you're like, this is complicated. I need actual help. Look at someone's background and looked at their LinkedIn. See if they actually have a degree in this. Do they have experience in it?

If you have something really unique, like it's related to a specific industry or maybe it's foreign income, something kind of special, find someone who specializes in that. Don't just assume because they say I'm approved to file taxes that they... have kind of a background in it. So I would say doing your own until you have an additional unique circumstance, either personally or you get into the business realm.

But when you hit that kind of threshold, it's almost better to keep doing it yourself versus just going with any preparer. So if you're going to transition to a preparer, dig a little bit. Find someone who really fits what you need. Let's say that you interview a couple of preparers and they all seem pretty good. Yeah. How do you choose between, let's say you have a day.

You set up three Zoom interviews. Of the three, one of them was disheveled, and so you eliminate one of them. But the other two both seem pretty even. Yeah, there's a few things that to me are green flags and red flags when it comes to tax professionals. Like I said, looking at someone's LinkedIn and their background goes a long way.

I'll see two things sometimes. You see someone where literally their origin story on their website is after years of being a dog groomer, they decided they really liked the business part of their business and started doing taxes. Okay, how though? Like who taught you? Red flag, right? Caution there. So look at that. The other piece is not all experience in an industry relates to doing taxes. So there's lots of people who have been an accountant for decades.

But if they worked for a corporation in a specific little billing department, they're not familiar with public tax, like with working at a public accounting firm. So looking at their background and if it actually applies to what you need and starting there. Then when you're actually talking to tax professionals, you're interviewing them, you're trying to figure out who's a good fit, there's a few questions that I think everyone should ask. A great one is asking your tax professional.

to explain to you different ways that they have been able to help a client if either something came up that wasn't expected, like an audit or a notice, if they have some examples of sort of circumstances they've handled, or ways they've helped a client save taxes if a client has had a similar situation. I would say just asking someone, do you work with? Insert your situation. Do you work with small business owners? Do you work with?

podcasters, do you work with rental owners? Everyone will say yes. They're never going to say no. Ask for a specific example. You want them to walk you through something they've done or a way they've worked with a person in the past and see if that sort of aligns with what you know your industry is like or your tax situation is like. Another item that for me...

those things that we talked about that you've heard on kind of Instagram, heard on social, and seeing how they respond to them. There's a lot of tax professionals who hear things like that. and shoot it down. They don't want to entertain it. They are like, I am the expert. You should just listen to anything I say, the end. And that's the wrong, to me, that's the wrong mindset because all of those things stem from something true.

If you bring up something that you saw on social media or you heard about and you're like, can I do this? Is this true? And if it's not, they should say, oh, actually, not really, but here's what you can do. Or here's how we can get you to do that. There's kind of this antiquated mindset with a lot of professionals where they've done it for years and years.

So they're set in their ways. They don't want to learn new things. They don't want to sort of consider these newer strategies or things that are being more publicly discussed or that might be a little bit more aggressive tax-wise. But they should be willing to at least discuss it with you and help inform you of that. And for me, kind of a final item that's worth knowing about as a taxpayer or when talking to a professional.

is asking them a why of something, not just why they're saying it is. The answer shouldn't be because I said you can't do that. They should be able to provide you with a code citation. What part of the tax code says I have to do it this way? Is there something you can send me that explains it more deeper or that goes into more detail?

If they're really closed off or they're not someone who is able to provide you references or resources or more information, to me, that's a little bit where I'd be a little leery to. So find someone who's really open and willing to help. teach you and work with you and wants it to be a collaborative effort and where they're open to

hearing your suggestions as well, and working with you to find out why that would or wouldn't work. It sounds like someone with the heart of a teacher. Absolutely. That's what it really needs to be. The tax code is... very complicated and it terrifies people so

You don't want someone who's approaching it as the wizard behind the curtain, right, where they're just going to talk to you and you should listen. You really want it to be the good witch who's going to come down and talk with you and make sure that there's that connection and understanding. Let's shift our focus now to small business owners and real estate investors, because those are the two groups that have the most amount of... opportunity when it comes to tax savings.

Can you talk about the difference between someone who's a W-2 employee who does not have either a business or rental income versus someone who does have both of those? How vast of a difference are we talking about when it comes to tax preparation? Yeah, absolutely. So not all income is created equal with how it's taxed or what you're allowed to do to offset that income.

So for someone who's a W-2 employee, you really only have a handful of credits and then that standard or itemized deduction, you can kind of work with the timing. If you're self-employed or if you have rentals, which for all intents and purposes is we'll put it in the same bucket. Now you're in a place where many of the things you are spending money on already. could potentially be a tax deduction if they relate to your business in some way. When you're a W-2 employee,

Nothing you spend for your job is deductible anymore. There used to be some items that were. This went away with the most recent tax overhaul. so as of right now if you're a w-2 employee and you pay for your own you know paper and pens and like you have to stock your own home office things like that unfortunately at a federal tax level there's no benefit if you're self-employed Everything you pay for that relates to your business.

is a write-off. You get to deduct it against your business income. So it opens up so much more for planning from just a perspective of looking at your cell phone. If you pay $100 a month for your cell phone right now, If you're using your phone 50% of the time for business, now 50% of it reduces your taxable income from that business. So there's so many things we're already paying for or already incurring costs for that are just existing in our lives that we can shift.

to providing a tax benefit so at a high level that's just a really easy overview benefit Going past that, there's much more flexibility when you're self-employed with regards to retirement accounts. the way you can utilize your income to generate additional income. with different nuances for if you're investing in a business passively versus actively being involved with it.

So there's a lot more wiggle room with what you can write off, with what you can deduct, with how you can structure your retirement account and contributions. There's a lot more flexibility and can give you far greater strategies and things that you can apply from a tax planning perspective. Now, you mentioned that you'd put... rental, real estate, and small business in the same bucket, but it strikes me that rental income is passive. The IRS considers it to be a passive gain or

passive loss. Small business is not. Small business is active. Why would they be in the same bucket? And also, can you elaborate for the listeners who are unfamiliar with these two constructs on what this means? Yeah, absolutely. and this is where there's a lot of um

Easy misconception around this because we use so many words interchangeably. Right. Like you say a business and people are like, okay, does that mean an LLC? Does that mean, what does it mean? With a small business, if you're, we'll stick with it, if you're a dog groomer.

Your earnings from that business are self-employment earnings, they're taxed in your ordinary tax rates, and you pay self-employment tax. The benefit there is if you have a small business, because it's in that ordinary bucket, if you have losses. You get to deduct those losses. They're active, ordinary. You're allowed to deduct those up to a pretty large limit.

Rentals are a business in the sense of one code section of code section 162 that basically says you get to deduct anything ordinary and necessary to operate. They are passive in respect to a different code section on 469 that says, you know what? This isn't really like a super involved activity though. So any income you earn from this, we don't charge self-employment tax on it. You just pay that ordinary income tax. We're not going to give you that extra tax for operating a business.

Because it's not really your day-to-day full-time business, if there are losses, we're also going to restrict when you can use those losses. So it's taxed slightly differently. But from the mindset of... What are you able to write off? What are you able to deduct? How are you able to treat your expenses? They're almost always the same.

So this hangs up a lot of people. Kind of misconception in relation to this is there's a lot of people who think you need an LLC to be able to deduct any business expenses. That's not true. You can deduct them on a business or on a rental with or without an LLC. You're entitled to those same ordinary operating expenses you need either way. You do not necessarily need to be an ordinary active business like a dog groomer. to deduct other not direct expenses like a lot of people with rentals think

Sure, I can write off, you know, the mortgage and the new roof, stuff like that. But I won't be able to write off part of my cell phone or, you know, going to a real estate conference or like costs like that. Those are business costs. But it's still typically one in the same. So it's all of the costs you need to operate that activity, whether it's passive or not.

For people who are listening who have either a side hustle or a full-time small business, what are some of the things in 2025 that they should be thinking about? Absolutely. With either a small side hustle, a full-blown business, a rental, I don't want you to diminish what you have and think, oh, I shouldn't be tracking these things or it doesn't really apply to me.

to the irs these are the same so in any of those circumstances you are entitled to these same deductions And there are a few that a lot of people overlook that are really easy to kind of grab and have reduced that taxable income from the business. So the things I see overlooked over and over again when it relates to small businesses are a lot of the incidental costs.

Again, if something's really obvious, it's your business insurance. Sure, you are not going to pay for insurance for a business without a business. But then we get into the more kind of abstract things. So like education costs. If you're buying books related to your industry, if you have an Audible account and what you're listening to is books related to your industry, any of these sort of one-step released almost expenses.

are still valid deductions. And people overlook these a lot because they're not kind of the day-to-day cost they literally needed to function, but they're still something related. Absolutely valid deductions. So anything in that sort of secondary bucket of you spent money on it, but you might have spent it anyway.

But this really does directly relate. It helps you in some way. It's always better to track it. And if you're working with a tax professional, give them those expenses. Worst case, they say, oh, no, this is really too personal. Best case is it qualifies, but if you're not keeping track of sort of the little things because you don't think they matter, you have 0% chance of having a tax benefit from them. Beyond the kind of obscure incidentals that I see overlooked easily.

I think a lot of people don't consider cost. that they have related to their home or their personal vehicle or anything that's mixed with personal use. And this comes up quite a bit too. Where there's sort of misconceptions, both directions. People either think, oh, I have a business. Now I can write off everything. Like my whole car is a write-off, my whole phone. That's not the case. We typically have to track how much you're using something for personally and how much for business.

But there are a lot of people who have a home office where they operate, they run their business from there, or they have a little warehouse where they're storing things at their home, they're using their garage. where there is an absolutely valid business deduction to be had there. This is another place where some kind of fallacies hold some people back. There's some professionals who will say,

Home office is a huge audit red flag. Don't do it. Yeah, I've heard that. Yep. I just had that brought up and I said, you know, that was true. That was true. Before we had like the internet, but now a lot of people work from home. And the IRS has basically said they're not that concerned with it anymore.

So looking at things like that, so when it comes down to it, commonly missed things, anything you are spending that you wouldn't have spent money on without this business, track it, track those expenses. Anything that relates to your home or your personal car, but you're using it for some way in the business, account for that. You are owed that deduction. You're using part of your home, your electric, part of your car, the wear and tear. You qualify for those costs.

Any of those kind of one step out expenses, things that are a little more gray, you go out for a meal with another person in your industry. Is that a business meal? Very well could be. Did you talk about business? Write it down. So the common expenses we see overlooked are a lot of the kind of required things. But just not like a dog groomer is taking obviously the shampoo, conditioner, and dog, you know, scissors they're using. They're not thinking about.

kind of those outlier expenses. And those really add up. Right. A friend of mine gave me the advice that anytime that I have a meal with someone in my industry, on the receipt, I should write down who it was with and what we discussed. And so I made a practice of doing that and I began doing that years ago and I still routinely do that. So if I'm ever having a business meal, every receipt.

I write down who it was with. I write down what we talked about. Sometimes I get detailed about what we talked about. Absolutely. It never hurts to, like you said, have those notes, have that information. In worst case, your accountant might say, oh, this one's a little too personal. But if you have the records and it's valid, take the expense, but take the extra time to document it and note what it's for. So if it's ever looked at.

You're not worried. We've talked quite a bit about the importance of record keeping. What are some of your favorite record keeping strategies? Because this can all be difficult and somewhat overwhelming to track. Not just to track, but to retrieve later. Retrieve and organize and sort through. Yeah. Bookkeeping is another item I put in similar to a diet. There's a hundred different ways you can do it.

What way will you actually do? Because for many business owners, the keeping track of everything. That's not what people get into business. I mean, I guess that's what I got into business to do. That's not what most people get into business to do. Someone who got into.

opening a flower shop because they loved flowers, isn't excited for the part of the business of keeping every receipt and keeping track of that. It's like the thorn in the side of many business owners. Thorn, great for a flower shop. Yeah. There's really no right or wrong way to do it. You just want to have those records. So there's a number of ways that I recommend as a starting point.

Simplify. I'm a big fan of the kiss method. Keep it simple, stupid. Don't make this way harder than it needs to be. If you have one bank account that you are using for all of your business stuff. then you know it is all in one place. Don't intermix it with your personal. Don't pay for business stuff out of your personal account and vice versa. This is for a number of reasons.

But for the record keeping point of view, if you know that everything you paid for was in that one account and or on that one business credit card. then it really takes away a lot of the stress factor. So at a starting point, that's better than nothing. Like we've got it all in one place.

If month to month you are going through and putting it into a spreadsheet where you're inputting all of your income and expenses, excellent. Now you're kind of a step ahead. You have some idea of how profitable you are. You can really see your expenses, where you might be spending more than you realize. Perfect. If you can utilize some kind of a system like a QuickBooks or a Xero or get into software where you now have really usable data on an ongoing basis.

That's how you grow your business is really seeing those specific points of what is a best-selling item, what is actually costing more than we thought. And not just keeping track of stuff, but using what you're keeping track of. In addition to just sort of having that data, we need the backup, the receipts, the proof, the evidence, mostly just in case it's ever audited or ever looked at. When it comes to what to keep and how, in an audit, they can go back seven years.

Paper. Paper might diminish by then. So what I will typically recommend to people is some kind of system where you're digitizing it and either having it within your QuickBooks. In QuickBooks you can attach receipts to items now, you can have things like that.

or just a google drive if you just have a google folder and it is sorted by year or if you can subfolder it a little better so it's sorted by your income related items, and then maybe big expense categories, whatever works for you, but just some kind of quick system to as you're incurring those receipts. Like you said, you're jotting your notes on it for what it was. And then if you took a picture and it was now in your 2025 meals folder.

You don't really have to worry about it if that data is also coming into your accounting software. But if you're ever audited, it's now there if you need it. So it's really just figuring out. some kind of system that's easy enough for you to keep up on that especially when you're a new business and you're working crazy hours

you'll just pay some amount of attention to it. Otherwise, I think people get really overwhelmed. So just something, just something easy for you that works for you. What are the worst ways to do it? The worst ways to do it are the shoebox method. I think the people who just collect everything all year, the receipts, but there's no context to them. And then they're all just like shoved in a shoebox and never thought of again.

That's not the way I would do it. Or there's a lot of business owners who want to kind of ostrich when it comes to this. They just want to like put their head in the sand because it's so overwhelming. I very much understand that. This is what I was saying where taxes are terrifying for people. The longer you ignore it, the worse it gets. So that's why I really enforce the, I'm not going to tell you, you have to do it this way, or this is the best way.

What just lets you do something? What lets you have some kind of system to organize those things and keep track of it? You mentioned earlier, I want to go back to something that you said earlier, that if there's a particular specialty that a tax preparer has, maybe... Maybe you sell custom-made cabinetry online and there is a tax preparer who specializes in working with e-commerce. That type of thing would be a good fit. But let's say that you have multiple

special circumstances. So you've adopted a child and there are tax consequences with that. You also have some foreign income. from another country or a few other countries, perhaps, you also sell custom-made cabinetry so you have an e-commerce business. How do you, when you have so many different specialty areas, find a tax preparer who's a good fit? I think in those situations, you have...

One is there are some of the larger firms where they will have people on staff with multiple specialties, so you might be able to get sort of everything you need covered. in one specific place so that's one option you can look into is if it's a firm large enough that there's someone for everything the other piece that i'll recommend people do is look at really what your biggest specialized focus is like adopting a child that is a big deal

Are we doing that every single year? How many kids are like, or was this kind of a one and done? So looking at what is the most complex or the largest source of income or kind of the focal point and finding the person who specializes in that. Additionally, there are a lot of, I shouldn't say a lot, there are tax professionals and advisors.

who will offer consulting services and planning and things of that nature without doing the filing as well. And this is something I end up doing a lot because I specialize in real estate. So if someone has... a foreign trucking company. That's not my specialty. They have an accountant they love who does that. Excellent. That accountant's like, oh, I don't know about house flipping. That's not, I don't do that at all. So I'll just advise and provide planning on that piece.

so that's another option is find someone to handle the bulk of it that is sort of your biggest key point Then you can always get advising or get sort of a consultant on those other pieces. Let's say that you have a high enough level of income that... The way your tax bill shakes out is a high five-figure or six-figure number. Would it make sense to bring in a consultant just to get a second pair of eyes on it, to have a second opinion on the way that you're...

primary preparer filed it. This is a tricky area to sort of walk through. Because there's some tax professionals who will be very guarded with their clients. They feel like they're getting their feelings hurt if they're bringing in someone else.

to kind of question them and unfortunately that you will run into because if you are a very high income earner if you have more than one unique area of generating income then absolutely If it is within your budget to have a consultant or an expert on one specific piece of that provide some additional context or help.

Having a team that's open to being collaborative with pieces like that can be a huge benefit for you because the tax code, like I said, it's 70,000 plus pages. It is close to impossible to be an expert at all of it. so if you have multiple moving pieces and you want the best person for each

there's a good chance that's not all going to be in a singular person. So that is an option and something that can be on the table, depending on who you're working with and kind of how they're set up to work with other professionals. So I think it can have a big benefit. I will just note as well when it comes to a consultant or an advisor or people in that sort of titled role in kind of tax world.

Again, look at their background and experience. There's a lot of people who position themselves as like a business advisor, business coach, and it's a very... high-level marketing base, but they don't really have a really strong tax background. It's just not always someone with a real depth of skill in it.

And so just being aware of that, that there's a lot of people in this current day, I think you can market yourself as being an expert in anything, which is excellent when you are experts in those things. And so just look at who you are working with if they're positioning themselves as just a consultant or just an advisor. Also, because like I said, when you file your tax return.

you are ultimately liable. And if you're working with a firm where that tax professional is who's completing the return for you and they sign off on it, they have some liability. That third party consultant or advisor does not. They have no skin in the game. So they might be more aggressive. They might have sort of pushed the threshold a little bit for suggestions because it doesn't really come back on them.

If you are audited or something, go sideways. Right. And I would imagine there would be a few people in that role, not everyone, but some people in that role might. feel as though they have to come up with something in order to justify their fee. Yeah, absolutely. Although that being said, I once took an estate plan to a different estate planning attorney just to get a second pair of eyes on it. He looked at it thoroughly and said, this looks great. There's nothing I'd change. Yeah.

I actually respected him more for not feeling as though he had to come up with something. Yeah, absolutely. And that's a best case. And if you're going to owe a lot, you have unique situations, that peace of mind is worth it. And if they come up with something very different, well, now we might need a third opinion. But by the end of this, you will be so well informed and you will have covered every potential.

kind of nuance to this situation. Is it common for tax preparers to work, you mentioned collaboratively, to work with financial advisors and to work with an entire financial team? Yeah, so some do. Some are cross-licensed as well. One of the last CPA firms I worked for, we did both tax and advisory in the same office because the two kind of go hand in hand. say that it is common. It's unfortunately not as common as it should be because these things all interact so strongly.

So if someone is looking for kind of tax planning, so they're trying to put money in a retirement account. They're thinking about diversifying, so they might also buy some real estate. And they want to know the tax impacts of that. And they want to just save for retirement in the retirement account. So they really need kind of a real estate expert, a financial advisor, and a tax person who can all. work together because any one of those people is going to not have the full scope of information.

So there are some professionals who default. They might have a firm they partner with already, or they might have, like I said, within the same office where they're doing both of those things. On top of that, any good professional should be open to collaborating with whoever else you need on your team. I will say there's going to be a difference of opinion almost always, right? What one person's suggestion is, is always going to have some bias.

This comes up a lot with people talking to a tax professional and an attorney at the same time because the tax person is like, I want you to spend as little money as possible. And an attorney is like, well, we're going to protect you as much as possible. It's going to cost some money. And so somewhere the answer is. in the middle. And so I think that comes up with any kind of a collaborative team when you're looking at your tax, financial.

legal planning. Now, of course, we just had an election last year. There will be a sunsetting of the Tax Cuts and Jobs Act, some provisions of it. There may be an extension. I mean, there's a lot that's in flux right now. And we don't even fully know what the tax code at the end of 2025 is going to look like. What should people be thinking about as we are in this? state of flux. Yeah, absolutely. And I would almost extend this to at any point.

Keep in mind that the tax code is very fluid. It gets changed constantly. So when you're looking at your tax situation this year and you're doing this planning and you're looking at areas where you can save money or what your plans are for the next few years. Keep in mind that any of those items can shift.

And if you look at the Tax Cuts and Jobs Act and what it has in there, we have these higher standard deductions, the QBI deduction. Are these things that are a big piece of your current tax situation and plan? And do you need to kind of have in the back of your head, oh, if that goes away, what will my circumstance be? or if there's a major part of a tax code that relates to your future plan.

You are planning to sell a business on an installment sale. You're planning to have a huge capital gain at some point. Anything that you are really kind of putting a lot of weight on, if that went away, what else could you do? having a side plan in case these things shift.

How is that going to change what your future planning might need to look like? So I don't think there's anything to do right this second. Like we're not going to, I get asked that a lot. Natalie, we had an election. What should I be doing differently? Nothing's changed yet. It's all magic eight ball at this point. We don't know. But just know that if all of your endgame ties into one very specific plan...

That could go away tomorrow. So have a secondary plan. And that speaks to the importance of preserving some tax flexibility. One of the questions that we get a lot is. Why bother building out a tax triangle? We often tell our audience, build the triangle of taxable, tax-deferred, and tax-exempt accounts. hear from people, well, why should I build out a tax-exempt account? Why should I put money into a Roth IRA or a Roth 401k? People will make an argument around optimizing based on

the current tax law. What that often overlooks is that taxes... Even one year into the future could be very different than they are today. To say nothing of five years, 10 years, 15 years into the future. A lot to be said for any kind of flexibility in tax. And this is why I recommend people look. And sort of have a roadmap, but recognize that there's more than one path to get from one point on the map to another. And you might have to take a different path to get there.

Everything can change from the actual code to your circumstances, just the overall your life situation, your tax situation, any of these things. You need to have some flexibility. And people who are, I would put this in another one of the red flag buckets, is anyone who is 100% this is the correct answer. That's not the answer. You need that flexibility. You need to consider that it's fluid and it can change.

You want some kind of diversification in not just your investments, but what you can do with your circumstance. And that's really what having like a business or something else in addition to your just your W-2 income gives you. Well, thank you for spending this time with us. Where can people find you if they'd like to learn more? Yeah, absolutely. So on most of social, you can find me at at re tax strategist.

You can also find more information at natalie.tax. Thank you, Natalie. What are three key takeaways that we got from today's episode? Key takeaway number one. So even if you're a W-2 employee, You might be missing deductions like personal property taxes on vehicles or miles that you drive for charity work. These might seem small, but they can add up significantly. A lot of people forget two other buckets that might apply to them.

The first one is any personal property taxes. Anyone who owns a car, when you go in and you renew your car every year, you file for your tabs, your registration, there's a good chance part of that fee is a tax. It's a personal property tax. And a lot of people just completely forget that come tax time. In their head, that's a totally different item in their adult life list.

That personal property tax can potentially increase those itemized deductions. That is the first key takeaway. Key takeaway number two. Strategically timing your deductions can dramatically increase your tax savings. Take a look at your tax situation across multiple years rather than just annually, because that can help you maximize your deduction.

Think about bunching your charitable donations or bunching together any elective medical expenses into a single year so that you can exceed threshold limits. By literally shifting their timing to an every other year model. they were able to put themselves in a much better place for tax savings.

Instead of $18,000 a year, they would do $0 year one, $36,000 year two. So they would just stagger it to an every other year. So across that two-year period, they're still giving the same amount to their favorite charity. The difference now is in those zero years, they're getting that standard deduction and they're only missing out on $200. But in those every other years, they were literally receiving a deduction that was almost $18,000 more.

Bunch expenses together. That's the second key takeaway. Finally, key takeaway number three. If you're a W-2 employee, you should understand some common withholding misconceptions because a lot of employees are afraid of bonuses. They're afraid that they're going to get taxed at a higher rate. In reality, while yet there might be more that's withheld initially,

You're going to get any excess back when you file your return. There's a distinction between your top marginal bracket and your effective tax rate. And I think a lot of people can often miss that. This is another misconception that I think is huge.

I have seen people literally try to avoid getting a raise or getting a bonus because they think they're going to end up making less afterwards because they think it's going to be taxed so much higher. And that's not the outcome. They're just holding a little more of it for taxes. You will get it back later. It's based on your earnings for the whole year. Those are three key takeaways from this conversation on tax strategies with Natalie Kolody.

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