It’s tax time, it’s tax time, it’s tax time. Right around the corner is April 15th, the day when your taxes are due. Even if you’ve filed your taxes a thousand times, it still can be a day that you dread.
All About The Pay
First, a little disclaimer. I am not a CPA. I’m a certified financial planner, and I know a lot about taxes, rules and regulations, but I am not the woman who files your tax returns. So, I encourage you to take this advice, research it yourself and always ask a CPA or accountant if you have a tricky question…capeesh?
Let’s set the stage a bit here. You’ve got essentially two ways to get paid- W-2 and 1099.
If you work for a company, most likely you are paid W-2 style, meaning that when you get your paycheck every 2 weeks or month the company has already taken out your taxes (federal, state, social security, etc.) When you go to file your tax return, chances are likely that you will get some money back. That is what you want, right?
Let me ask you another question. Would you rather the IRS hold your money all year-long and earn interest off your money, or would you? Maybe you are fine with that and you enjoy a big refund. That is cool. Those of you that paused when I asked you that question need to know that there is way to get more money in your pocket.
You are allowed to adjust something called your Federal Tax withholding. Put this podcast on hold and go grab your most recent pay-stub. Take a look at the number of federal tax withholding you have. My guess is 0 or 1. The higher that number is, the more money you get each month.
There are lots of ways to figure out just what that number should be for you. The IRS has a withholding calculator you can use, there are all sorts of manual deductions or you could use the good ole guess it technique. Most people stay around the 2-6 personal exemption range, but that depends on the person.
The goal you see is to get you to $0 tax refund. Yes, you heard that right. You know why though…it’s because you are getting more money each paycheck. So you really haven’t lost anything, in fact if you take that extra money and invest it month after month you could have a lot more.
If this is something you feel really nervous about, there are tons of articles online you can read, you can always call the IRS or ask your HR department for guidance. The best way is to speak with an accountant or CPA though.
Now for those 1099ers. If you are paid with a 1099 that means that you are essentially self-employed and you don’t have taxes taken out of your paychecks. Yes, the IRS will still want their money. It’s likely that if you are paid with a 1099 that you will be required to file quarterly taxes, so 4 times a year, instead of one big payment at tax time.
If you are 1099 though, you might also be able to deduct certain expenses from your income like self-employed health insurance, business travel, car payment, gas for your car, entertainment, business meals up to 50%, computers, phones, internet, books, magazines and so much more. This of course depends on what type of business you are in, and yes, the deduction has to be legitimate. You can’t deduct the cost of flying 4 friends to the Bahamas for your birthday, unless there is a legitimate business reason why you all need to be in the same place sipping Pina Coladas.
Here’s my rule of thumb: if you are paid 1099, you really should use an accountant or CPA. They know all the current tax laws and what are legitimate business deductions. If you were audited (that’s when the tax police come and want to look at all your receipts and statements to make sure you were hones with your taxes) I’d rather have a CPA to back me up then just me.
Remember though we learned that you could negotiate almost anything, so I would definitely try to negotiate a price with your CPA to do your return. There are a lot of great apps you can use to keep track of your r…
Shannah Compton Game is a podcast host and CERTIFIED FINANCIAL PLANNER of the top-rated Millennial Money podcast. Millennial Money has over 6-million downloads in 164 countries. Shannah’s years of experience as a skilled Certified Financial Planner have set her on a mission to revolutionize how people think, act, and feel about their finances…and have some fun doing so.