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This file was generated by Descript 

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Speaker: Welcome to Real Estate is Taxing,
where we talk about all things real estate

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tax and break down complex concepts into
understandable, entertaining tax topics.

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My name is Natalie Kalady, I'm
your host, and I am so excited

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that you've decided to join me.

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Microphone (Shure MV7): Hello, everyone.

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Welcome to today's episode.

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Over the last several
years I have noticed.

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That, whether it is online or
with friends or in social groups.

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It seems a lot of people hold
the same misconceptions about

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things related to taxes.

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So today's episode, we are going
to go through some of what I

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consider the most common tax myths.

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So we are tackling the top 10 on my list.

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Starting with number one, it's a little
bit more of a pet peeve for people in tax.

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Than it is an actual problem.

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But I'm going to put it out there anyway.

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First item on the list.

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People using the term tax return.

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And tax refund.

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Interchangeably.

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These are not the same thing.

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Your tax return is the actual form that
you complete and submit every year.

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For most people that is your 10 40
a tax refund is what you receive.

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If you get money back because you
paid in too much tax during the year.

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I've heard multiple times where
people will say that they are

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waiting on their tax return.

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Meaning there.

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Direct deposit refund after filing.

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That is not what you were waiting on.

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The return is the actual submitted forms.

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The refund is if you're
receiving money back.

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I know it's petty, but tax
professionals out there listening

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are absolutely shaking their heads.

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Number two on the list of common
misconceptions related to taxes.

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Is the idea that someone needs to
have a license to prepare tax return.

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They absolutely do not.

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There are two very common licenses
that you'll run into related to tax.

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This is going to be the
enrolled agent license or EA.

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Or your CPA license or
certified public accountant.

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The EA credential.

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Is a federal credential
that is backed by the IRS.

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And it is typically someone
who specializes in tax.

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Or tax representation representing
taxpayers before the IRS.

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It requires passing a three part exam
that is all on different types of tax.

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A CPA or a certified public accountant.

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Is someone who has specialized in
accounting and may or may not work in tax.

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It typically requires a
five-year degree experience and

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then it has a four-part exam.

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Of which only one of the four
is related to income tax.

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Either one of these licenses means
that you are working with someone.

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Who does hold a credential,

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That does hold them accountable
to some level of responsibility.

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However, neither of these are
required for someone to prepare taxes.

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To start doing taxes.

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Someone basically just needs a P 10,
which is an identifier from the IRS.

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And to apply to be able to
electronically submit tax returns.

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If you have those two things.

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You do not actually need
to pass any kind of test or

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credential or license or school.

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To be able to do taxes.

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So if you are a taxpayer
listening, And you were looking

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for a new tax professional.

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Take a look at their history.

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Look at it.

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If they went to school for
something, find out if they do

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hold any kind of credential.

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Because there are a lot of
practitioners who are uncredentialed.

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I actually was before I got my EA license.

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before I got my license, I had gone
to school for five years and worked in

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public accounting for several years.

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There are people who literally last
week worked at Kohl's and this week

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decided to do taxes as a side hustle.

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So check their background, see if
they have a credential, because

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a common misconception is that
you need a license to do taxes.

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And unfortunately you do not.

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Microphone (Shure MV7)-1: Now that
we've got those items out of the way.

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Let's move on to some more
technical tax items that there

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are often misconceptions about.

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The first one on my list is a
topic near and dear to my heart.

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The 1 21 exclusion.

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Misconception number three.

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Is people think.

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That the only requirement to
sell a primary home tax-free.

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Is that you have lived in it too,
out of the most recent five years.

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This leads to multiple times a week.

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People being advised that if they
have a rental property that they've

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owned for years and years, That
all they have to do is move into

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it for a couple years and then they
will be able to sell it tax free.

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That is absolutely not the case.

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Specifically in code section 1
21, it dictates out the definition

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of what non-qualified uses.

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And this is any time.

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When the property was used for a use other
than, as your qualified primary residence.

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There's an exception.

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If there's a limited amount of rental use.

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After you most recently lived in it.

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But if there was rental use prior
to the time that you used this

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property as a primary residence,
Those years will be non-qualified use.

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And the gain related to
those years will be taxable.

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Even if you live in the house for two,
out of the most recent five years.

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So tax myth, number three.

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Is that you can move
into a rental property.

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And as long as you live in it
for two years, you can sell it.

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Absolutely.

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Tax-free.

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That is incorrect.

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Tax myth.

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Number four.

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This is one that I am so passionate about.

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I have it on a t-shirt.

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Tax myth.

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Number four.

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Is that an LLC provides
you with tax savings?

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And this is.

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Absolutely not the case.

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So an LLC is a legal entity.

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It does not exist for tax purposes.

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If all you have is a single member,
LLC, you set up an LLC where

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only you are the owner of it.

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It is completely disregarded
for federal tax purposes.

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This means that whether you
do or do not have that LLC.

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Your taxes are reported
exactly the same way.

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And you are entitled to exactly the
same write-offs benefits, deductions.

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Anything else?

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Whether you have an LLC or you do.

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Do not.

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Now.

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There are some exceptions to this.

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You can have an LLC elect to
be taxed as an S-corp that

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could have an impact on taxes.

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Or if you had more than one person on
an LLC and a partnership has created.

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That has some options to impact taxes,
but as its core, Just creating an LLC.

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Does nothing tax-wise.

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I'm going to say this again.

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An LLC.

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Does not equal tax savings.

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This is misconception number four.

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Incredibly widespread.

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You do not need an LLC to have a business.

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Nor does having an LLC create
a nonexistent business.

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So also creating an LLC does not
mean you can now magically write

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off all kinds of personal expenses.

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None of that is true.

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An LLC is merely there to separate
yourself from your assets or your

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business from a legal point of view.

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Zero tax benefits to an LLC.

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Microphone (Shure MV7)-2: Common
tax misconception, number five.

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This is one that is unfortunately
reinforced by some tax professionals

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who have large followings on
social media and YouTube channels.

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But tax myth, number five is that if
you employ your kids to work in your

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business, Because their income will
likely be non-taxable to them as long as

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it's kept under the standard exclusion.

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As long as it's kept under
the standard deduction.

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That you as a business, do not need
to issue them a W2 or file any kind of

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tax returns to report their employment.

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This is absolutely incorrect.

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The nature.

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Of if someone's income is going
to be taxed as an employee.

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In no way, removes your requirements as
an employer To still file the required

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quarterly reports, annual reports.

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W2's.

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The same way as you would for any
other employee who may or may not

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have taxable income from your company.

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Just because you know that your kids
will not need to take that form and

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use it to file their own tax return.

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Does not mean that you as an employer.

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No longer have the obligation
to submit the filings and record

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everything correctly on your part.

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Additionally.

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One of these secondary benefits
to employing your kids and having

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them work for your business.

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Is the idea of funding, a Roth
IRA for them at a young age.

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A Roth IRA or most retirement
accounts you would need to prove.

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Having earned income.

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It is going to be pretty hard for
a child to prove earned income.

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If they did not have to file a tax
return and additionally have no

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type of proof of their employment.

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So in any situation.

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Even if your children do not
need to file a tax return.

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As a result of their W2 income
from your business as the parent.

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You as the parent operating a
business, still have to report

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the payroll for your employees.

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No matter what.

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Especially if those kids
are going to fund an IRA.

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You absolutely want to have that proof.

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And make sure it is done correctly.

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So tax myth, number five is
that you do not need to W2

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your kids if they work for you.

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That's incorrect.

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Additionally, please do not 10 99.

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Your kids, if they work for you.

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In that case, any earnings over $400
requires the filing of a tax return.

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Versus the much higher amount
of the standard deduction.

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If they're paid as a W2 employee.

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Plus.

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A child is very unlikely to be.

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An independent contractor.

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Being paid on a 10 99.

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Implies that you, as an independent
contractor are doing that same job

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for more than one person, or you
could you're in control of your own

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business, your hours, what to do.

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Most seven year olds.

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Aren't doing that.

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So again, myth number five, you do not
need to W2 your kids who work for you.

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That is incorrect.

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It is completely valid to employ
your kids in your business.

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You still need to file all of
the standard employment forms.

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W2's quarterly reports,
annual reports, et cetera.

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Common tax myth, number six.

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TechSmith number six is
something that I see people.

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Doing a ton of overly complicated
planning around for absolutely no reason.

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Microphone (Shure MV7)-3:
This is the idea.

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That the $18,000 annual gift tax limit.

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Means that if you give a gift of
any more than that during the year,

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It will create a taxable event.

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And this is untrue.

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The annual gift tax limit.

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Is just a limit for when you
need to file a tax return.

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If you give to more than
$18,000 during the year, you

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need to file a gift tax return.

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That's just for tracking purposes,
it does not generate any tax.

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The only time.

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Tax begins to be owed on gifts.

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Is once someone reaches
the lifetime gift limit.

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Which right now is over $13 million.

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So that $18,000 a year amount.

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Just keeps track of how much the
lifetime total is tracking the

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amounts that go into that piggy bank.

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And only if they hit that
$13 million lifetime limit.

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Do the gifts start
creating a taxable event.

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So lots of people I see doing lots
of planning for splitting gifts

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between years, splitting them,
between tax, parents, spouse, doing

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all kinds of things, because they
believe they're going to pay tax.

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If they give their children,
some money to buy a house or

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whatever they're going to do.

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That's simply not the case.

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The annual gift tax limit.

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Is only a limit that if you go
above it, you have to submit a form.

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You more than likely
will not need to pay tax.

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Unless you've also gifted millions and
millions of dollars worth of stuff.

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Tax myth, number seven.

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Is that if you receive a bonus through
your job, It is taxed at a higher rate.

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Microphone (Shure MV7)-4: And
this is simply not the case.

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When you receive a paycheck.

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Whether it is standard wages
or it includes a bonus.

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Any amount of tax that is held from that.

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Is withholding.

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It's not an actual amount of
tax you're paying at that point.

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It's an estimate.

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When you receive a bonus
as part of your W2 income.

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It's just always going to be
withheld at a higher rate.

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The IRS considers this supplemental wages.

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And it is going to by default
set to withhold at a 22%

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rate against that amount.

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what this means is that if at the end
of the year, Your effective tax rate

00:13:58.668 --> 00:14:06.168
ends up being 10%, but on those amounts
of income, There was 22% withheld.

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It means that they were holding
more than what you owed and you

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were more likely than not receive
a refund at the end of the year.

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So the amount of federal income
tax that is withheld from all of

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your paychecks throughout the year.

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Does not equate to the
amount of tax you're paying.

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I know this sounds counterintuitive.

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It's like, if you were trying to
save for a new car, And you knew that

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it was going to cost about $10,000.

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So you start putting aside a thousand
dollars a month for 10 months.

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At the end of the 10 months
you go to buy the car.

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And it actually only costs 8,000.

00:14:46.048 --> 00:14:49.918
8,000 is the amount you actually
pay and you would get a refund where

00:14:49.918 --> 00:14:52.228
you would have this 2000 leftover.

00:14:52.558 --> 00:14:54.118
The same thing is happening here.

00:14:54.688 --> 00:14:58.438
They're estimating how much your tax
should be at the end of the year.

00:14:58.498 --> 00:15:01.258
And they're holding X amount per paycheck.

00:15:01.678 --> 00:15:05.068
And then at the end of the year, when you
put everything on your tax return in, it

00:15:05.128 --> 00:15:07.678
calculates your actual amount of tax owed.

00:15:08.098 --> 00:15:09.238
You get a refund.

00:15:09.808 --> 00:15:11.758
If too much has been withheld.

00:15:12.118 --> 00:15:15.748
So in the case of a bonus,
it's not that you're actually

00:15:15.808 --> 00:15:18.268
taxed higher on that income.

00:15:18.778 --> 00:15:21.598
They're just holding more
of it back for taxes.

00:15:22.078 --> 00:15:24.448
Because it is treated differently.

00:15:24.898 --> 00:15:26.488
So you're not actually paying more.

00:15:26.518 --> 00:15:28.108
You'll get it back at the end of the year.

00:15:28.408 --> 00:15:31.918
It does suck that you have less at
the time, but just know that your

00:15:31.918 --> 00:15:33.958
bonus is not actually taxed higher.

00:15:34.258 --> 00:15:35.698
They're just holding a little more of it.

00:15:36.198 --> 00:15:37.458
Common tax mix.

00:15:37.958 --> 00:15:40.358
Common tax misconception, number eight.

00:15:41.198 --> 00:15:45.698
Is how the 0% capital
gains tax rate works.

00:15:46.698 --> 00:15:48.528
So long-term capital gains.

00:15:49.038 --> 00:15:50.958
Currently have three different rates.

00:15:51.558 --> 00:15:54.858
0%, 15% and 20%.

00:15:55.608 --> 00:15:59.628
That 0% rate applies to your income.

00:16:00.228 --> 00:16:03.108
And the bracket for that is about 47,000.

00:16:03.108 --> 00:16:07.698
If you're single up to 94,000, if
you're married, Where you can get

00:16:07.698 --> 00:16:10.128
that 0% rate on capital gains.

00:16:10.628 --> 00:16:13.058
The misconception here comes into play.

00:16:13.058 --> 00:16:14.258
When people think.

00:16:14.648 --> 00:16:16.958
That to receive that 0% rate.

00:16:17.918 --> 00:16:21.668
The total capital gain needs to
be under one of those amounts.

00:16:22.168 --> 00:16:23.308
This is not the case.

00:16:23.938 --> 00:16:26.038
That $47,000 amount.

00:16:26.398 --> 00:16:31.258
Or at 90 four-ish, if you're married
your total income for the year.

00:16:31.708 --> 00:16:34.408
Total income from all taxable sources.

00:16:34.738 --> 00:16:37.738
Not just the gain and including the gain.

00:16:38.368 --> 00:16:40.018
Needs to be under that limit.

00:16:40.858 --> 00:16:45.328
So if in a taxable year,
You have a capital gain.

00:16:45.838 --> 00:16:50.668
Of $40,000, but your W2 income
is a hundred thousand dollars.

00:16:51.358 --> 00:16:53.938
That capital gain will not be at 0%.

00:16:55.048 --> 00:16:59.038
Because when it is combined with your
other income, You are well above.

00:16:59.578 --> 00:17:01.678
That limit for the 0% gain rate.

00:17:02.518 --> 00:17:06.628
If during a year you had
a capital gain of $20,000.

00:17:07.108 --> 00:17:10.198
And W2 income of $20,000.

00:17:10.618 --> 00:17:11.338
You're single.

00:17:11.338 --> 00:17:14.128
Your total income is under $47,000.

00:17:14.398 --> 00:17:15.238
Everything.

00:17:16.018 --> 00:17:19.198
Then that capital gain
will be taxed at 0%.

00:17:19.948 --> 00:17:22.288
So common misconception, number eight.

00:17:22.828 --> 00:17:27.988
Is that the 0% capital gains rate
or really any capital gains rate?

00:17:28.558 --> 00:17:32.728
That the bracket is determined
based on the total amount of gain.

00:17:33.358 --> 00:17:34.348
And that's not true.

00:17:35.008 --> 00:17:39.538
The cutoff for the brackets is based
on the total amount of all income.

00:17:40.198 --> 00:17:44.908
And then the correlating percentage rate
is what you pay on the capital gain.

00:17:45.328 --> 00:17:50.218
A little bit confusing, but better to know
now than to think something will be taxed

00:17:50.218 --> 00:17:53.518
at 0% and face a nasty surprise later.

00:17:54.018 --> 00:17:55.938
Microphone (Shure MV7)-5:
Common tax myth, number nine.

00:17:56.868 --> 00:18:02.868
Is that because a 10 99 is not
required to be filed for someone

00:18:02.868 --> 00:18:05.088
unless they're paid more than $600.

00:18:05.808 --> 00:18:08.568
People think that the flip side of this.

00:18:09.078 --> 00:18:14.058
Is that if they've earned less than $600
doing some kind of self-employed work.

00:18:14.478 --> 00:18:16.938
And so they will not receive a 10 99.

00:18:17.398 --> 00:18:19.558
That income is not taxable.

00:18:20.128 --> 00:18:21.478
This is not the case.

00:18:22.048 --> 00:18:25.678
Just because you didn't meet the
required threshold for someone

00:18:25.678 --> 00:18:27.208
to have to send you a form.

00:18:27.628 --> 00:18:30.838
Does not mean that the
income is not taxable to you.

00:18:31.528 --> 00:18:34.738
If you do work for five
different companies.

00:18:35.158 --> 00:18:36.958
Doing graphic design during the year.

00:18:36.958 --> 00:18:41.188
And they each pay you between
four and $500, but you received

00:18:41.188 --> 00:18:45.328
no 10 90 nines because no one
person paid you more than 600.

00:18:45.838 --> 00:18:50.368
You still have to report all of that
income, even though they did not have

00:18:50.368 --> 00:18:52.168
a requirement to send you a form.

00:18:52.768 --> 00:18:56.128
So all earned income is taxable.

00:18:56.608 --> 00:18:59.068
Whether you receive a
form stating it or not.

00:18:59.638 --> 00:19:05.458
So even if you have self-employment
income, And it's under $600.

00:19:05.788 --> 00:19:10.378
You still have to legally report
that income as taxable income.

00:19:11.368 --> 00:19:11.938
And.

00:19:12.748 --> 00:19:14.638
If you have self-employment income.

00:19:14.968 --> 00:19:17.188
That is any more than $400.

00:19:17.698 --> 00:19:23.128
Even if that is your only income for
the year, you now also have a legal

00:19:23.128 --> 00:19:25.528
obligation to file a tax return.

00:19:26.128 --> 00:19:30.178
Normally you don't have to do if your
income is under the standard deduction.

00:19:30.658 --> 00:19:35.278
But if you have more than $400
of self-employment income, You

00:19:35.278 --> 00:19:36.928
now have to submit a tax return.

00:19:37.428 --> 00:19:39.528
So common misconception, number nine.

00:19:40.188 --> 00:19:46.038
Is that income below the 10 99 threshold
is not taxable to the recipient.

00:19:46.098 --> 00:19:47.328
And this is incorrect.

00:19:48.018 --> 00:19:52.458
You are responsible to report all of your
self-employment income, regardless of

00:19:52.458 --> 00:19:55.548
if you receive any 10 90 nines for it.

00:19:56.048 --> 00:19:57.878
And the final item on our list.

00:19:58.058 --> 00:20:01.508
Number 10 for common tax misconceptions.

00:20:02.438 --> 00:20:03.338
Number 10.

00:20:03.838 --> 00:20:06.508
If you move into a higher tax bracket.

00:20:07.168 --> 00:20:10.798
All of your income is now
taxed at that higher rate.

00:20:11.298 --> 00:20:16.488
This is something I've seen very
poorly misinterpreted where people will

00:20:16.488 --> 00:20:22.518
advise against taking a promotion or
try to advise against getting a bonus,

00:20:22.818 --> 00:20:26.598
because if it moves you into that next
tax bracket, you're actually going to

00:20:26.598 --> 00:20:31.338
pay so much because of the difference
that you'll end up making less money.

00:20:32.028 --> 00:20:34.578
This is not how tax brackets work.

00:20:35.078 --> 00:20:38.618
If you move from one tax
bracket into the next.

00:20:39.578 --> 00:20:43.328
Only the amount of income that
is within that next bracket

00:20:43.868 --> 00:20:45.728
is taxed at that higher rate.

00:20:46.458 --> 00:20:52.938
For 2024 for a single taxpayer,
the 10% bracket goes to 11,600.

00:20:53.438 --> 00:20:55.658
The 12% bracket kicks in.

00:20:56.078 --> 00:21:01.448
At 11,000 6 0 1, up to 47,000 to one 50.

00:21:01.948 --> 00:21:03.838
If during 2024.

00:21:04.198 --> 00:21:07.318
You earned $11,500.

00:21:07.618 --> 00:21:09.958
That would all be taxed at 10%.

00:21:10.458 --> 00:21:12.048
If you ended up earning.

00:21:12.378 --> 00:21:14.028
$12,000.

00:21:14.568 --> 00:21:16.428
Only the $400.

00:21:16.878 --> 00:21:19.818
That is now up into that next 12% bracket.

00:21:20.268 --> 00:21:22.458
Would be taxed at the 12% rate.

00:21:22.968 --> 00:21:27.288
Your entire $12,000 does not
get taxed at that higher rate.

00:21:27.978 --> 00:21:32.118
Only the amount of income that
crosses over into that next bucket.

00:21:32.478 --> 00:21:34.638
Gets taxed at that higher rate.

00:21:35.878 --> 00:21:38.068
Microphone (Shure MV7)-6: So if
you are still listening, thank

00:21:38.068 --> 00:21:40.018
you for hanging on till the end.

00:21:40.648 --> 00:21:45.748
And as I mentioned at the beginning, I
think this is a good episode to share

00:21:45.748 --> 00:21:49.918
with people, you know, because I'm
guessing that you or someone, you know,

00:21:50.218 --> 00:21:56.068
or someone you have spoken to has made
one of these mistakes or is about to, and

00:21:56.068 --> 00:21:58.438
maybe this episode can help prevent it.

00:21:58.978 --> 00:22:01.888
These are incredibly
common misconceptions.

00:22:02.308 --> 00:22:04.138
That I see over and over again.

00:22:04.138 --> 00:22:07.378
So I'm just trying to get this
information out there and help

00:22:07.378 --> 00:22:09.178
as many people as possible.

00:22:09.628 --> 00:22:11.488
Clear up these misunderstandings.

00:22:12.418 --> 00:22:16.288
Microphone (Shure MV7)-7: As always,
if you found value from this episode, I

00:22:16.288 --> 00:22:23.818
would love if you shared like subscribed
and I will talk to all of you next week.

00:22:24.359 --> 00:22:26.598
Mhm.