Conversations with a CFP, Vol. 46 - How Nurses Should Handle Their Taxes in 2021
In this episode, T. Jayden Doye, CPA of Prestige Accounting Solutions, LLC and I discuss key points for nurses when filing taxes and especially with the upcoming tax season. We cover:
Important reminders for W2 and 1099 tax filings
Discussing recent issues on declaring tax exempt on W4 forms
Interest of withholding taxes in a bank vs direct to the IRS
Some key reminders for this upcoming tax season for nurses
How difficult is it to qualify for deductions
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Learn more about T. Jayden Doye, CPA by visiting Prestige Accounting Solutions, LLC
To read the full show notes, visit https://www.financiallyintentional.com/cfp/
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TRANSCRIPT:
Naseema McElroy: [00:00:00] All right, and has the umpire. So on this Monday episode, we actually don't have a CFP. We have a certified public accountant or a CPA Jayden joining us. And his information is just as valuable as our CFPs and a CPA is someone that you need to have in your financial toolbox as well. And I know you'll enjoy this episode with Jayden.
And soup for Jews to have Jane Doyle here to talk about our taxes. Now he is a guru when it comes to saving us money, making sure we keep in our bags that we are getting out here in the streets. He does work directly with nurses, so he knows our unique issues. When it comes to money.
And so he is going to help us protect our money. Going into this tax season was updated.
T. Jayden Doye: [00:01:01] Hey, how are you?
Naseema McElroy: [00:01:02] I'm doing great. How
T. Jayden Doye: [00:01:04] are you? Excellent. Awesome.
Naseema McElroy: [00:01:08] Awesome. All right, Jayden, you want to give a little bit about your background and your
T. Jayden Doye: [00:01:12] company? Absolutely. So my name is Jayden CPA. I own prestige accounting solutions.
We are a virtual CPA firm and our goal is to help entrepreneurs become more profitable while also paying less to the IRS. We do this by offering year-round tax planning, business bookkeeping, and business advisory services. So those are entrepreneurs that have most recently seen a. Spike in the positive direction and income oftentimes need the right team around them to ensure that their money stays in their pocket and that it just doesn't go in places that they don't want it to go.
And so having a good CPA is essential in that professional team. Yes.
Naseema McElroy: [00:02:02] Yes. Yes. And a lot of nurses have been working now on contracts where some of them are W2. Some of them are 10 99. And because travel contracts can be are newer to some people. What are some of the differences that they should be looking at as far as tax planning Between the two classifications.
T. Jayden Doye: [00:02:27] Well actually wrote a blog about this a year ago. So it's such a coincidence. One thing that they should definitely keep in mind is where your permanent residence is, because if you don't establish a permanent resident and the IRS will classify you as a transient, and that'll disqualify you from being eligible from travel nurse tax deductions.
So you need to establish where your permanent resident is, and then keep in mind that because you worked at multiple States, especially if you're a W2 employee for four years, things that happen in, in different States. What they're going to do is withhold taxes for that respective state, depending on that state law.
So that means that there will be multiple state returns that you'll need to file. You also need to keep in mind that W2 and 10 99 wages are taxed differently. So when you are a 10 99 contractor, as they call it, you're classified as an independent contractor, you are not an employee. So when people say a 10 99 employee, that's not a real thing that doesn't actually exist.
If you're a 10 99, that means you're a contractor. And so essentially the IRS requires you to figure out what tax liability is and pay that through quarterly estimated tax payments. And because you have multiple things affecting your full tax profile, it can be very difficult for the average taxpayer to.
Figure out what that estimated tax payment is going to be. So working with a CPA that specializes in tax planning, they can help you navigate that and help you find legal tax deductions to lower your tax liability as long as it falls alive with the tax code. Nice.
Naseema McElroy: [00:04:21] Okay. Okay. So what are some other issues that you see come up with nurses as far as tax planning?
T. Jayden Doye: [00:04:30] Most recently there were talks about nurses being exempt from federal taxes. And I. I apologize. I've done extensive research and I have been unable to find exactly what they're talking about. So with that being said, we have a lot of people that have filed exempt on form w four and form w four is a form that collects the data on behalf of the employee it's given to the employer.
And it's basically the employee saying, this is what my tax filing status is. And. Therefore, you need to withhold X amount in taxes and from every paycheck. And so what a lot of people were doing is that they were filing exempt. Now, when you file exempts, then that means that the employer has not been withholding taxes.
Therefore it, the responsibility then falls on you as the employee to remit those taxes to the IRS. And so failure to do so before. Well, it's too late now, but what's going to happen is that people are gonna get a underpayment penalty essentially. And so. What happens is because you did not pay 90% of your tax liability within that tax year, the IRS will then penalize you because they felt like, well, you were holding my money all that time.
So now I'm a need my interest on top of it. Even
Naseema McElroy: [00:06:06] though when they haul jail money, they ain't give you no kind of interest, but that's another story.
T. Jayden Doye: [00:06:11] No, sometimes they actually do believe it or not really only if it like, yeah, If it's been maybe like over a year, I think. But of course your normal tax refunds will not include insurance.
However, last year 2020 was a very interesting year because there were many people that made overpayments and they received refunds now. The IRS did send out a publication stating that a lot of people receive not only a tax refund for an overpayment, but they also received a, an interest payment and those would have been paid separately.
So for those people who I, even myself, I paid my taxes, thinking that. That I needed to include a little extra given that I didn't meet that meet that 90% threshold. I was so busy serving my own clients that I thought I had it together, but you know, that fourth quarter got a hell of a V. And so I paid extra just so that I could be in compliance and they sent that extra back because while I did make
my payment timely. They gave us some grace due to the pandemic. Nice,
Naseema McElroy: [00:07:19] nice. Well, that's good to know, but
T. Jayden Doye: [00:07:21] any, any interest that you get from the IRS will be taxable, just the heads up.
Naseema McElroy: [00:07:30] They to get their money one way or the other. But so as far as filing exempt, though just down,
T. Jayden Doye: [00:07:39] right. Be like Bryson, tiller and go. Right.
Naseema McElroy: [00:07:43] Just like zone because you're going to pay them, pay them now, pay them later, but chances are, you already spent that money. So you make sure you have to make sure to plan for it because you're going to have to pay them.
And so when people ask you, if they should be filing exempt, the blanket answers, typically
T. Jayden Doye: [00:08:02] what absolutely not. Exactly. Exactly. And a lot of people feel like they say, well, you know, what I want to do is hold it in the bank account and pay them later. Okay. You're holding it in a bank account where you're getting 0% interest just to pay the IRS, maybe an extra 3%, three to 5%.
That doesn't make any sense. Now, if you were to take that money and invest it into something and were to gain maybe a extra 10% of it in one year, then yes, that would make sense. But realistically, that's not happening when you're a traveling nurse. Why? Because you're so busy serving you're you're a public servant.
You're, you're helping save the world. You don't have time to deal with everything that comes involved with getting a 10% return on investment on your money.
Naseema McElroy: [00:08:52] Exactly. Exactly. That's active trading. And if you are that good at trading, you wouldn't have to work as a nurse best believe so. Just all
T. Jayden Doye: [00:09:02] right.
Naseema McElroy: [00:09:03] All right. So what is it? One final thing you want nurses to keep in mind when planning for this tax season?
T. Jayden Doye: [00:09:10] Well, as you're coming into the tax season, definitely know how you're classified. If you're classified as a W2 employee and you'll be you you'll know because you have, your employer will ask you for form w four.
There's, there's very limited amount of tax planning that we can actually do with that person. But What we can do is help them as far as figuring out what their tax liability is now as a 10 99 contractor, there are many options. You want to not only talk to a CPA, but you also want to talk to an attorney that specializes.
With in working with self-employment medical professionals so that you can make sure that whatever, if you're going to start an entity, a legal entity, that it's in compliance with the state depending on what service you're offering, an LLC will not work. And an attorney will be able to advise you on that.
And the good thing about doing it this way is that you have many expenses that you can actually write off as, as. Business tax deductions because they are ordinary and necessary. Those things being travel expenses, those things being professional expenses, whether they be uniforms your, your attorney fees, your accounting fees.
Any literature, training and education that you, that you use to better your skills, the phone and internet and computer related expenses that come along with operating your business. Now, practice insurance. Many of these things that usually fall on the burden of the employer now fall on a burden of you, and you will be able to deduct that from your income and it will help you from a tax perspective.
Naseema McElroy: [00:10:57] Now from a W2 standpoint with the standard deduction is so high. How challenging, and can it be for somebody to actually qualify for a deduction? It's like, if they decide to itemize.
T. Jayden Doye: [00:11:08] Okay, so let's make something clear because that is such a great question.
So when we talk about itemizing deductions, we are talking about specifically schedule a. So this includes real estate tax, mortgage interest, expense charitable donations, things of that nature. And. Yes, as you said, the standard deduction being so high and with the IRS capping how much you can deduct or real estate taxes, most people are.
Taking the standard deduction. Now, when we talk about business deductions, oftentimes we're talking about schedule C. That is where a self-employed individual that has not created an entity and elected to be taxed as an S Corp or C Corp would file their business, income and expenses. And if they have a legitimate business or business venture, or sole proprietorship that they're operating, they would put that.
Though that income and expenses on schedule C. So that that's a whole different ball game when it comes to deductions. Now as a W2 employee to answer the original question, if you're strictly W2, then most likely, well, I wouldn't say most likely because I haven't seen the stats, but many people rather.
Do take the standard deduction. They don't itemize their real estate tax and mortgage insurer interest because it is not higher than the standard deduction. Now, previous to the, the tax code that Trump. Changed. There were things that you could deduct as an employee or form 2106. But that is not a thing anymore.
So Yeah, I don't, I don't think that'll ever come back because there was actually a lot of fraud with that and a higher risk picked up on it rather quickly. Because these, these people that guarantee you the highest refund, they will oftentimes use that form to fraudulently claim employee expenses and Then it just would not work out.
And that's also something to think about you guys. Like if someone is promising you the highest refund that worries me and that to me is it is it's a red flag, oftentimes, because that means oftentimes that person is, is okay with. Treading the line and going over the line when it comes to ethics and as a professional service provider, that's not the place that you're in anymore.
Now, maybe if you were it, let's say you, you did have five children and you were living in poverty. Now that would make a little more sense because. There are things such as the child tax credit and the earned income credit. I don't want it to sound like I'm not being sympathetic, but facts are facts, right?
If you're getting a tax refund, you either live in poverty or you have given the IRS interest free loan, neither of which situation you want to be in.
Naseema McElroy: [00:14:16] I love it. I love it. And I think that's actually worth repeating. So if you're getting a tax refund, you're either living in poverty or you're giving the government and interest free loan, meaning that you're paying way too much in taxes.
And that's my stance. Like you should really be aiming to like, just be at zero when it comes to IRS, meaning that you're maximizing every single one of your dollars that you're working hard for. So Yeah, I think, I think that's a word Jayden, and I love that you share that. Even with me as a W2 employee with a business, it's often that I'm in, like I'm right at the line of the standard deduction and it's, so it's not even worth it half the time to add MIS.
So that, I mean, that's the point that I was trying to make is that unless you're you have your own business solely are 10 99, it's a lot of things that you can't. Really optimized tax wise. And I think that's what you were alluding to earlier, when you were saying, there's not a lot of planning that you really do with W2 employee.
So that's just something to keep in mind because a lot of people are always like, Oh, well, how can I save on taxes? I really want to save on taxes. And I'm just like, Yeah, but you you're just W2. So like most of the time, if you're, if you're not lowering your taxable expenses by contributing to your pretax retirement account, it's really not a lot.
I mean, unless you have some other advice, Jayden.
T. Jayden Doye: [00:15:40] I mean, unless they're, unless maybe they do have a business startup to which there's a loss that reduces that W2 taxable income, there is very little that that can be done realistically.
Naseema McElroy: [00:15:55] Right. Right. All right. So Jayden like this is one of the questions that I get a lot because I think especially in our community is hard to find people tax planners that really know the law and really know how to protect our assets.
And so I always recommend you. So I just want you to share with the community, how people can get in contact with you so that they can work with you as
T. Jayden Doye: [00:16:22] well. Absolutely. I make it rather simple. If you just text the letters, a CPA, as in certified public accountant to 21,000, you'll get my business card and you'll also see the option to schedule a consultation.
If what you heard today resonates with you, and you're ready to take the next steps to make sure that you are on the track to get the right. Tax plan so that you going into the year, knowing what your tax estimate is going to be, you know, what actions you need to take to minimize that. And you can feel at ease knowing that you have a partner to help you throughout the year, and that you won't be stuck with a large tax burden when you file that tax return.
Naseema McElroy: [00:17:11] Exactly. I always recommend people once they get into making six figures and have a little bit more going on with their finances to always work with a professional. Because number one, it's an educational thing. They can learn what they can do going forward to make sure they save on their taxes, but because there's things that we just don't know because we're not studying the tax code year around that Tax professionals can pick up on.
So I highly recommend you guys work with Jayden. Thank you so much for taking time out, to be on the podcast. I really appreciate you and thank you for always keeping it real with the people.
T. Jayden Doye: [00:17:49] Always.
Hey there I’m Naseema
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