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Taxes 101: Doing Your Taxes With An Accountant

Tax day right around the corner and every year I do the exact same thing So this year I'm doing a little experiment. I decided to file my taxes with an accountant I found on Yelp. Let's see if it was worth it. I compared reviews online and made some calls to get an idea of the cost. Keep in mind I had two jobs in 2017, so I had two W-2s to file. After some quick research, I found one. Meet George, he's a certified CPA accountant in New York City. I asked him to walk us through filing my taxes. George: so what you have here is you have you have two W-2s so I can tell you're a W-2 employee. Effectively W-2s withhold money from your paycheck in order to cover tax obligations. And you've done these correctly so somebody at HR payroll either guided you and helped you out to make sure this is done or you kind of knew how to do it yourself. When you first start at an employer you get a very confusing form called a W-4 and it asks you a list of questions such as how many kids do you have, are you married, do you want to withhold additional money, and then that's how they make the determination of how much to withhold from your tax. You've withheld the right amount. Madison: Great, that's awesome. Ok, well, I'm shocked to hear that. Off to a good start. [Laughing]. George: We'll look at prior year, we'll ask certain questions, like I see here that you've paid student loan interest. Part of my job is to analyze your tax situation, take a look at potential audit risk. I can see you falling asleep already. [Laughing] Madison: I know this is really important so I'm listening. George: 'I know this is important that's why I'm bearing with it.' [Laughing] Madison: After looking over my W-2s, making sure I had the right withholdings, and tacking on my student interest loan deduction, I realized my taxes were actually pretty straightforward. It took about 30 minutes to get through all the paperwork. George: Do you want direct deposit of your refunds? Madison: Umm versus getting it in the mail? George: Yeah, and it getting lost and then spending hours on the phone trying to get it. Madison: Well yeah, I don't want that to happen. Madison: I feel like direct deposit is probably the move. George: It is, yeah. George: So that's a great question, I mean, different people have different motives for hiring an accountant, sometimes their taxes are just so complicated that Turbotax just does not support what they have going on. Sometimes some people don't want to deal with it so they don't trust themselves to do their taxes, they have a fear of getting the taxes wrong so they'll hire an accountant, you know, there's various... Madison: That's definitely me. George: Yeah. [Laughs] There's reasons, yeah, your's aren't that bad but believe it or not I've seen people mess up taxes that are kind of as straightforward as yours. George: There are some things that I've seen people miss, one of them is the tuition deduction. It's a document called it will be supplied by the school on the student website, most student portals will have it. There's a number on it that shows how much you spent in qualified tuition related expenses so you're allowed to deduct that and that's something that people often forget. You also have a for education that's if you're paying student loan interest, that's something that's pertinent to a lot of people that are just starting out in their career. They might have student loan debt that they're making payments towards so keep track of your 1098-Es after you start making a certain amount of money, you're no longer eligible to get this deduction so use them while you can. Another big one for people starting off their career is chances are like let's say you live somewhere, you know, we have a lot of clients in New York and did come from other cities in the United States, they have moving expenses and what people don't realize is you can deduct these moving expenses which is a huge deduction, it's one of the only ones that that you can take without itemizing. Well, thanks for choosing me to do your tax. Madison: You're welcome. So was it worth it? On one hand, yes. It gave me peace of mind for the first time ever when doing my taxes and I honestly learned a lot. On the other hand, not so much. If your taxes are as straightforward as mine are, you probably don't need to hire a professional to file your taxes. You can honestly just do them online and save a lot of money that way. So happy almost Tax Day and don't forget to file them before April 17th.

https://youtu.be/THYbXqdTSyA

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How tax brackets actually work

These are tax brackets for 2019. Simple, right? But many of us make a common mistake when looking at this. Let's say my income is $84,000. You might think that puts me in the third bracket. So I would owe the federal government 22% of my income. This is wrong. And it's causing us to have uninformed debates about tax policy. Here's how it actually works. Let's go back to my $84,000 income. Now, instead of thinking of tax rates as brackets, we should think of them as pockets. But first there's one special pocket we need to talk about. The money we put in this pocket is not taxed. The government automatically lets single people put $12,000 in this special pocket — and more for couples. But if you spend a lot of money on things like medical expenses or charitable donations, you can sometimes put in more. These are called "deductions." With the $70,000 that’s left over we can start filling up the pockets. This first pocket has room for $9,700, so I only pay 10% on this money. Then I pay 12% on the money in the next pocket. And then 22% on the money in this pocket. These are called marginal tax rates. And that's how these brackets actually work. So if I get a raise, that new money goes into the first pocket with empty space. When space runs out, we put it in the next pocket. So the raise, and only the raise, would be partially taxed at 22%. And partially at 24%. So, when politicians say they want to raise the top tax rate, it doesn't necessarily mean these pockets — and your money — are affected. They're talking about the tax rates on the pockets way over there, which are only used once people have filled in these smaller one. Marginal tax rates are a pretty simple concept, once you get the hang of it. So the next time a politician says the government wants to "take away 70% of your income" just send them this video

https://youtu.be/VJhsjUPDulw

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How Did We Start Paying Income Tax?

Hey so how did you feel when you received your first paycheck? I was pretty excited I'll be honest. I worked for weeks and weeks and there in the sealed envelope was my very first hard-earned compensation. I had so many plans about what I was going to do with the money. But those hopes were brutally dashed the moment I read the bottom line. By the time the money actually got to me, it had been sliced up like a pizza. An alphabet soup of government agencies each got their cut before I did. What are taxes anyway? How do they work? How did we end up with this present system? First things first, the basic idea of taxation is pretty simple. There's some sort of state or similar authority that imposes a levy on an individual or legal entity like a corporation or something. If you can't pay, then you can be charged with a crime. This is a very old concept. It dates back as far as Mesopotamia and Egypt's Old Kingdom. Nowadays the tax man's not gonna beat the crap out of you for being late. But the system is way, way more complicated. In the United States the taxes you pay vary from person to person, from company to company, from check to check, and then from state to state. However most people do have to pay the federal income tax. The US tax system is huge. Complex doesn't even begin to describe it. A better word would be byzantine, which I looked up earlier. In 1913 Congress passed the 16th Amendment. The 16th Amendment says this specifically: "The Congress shall have power to lay and collect taxes "on incomes from whatever source derived, "without apportionment among the several States, "and without regard to any census or enumeration." Okay, let's be honest. While most folks in the US only think about taxes when April approaches, the process really begins when you start a new job. You and your employer agree on your compensation or before tax income. Next thing you do is fill out a form called the W-4 and it determines how much income tax your employer will withhold from each check. Why do they do this? Good question. Employers are required by law to withhold income tax and deposit the money in a federal reserve bank. This is how the federal government maintains a steady stream of income while also drawing interest on your tax dollars. Pretty clever, huh? So instead of paying taxes once a year in April, you're actually paying them all year long, every time you get a paycheck. The rules change when you're a freelancer or independent contractor or you're otherwise self-employed. Nobody's gonna withhold income taxes each time you get paid by a client or a customer so it's up to you to manage what you owe. What's a good way to think of income taxes? Let's think of filing income taxes in April kind of like settling up with the IRS. All you're doing is figuring out if you paid the right amount of cash. If you paid too much, boom, you get a refund. If you paid too little, boom, you're writing another check. Income tax forms like the 10-40 are notoriously confusing. But that's because they're based on a code that's more than 5000 pages long, because somebody thought that would be a good idea. Presidential candidates are always talking about revising the system, but how? Well there are all sorts of potential alternatives like, for example, this thing called the flat tax. Under a flat tax system, everybody pays the same rate. Proponents of a flat tax system say that it would do away with all the complicated codes and forms. Critics say this system favors the wealthy and that's not the most controversial idea. There's another one. It's even more controversial than the flat tax. The idea that we should just repeal the 16th Amendment altogether, abolish income tax, don't worry about it. In place of income tax then, they would have a national sales tax. Many countries around the world already levy a national sales tax. You've heard of it before. It's called a value added tax, or VAT. The difference is that most of these countries also collect income tax. US backers of this plan want to get rid of the IRS and charge a flat 10%-25% on all retail purchases of new goods and services. People who are fans of this say that a consumption tax collects revenue from everybody, even illegal residence, tax dodgers, tourists from other countries et cetera. Opponents say it puts an unfair burden on the middle and lower classes who buy a lot of the stuff that would be taxed. They also say it might reduce consumer spending, slowing the economy down. Then they add that in order for it to be fair, it would have to be applied to the purchase of stocks and bonds in addition to consumer goods. Yeah, so it's no secret that taxes are a bigger subject in many countries. The United States has had a, at best, a rocky relationship with this issue. The US doesn't just have one of the most complicated tax systems in the world it also grows more complicated each year. This is a politically charged, divisive issue but there is one thing that everyone can agree on. The current system is not perfect. So here's a question. What would you change if you were in charge? Let us know in the comments. Go ahead and like and subscribe. Thank you so much for watching.

https://youtu.be/gBTq1Mvrbjs