Hi, everyone. This is the How to Lower Your Tax
Bill podcast. I'm your host, Terrence Hutchins.
I'm a financial and tax advisor in the Dallas
Fort Worth area. And the goal of this podcast
is to help you listeners get educated on different
tax strategies that you can implement to improve
your tax situation immediately. Each episode
will break down useful tax tips you can use to
save money, no matter what your personal or business
income situation. Because our motto is keep more
of what you earn. So let's get into today's episode.
All right. So welcome to the How to Low Your
Tax Bill podcast. I am your host, Terrence Hutchins.
And we have a very special guest today. It's
actually our first guest on the podcast. And
that is Miss Tamiya Kelly. So I will let her
introduce herself as she has started working
with us this year. in our tax prep department.
Well, hello, wonderful people in podcast land.
My name is Tamiya Kelly. As you stated, I am
based out of the great state of Oklahoma. I am
excited to have this amazing topic today that
is so near and dear to my heart that I learned
about only being a tax preparer. So I look forward
to getting into this conversation. Thanks in
advance, Terrence, for having me. Awesome. So
this actually was Tamiya's idea. to talk about
this as she says she was blind and now she sees,
right? So the more you get educated, the more
you have an opportunity to make changes and have
just a new perspective on things. And so we kind
of got into this idea around why people are infatuated,
why they love getting tax refunds so much. And
I've always been in the opinion that I don't
want to get a tax refund. And normally I probably
think I'd rather owed a little bit anyway than
what I actually file. So I'll give her the floor
to let her kind of talk through maybe some of
the thought process she had about tax refunds
now that she's got a little more education how
she kind of feels about the now I Was blind and
now I see. Yes. Listen you all before I became
a tax preparer I was one of the people, so we
all know, right? February, March, April, we see
the new cars, we see the new clothes. I mean,
we see all the things because people are talking
about they get this huge refund. And I was the
people, people were me. And that I wanted to
get this huge refund at the beginning of the
year. But the more the Lord blessed me to make
money, the less of my refund I got. I'm thinking,
what is going on? Well, become a tax preparer
now. I understand, really, you may not want a
tax refund. Or if you're getting a tax refund,
let's figure out why. Because it really depends
on what your tax liability is, if you're paying
too much to the government, or some other factors
that go into why you're even getting a tax refund.
And I wanted to talk about this because so many
people are still in the mindset of, I should
be getting a refund without really understanding
that a refund is essentially you've paid too
much in taxes or you qualify for some type of
refundable tax credit. So yes, let's get into
it, Terrence, because we got to, because I want
the people to know that we need to change our
mindset on needing a refund at the beginning
of the year. Awesome. Yeah. So just to give a
little context, you think about your tax return,
you know, your page one is going to go into,
okay, how much money did you make? And then you
may have your primary deductions that you see
on page one is going to be just the amount that
the government says they're not going to tax
you on. That's called your standard deduction.
So if you're single or married for twenty twenty
five, if you're single the first fifteen thousand
you make, the government doesn't tax you. If
you're married, it's double that. Then you have
other adjustments that we talked about in previous
episodes that are called above the line deductions.
So that's going to be things like your HSA contributions.
If you have student loans. If you have an IRA
contribution that you do, then those things that
can actually lower the amount of income that
the government will tax you on. And then your
page two will go into different credits that
you have. It shows how much did you pay in during
the year. And then if you look at line 24, that
shows you how much is the government expecting
you to pay. So if you compare your line 24 to
how much you paid in during the year, if what
you paid in is higher, then you get a refund
back. If what you paid in is lower, then they're
going to say that you owe. All right. That's
kind of the simple five thousand foot view of
it. So if you think about it, the only reason
that most people are getting money back is because
they actually gave the government too much money.
In fact, just think about the idea of who likes
to and one of the biggest things that Amazon
has kind of done is they made returns easier.
But most people don't like buying something and
then having to return it and then wait to get
their money back. But when it comes to tax refunds,
we, as a society, a lot of people have liked
the idea of waiting until February or March or
April to get that $3 ,000, $5 ,000 back, which
is effectively just a return of their own money.
So think about, in fact, it's funny you said
that people wait, because I recall, I guess my
first experience of thinking about money was
in college. And I remember people were excited
about their financial aid. You know, and I was
just, and then I came to think, oh man, you know,
people, you know, they got $5 ,000 back. And
so they're going shopping. And I was like, man,
I want to get my $5 ,000. Right. And then later
on, I'm like, wait, hold on. Most of these are,
these are loans that they're taking out. This
is not free money. These are student loans, which
is what you need to be putting their refund towards.
Right. But we're, we're not going to get into
that. Right. But yeah, that's, that's real. But
you know, the government is not giving you back
free money. And even if you were in a position
where you are a lower income earner, and you
maybe had a few dependents, you are in a position,
at least based on how the tax code is set up,
to where you can get money back that you actually
didn't pay into the system. You could have paid
in, I mean, I've had people pay in $100 and get
back $5 ,000. And that's just based on how the
system is set up. But you shouldn't desire to
be in that situation because You know, if you're
single, you're probably only making 20, $30 ,000.
So you think, well, would I rather just go make
50 or 60 or 70 or $80 ,000 versus making 30 and
then having to wait to get $50 ,000 at the end
of the year? Listen, that is such a good point,
right? Because I'll continue to talk about myself.
When I was younger, I didn't make a whole lot
of money. I was single parent. And so I needed
that refund at the beginning of the year, not
really realizing that all of that money I was
getting back was meant that I I was poor. I was
below the poverty level, right? And so essentially
when I began to make more money, I didn't understand.
I was getting frustrated because of the amount
of FICA was taken. Who was FICA anyway? I was
getting frustrated because FICA was taking so
much money, not realizing that I was actually
putting myself in a better financial position.
The Lord was blessing me to make all this more
money. But if you don't have a mind shift or
you really don't understand that a refund is
just The overpayment of taxes that you've paid
in or that you qualify for one of those refundable
tax credits They're an income credit is what
you're referring to the child tax credit, right?
If you don't understand that you will think that
you're supposed to get a refund every single
year Instead of being grateful or appreciative,
I guess, of what you're making throughout the
year that you are making more money. You don't
qualify for those credits, and it's okay. Yeah.
So let's talk about really two types of taxes
that most people end up paying. So you have FICA,
as Tamia mentioned. So FICA is an acronym. Essentially,
that's pretty much Social Security and Medicare.
Yes. So you pay a fixed amount of taxes, which
is this year, 7 .65 % for most people. So on
the 7 .65 % of whatever you make, you're gonna
basically pay into the government. So when you're
older, your social security check didn't just
come from thin air. It was based on the taxes
you were paying throughout the years that you
worked. And then your Medicare or health insurance
you get when you're retired is based on that
same tax that you paid. So you're basically paying
into this system so that you can have governmental
assistance. in retirement benefits or health
care benefits when you're older. So that's a
fixed amount. Then you have federal taxes. So
your federal taxes is what you would effectively
be getting your refund back generally. Now, obviously,
in any tax situation, it always is going to depend.
There are some isolated situations, but we have
what's called a progressive tax system. There's
seven different tax brackets. So you start at
10 percent. We go up to 37 percent. So think
about if you went to the bar. you think, hey,
the people that make the most, they're going
to pick up most of the tab. The people that make
the least, they're going to pick up a smaller
amount of the tab. But everyone has the opportunity
to plan ahead to determine what they're going
to pay based upon what they make. So it just
requires a little bit of legwork in order to
do that. And so the biggest thing if you're a
W2 employee that you have control over is how
much they would draw from your check every time
you get paid. And that would come from your W4
form. So to me, do you recall the first time
you filled out your W4? Did it make sense to
you at all? Absolutely not. I said, oh, I can
file exempt, which in essence means they don't
take any taxes out of your check, right? So when
you think about going back to why you would get
a refund or why people get a refund, I just remember
saying, one, I wanted both things, right? Two
things were true in my life. One, I needed more
money to come to my pocket throughout the year.
And two, I also wanted a huge refund. And I was
actually able to get both because I didn't make
any money. But when I first became aware of what
this actually meant, what this W -4 meant, this
withholding form meant, then I remember thinking,
oh man, I'm going to be broke every time I get
paid because the government does want its fair
share of what you make. You got to pay into it.
So That was, for me, that's an important tool
that you can use to understand what you're going
to be paying or what you can actually get in
your pocket every time you get paid. Gotcha.
So talking through the mechanics of the W44,
it's really broken out into four parts. So it's
going to ask you for your filing status. You're
either going to file single, head of household,
married or married separate, which is essentially
like filing single. you just are married legally.
Depending on your filing status, that will determine
do they take out more taxes or do they take out
less. If I file a single, they're gonna take
out more. If you file a married joint, they're
gonna take out less. So that's number one. Then
you have your deductions. Your deductions is
generally tied to, like I mentioned earlier,
that standard deduction, which is the amount
of money the government doesn't tax you on. So
if I make $100 ,000 and I'm single, the government's
actually only gonna tax me on 85 ,000. So on
your W4 form, you could actually say, hey, if
I want a house though, and I have other deductions
that I have available to me, and once I add up
my itemized deductions, which is gonna go on
my schedule A on my tax return, I can look at,
hey, what is that number that came from my schedule
A? And I could actually put that number on my
W4 form, okay? So if it was 20 ,000, I could
put 20 ,000 instead of the 15, there's gonna
be 20. Then I have my credits. So my credits
are generally going to be tied to my dependents
unless I have other credits that are available.
So certain credits that are more popular now
would be like electric vehicles or solar panels.
Those are things that you could say, hey, I'm
actually going to get this big credit back. I
can put that information on my W -4 form. So
they end up taking out less taxes. So when I
file my tax return, they'll have already factored
that credit in so that they actually take out
less in my paycheck so I can keep more money
throughout the year. Then you have on box 4C
of your W -4, you can actually specify how much
income you want them to take out. Now, this is
especially important for people who have multiple
jobs. Right. Because if you work part time, for
example, many times I see, you know, I see someone
has a higher W -2 and they have a lower W -2
where they made, you know, $10 ,000. Well, in
that case, when that second employer is taking
out taxes, they're only thinking through, well,
how much is this person making? if you're only
making 10, $20 ,000 at a second job, well, they
don't know that you have two jobs. So they're
gonna take money out as if you've only gonna
make that for the year. So many times I see a
very little amount of withholding on that second
job, and then that can actually create maybe
you to owe overall because you haven't had enough
taken out of your side job. So that's something
that when you fill out the W -4 form, you have
your filing status, you have your credits, you
have deductions, and you have the actual extra
withholding. that you could specify how much
you want to have taken out. And that will then
determine, okay, how much am I going to get in
my paycheck? And then you can kind of double
check your work after you fill this out. And
you can compare your last year's tax return.
So you can look at your box 24. That box 24 shows
how much money did you pay in federal taxes for
the prior year? You could just look at your paycheck
and determine, okay, how much are they taking
out now in taxes compared to what I owed the
prior year? And that could be a decent barometer.
to determine, are you actually paying in enough?
Right, right. I think to go back to the W -4
that you're mentioning, one of the things that
helped me understand why they're taking all this
money out of my check is at the end, and Terrence
will certainly correct me for sure, but at the
bottom of that W -4, if you go to the IRS .gov
or... Google right you will see they give you
an estimate This is not the gospel, but they'll
give you an idea of if you make 60k if you make
70k Yeah, the amount of taxes you're going to
oh, right and so that also helped me understand
Okay, I don't need to be trying to file exempt
I don't need to be trying to have like all these
different withholdings if I don't want to oh
if I do want to refund I need to make sure that
I've selected the correct withholdings in OR,
like Terrence was mentioning, add that additional
tax withholding to make sure that I don't owe
or possibly get a refund. And I think that what
he's referring to is so important from an educational
standpoint so that you can change your mindset
on, should I really be getting a refund? Do I
really want a refund? Or do I really just want
to keep this money in my pocket throughout the
year? or do I just want to break even during
the tech season, quote unquote. And when you
think about your objectives, my first thought
is to either have a tax liability above a thousand
dollars or to owe less than a thousand dollars.
Remember, what if it's more than a thousand that
I'm getting back? Then I felt like I let the
government keep too much of my money. If I'm
paying more than a thousand dollars, I now open
up myself to actually having to pay a tax penalty.
And so if you don't like paying taxes, which
I've never met anyone that does, you probably
don't like paying more taxes. So even if you
feel like, hey, I'm paying in enough. Why does
the government want more? Well, to me as point,
you can actually try to determine how much they
actually want you to pay in so that you have
better expectations. And if your expectations
are too low, then you just got to realign yourself
to the facts, the facts of your situation. They
say, okay, hey, how am I making my money? And
this, based on how I make my money, this is how
much they're expecting me to pay. But if I owe
more than a thousand dollars, I could be subject
to an underpayment penalty. So number one, I
want to avoid that so I don't pay any extra taxes.
And I can do that by either paying in at least
90 % of what I owe for that year. So if I owe
10 ,000 as my total tax bill for the year, I
need to have paid it $9 ,000 by January 15th.
If I do that, then I can avoid any kind of tax
penalty. Or I can at least pay 100 % of what
I paid the prior year. And that number is very
important for people who have big jumps in income.
I actually encourage them to actually use that
to their advantage. Because let's say you're
a business owner, for example, and you doubled
your income from one year to the next. Well,
especially with interest rates now, let's just
say that in the extreme case, let's say your
tax bill is $100 ,000 or $200 ,000. But the prior
year, it was only $30 ,000. Well, let's say I
have this $100 ,000 to pay my taxes. As long
as I paid $30 ,000 by January 15th of the next
year, so we're in 2025, if I had paid $30 ,000
by January 15th of 2025, I could keep my $100
,000 until April 15th. So I have three more months
to actually earn interest on my $100 ,000. And
then I can pay it to the government and the government
will not charge me more as a result. So now I'm
actually in control of my money. And I kind of
gave this example because we had a technical
difficulty earlier. We won't get into that. But
Amazon is a big example for this where they have
their accounts failed versus accounts receivable.
So when you go to Amazon, you immediately pay
them for whatever you purchase. But many times
their vendors that they order stuff from, they
won't pay them until 90 days. They say, hey,
give us the product. When people buy it from
us, we receive their money, but then we won't
pay you for that product until 90 days later.
They actually have a 90 day cycle where they
make millions of dollars in interest just from
holding on to other people's money. They do that
with your refunds to people. Exactly. So the
government is in a position where they actually
are basically hanging on to a lot of people's
money and then just giving it back to them whenever
they decide to file. Listen, you mentioned a
really great point about Because I deal with
a lot of W -2 employees. I have a few LLCs, sole
proprietors, and everything. And one of the things
that they have a hard time with, not so much
of W -2 employees, because you can use your W
-4 to try to get an idea of how much you should
owe, what your tax liability is, or your first
share, right? I would say, though, that one of
the things about a refund, like you said, I love
that whole $1 ,000. Gauge is because for those
people who have those side hustles and just different
things you still got to pay taxes people right
you got to pay taxes and so with that You need
to make sure that you too use your resources
to find out how much taxes you owe and and in
that case if you want to do a little over to
avoid because some people are afraid of owing
the IRS and so Even if you're a W -2 employee
and you add those additional withholdings, okay,
great for you. But if you are a sole proprietor
LLC or anything, you too need to also try to
estimate how much taxes you should owe and pay
that to where you're not underpaying the government.
And if you so happen to overpay, great, that's
better. But you certainly don't want to underpay
because you're trying to avoid the man or the
government or whatever your motives are, because
there are some penalties for that. There's, listen,
they will get their money one way or the other.
One way or the other. They're going to find you.
Okay. For sure. That's also, I would think should
be an important conversation when we're talking
about even refunds, right? You got to, you got
to pay in. Right. Definitely. And one thing that
I'll point out in that scenario. So if you are
someone that has a side hustle, You wanna gauge,
okay, how much am I making? I know that many
people, they don't like accounting. And so they
don't keep an account of what they brought in,
what they paid out. But if you don't track what
you are spending, you probably gonna leave money
on the table because you're just not gonna know
all the stuff you spent. And many times, especially
during tax season, depending on the preparer
you're working with. they're not going to have
time to try to hold your hand on every little
detail that you could have done. And most CPAs
or EAs that you're working with, they're not
going to be giving you quote unquote advice,
right? Your planning doesn't start February 1st
or March 1st when you get all your documents
together. That has to be in the prior year. But
one thing to keep in mind, I mentioned the whole
FICA versus federal taxes. So if you have a side
hustle, Just know that on any profit you have,
you're going to pay twice the FICA tax, plus
you're going to pay a percentage of whatever
your tax bracket ended up being. So if you're
paying twice the FICA tax, which is about 15
% and you're in a, let's say a 22 % tax bracket,
that means that any profits you make in your
side hustle, you're going to pay 37 % tax. And
so you need to account for that to say, Hey,
either I'm going to have extra withholding out
of my paycheck to account for it during the year.
Or to Tamiya's point, you're going to pay a little
bit every three months to ensure that when you
file, you're not hit with this big surprise.
And then you end up paying extra money through
penalties. And so I guess, Terrence, my question
for you would be, I know the strategies that
I give people, specifically W to employees about
refunds and about. changing our mindset, right?
So I hope by this time during the podcast, you're
asking yourself, do I need a refund? Should I
be getting a refund, right? Or why am I getting
a refund? You do a great job of directing us.
back to our tax return from the prior year to
understand and really kind of dissect it and
see why we even got a refund. Was it due to some
type of refundable credit? Was it due to like
deductions, adjustments, all these different
things that go into why someone receives a refund?
So I guess the question would be how then, you
know, what were we supposed to be doing with
refunds? Why should I get a refund? What is your
thought process being in this business for, I
guess? forever, way longer than me about refund
and about how to make sure we're not overpaying
the government or underpaying for that matter.
Yeah. So when it comes to the refund, you know,
there's this concept that is called the time
value of money. And that just means a dollar
today is worth more than a dollar in the future.
And I can guarantee most people, even if they
don't understand that concept, they understand
the idea that if I asked you to Let me hold $20.
I'm gonna give it back to you, right? You would
want it more immediate. You wouldn't want me
holding on to your $20 for a year, two or three
years, right? Because if you don't have that
money, that means you can't spend it. You don't
have the options to do anything with it yourself.
That's really what we want to get you to understand
is they have more control over more of their
money. that they just have more options available
to them. And why I always have that thousand
dollars plus or minus is if they're getting back
more than a thousand dollars, then I think the
government is hanging on too much money. If they
owe more than a thousand, they could have penalties
potentially. But also it may be more of a burden
to come up with a bigger payment versus say,
hey, if I plan ahead and if I owe 1200 bucks,
it's a lot easier to pay $100 a month versus
paying $1200 at one time. And that's when some
people get behind on their taxes and then they
don't decide to file. Or I've had people where
they didn't even, because they may have owed
in the past. I literally had a client that was
getting a refund back, but they missed the stack
sheet to receive it. And so they filed, so the
IRS only gives you three years to file your tax
return if they owe you money. Now, if you owe
them money, there is no statute of limitations.
They're gonna want to give their money. In fact,
if you don't file, they actually might file a
return for you. That's not going to be to your
benefit, but they actually have waited so long
to file because they were putting it off that
they lost out on a few thousand dollars of a
refund that could have been applied that they
could have got back, but they waited too long
to actually file. And so taxes is something that
we think you should embrace because it's probably
either your largest or one of your largest expenses.
And you have a lot of opportunity to lower that
expense through education, through learning how
to utilize your money or how to take advantage
of the tax system so that you can ultimately
pay less in. But if you embrace that idea, then
you're going to have this expense that you pay
every year and it potentially is going to get
bigger as you make more money. and you're going
to feel kind of helpless or hopeless around it.
But it's not something that you really have to
be afraid of. It's really just understanding
the rules or working with someone who does so
that you can ultimately make better decisions
for yourself. Yeah, I like that. I like that.
And so for anyone that's listening, when you
think about a refund, when you think about owing
all the things, you really got to find balance,
right? One, you got to understand why you're
even getting a refund. I think you said it, Terrence,
that a refund is extra money. It's just extra
money. It's not extra money. It's not a refund.
It's not extra money. It's your money being returned.
And so we tax, people who pay taxes, gotta make
a decision. Do I want that money throughout the
year? Which is what I actually believe now, right?
Do I want that money throughout the year? Do
I want that money throughout the year or do I
want to wait to get that money at the beginning
of the year on one lump sum? And then if that's
the case, then what am I doing to make sure that
my goals, my financial goals are being met, my
objectives are being met? Am I looking at my
checking my W -4? If I have a side business,
am I checking my tax liability throughout the
year? How much I've made versus how much I estimated
to owe the government? What am I doing to put
myself in the best position to meet my goals?
And then when you get that money, all that money,
those people who get that five... $6, $10 ,000.
What are you doing with that money? What is your
end game? Because I think you said it before,
Terrence, about how this is just money they've
been holding if you're getting a refund, giving
it back to you. But throughout the year, if you
have struggled throughout the year or you owe
or whatever, then yes, that vacation sounds amazing,
right? However, so karma, also paying off your
debt and... putting it in the savings would also
be as beneficial to what Terrence was saying,
understanding that value of a dollar for sure.
Definitely. So a final few tips as we kind of
wrap up. And we talked a lot about looking at
your past year. And so we're actually going to
do a future episode. I'm just letting Tamia know
this now about what are some things on your prior
taxes that could actually impact your career
taxes? Yes. And so we'll talk through that so
that you are fully aware of how those things
are done, because even when it comes to your
W -4, there might be things from your prior year
that will impact how you fill that out. So we'll
go through some things there. Let me say that
too, because I need you all to tune into that
one, because that's going to be a good one, because
I know somebody that we all know that did pay
taxes, OK, a rich person that did not pay taxes.
And I think you said this, Terrence, that this
is not a game for the rich and famous. It's out
there. What did you, how did you say it? It's
not, it's public. It's public. What did you say?
Oh, it's public. Yeah. So, you know, our tax
code is public. See, she uses my government name,
Tansy, when, you know, because we're professionals
here. But, but yes, the tax code is public. So
if you see some guru on social media and that
makes it like there are some secrets that the
rich have, they really don't. They're probably
just working with someone who's educated on their
situation or I would say your taxes follow the
facts of your circumstance. Yes. So depending
on the facts of your circumstance, that's going
to determine how much taxes you pay. So if you
want to pay less taxes, you got to change some
things about your situation. And that's part
of the goal of this podcast is to educate you
on what some of those things are that you can
do. It's going to be some good stuff and it's
going to help you understand your tax return
for sure. So that way you can. understand your
refund better and make it work for you. Awesome.
So if you have any questions, you can send them
in to us at questions at logos, that's L O G
O S F G dot com. And we'll address those on future
episodes. And she said, we'll bring Tamia back.
We'll talk about some of those things from the
prior year tax return that can impact your current
year. And as we say, keep more of what you earn
and we will talk to you guys soon.