Links & Resources Mentioned:
https://www.directorsmortgage.com/loan-officer/adrian-schermer
Episode 41 Transcript
2022-02-09 ROI Tax 5 of 8
Rob Delavan 00:03
Good morning future millionaires to the get rich slow Podcast. I’m Rob Delavan, your host, I’m joined by Lance Johnson, also your host, and a special guest today, Sue Hjort. We are on Episode Five and an eight-part series. Our title today is making standard deductions versus itemized deductions simple for and welcome back. Lance, will you share a quick success story of some work that you and Sue have been doing together?
Lance Johnson 00:36
Oh, yeah. So, I got a good one. So, this year, we really embraced urine tax planning. So, this year, instead of fun, financial planning clients, we kind of opened it up to some of the tax clients and you could tell that they were starving for it. They, by sitting down with them and almost planning out their taxes, not during tax season, when Sue is, like a zombie because she’s right, zombie survived. We have the time to look at the situation and provide alternates. Sue just did a great job of helping us through the financial and tax side coming up with a game plan so that when these clients actually did their tax return, it was a moot point we were able to maximize in the year there and reduce their taxes, but then be able to make sure that the withholdings were matched up so that they had a slight refund. And so, then when they do their taxes, it was kind of a formality of compliance, not necessarily a surprise to them. I felt like they felt the gratitude of dealing with that then and then also what changes we made at the end of the year. We’re then is able to implement in January for the next year, instead of June, July, August, where you’re getting crushed with cash flow. I just thought Sue did a great job and I felt like the clients really appreciated it.
Rob Delavan 02:22
That’s awesome. I love the success we are we are making we were making wins for us for our clients and our future millionaires. Upcoming events, we’re going to link to our calendar in the show notes and we have the whole year of 2022 mapped out so looking forward to a productive year of get together with people again post pandemic and our appropriate websites. We got ROI-financial.com, we have ROI-tax.com for Sue, mine is Delavan-realty.com and Adrian who is in Hawaii normally are one of our hosts is hopefully, he’s enjoying himself. I think he went to a low luau yesterday and he’s with directors mortgage.com That’ll also all be in the show notes. So, our episode today, we’re going to be picking Sue’s brain and Lance’s on the tax and financial side and she’ll be teaching us how to make standard deductions versus itemized deductions simple. This is part five again, an eight-part series and just to recap our last episode, we learned some basics when it comes to small business taxes. Sue, thank you again for being here. We always treasure the time during tax season that we get an actual little droplet of Sue’s wisdom for us. So, warm welcome. You are our trusted CPA and we just we appreciate you being here for this series. So, we’re excited to learn the bit some basics about deductions, itemized versus standard, trying to make it simple and we’ll explore a few questions here. So, number one, is there a simple place to find a list of itemized deductions for the state of Oregon. I know you guys will talk about the Feds side also. Of course, a lot of our listeners are in other states, we just happen to be in the state of Oregon.
Sue 04:17
So, what I’ve learned from my education that we talked about in some other episodes, too, was that 90% of people now are doing the standard deduction and because after the 2008 bill, they doubled it.
Rob Delavan 05:06
So, 18 one, right?
Sue 05:14
So, yes, after that tax bill, they doubled it married couple is up to around 25,100 and single is about 12,005 50. So, there’s a lot of people who don’t have mice. However, I encourage people, one Your state may use be able to use itemized deduction is why we’re asking about Oregon because the state deduction standard for Oregon is really low. It’s like 2300, for single and 40, 600 for married. So, plenty of people are able to itemize just by property taxes and donations or property taxes and mortgage interest. So that at least I would encourage but we’ve given you a couple places to look at what you can itemize. I’ll talk some more about it. But there’s an oregon.gov, reference link that I have in here and then I have an exhaustive list that I use when people come in with unusual things that they want to deduct, it’s three pages, and I’ll scan and put that into the notes of this as well.
Rob Delavan 06:40
Okay. So, the follow up question to this is, what can I write off as an individual and I’d love to hear maybe an example or two of some kind of weird things.
Sue 07:00
So, the basics are, if you own a home, you’ve got real estate property taxes and if you also have a loan on that home, then I mortgage interest and then the final would be charitable donations, whether it’s cash or non-cash, which is like the Goodwill’s, the salvation, Army, stuff like that. There’s also medical, medical is a little harder, because they put some boundaries on it. So, in order to deduct medical expenses, they have to be more than seven and a half percent of your adjusted gross income. So, as an example, if you had $100,000, in adjusted gross income on your tax return, then you would have to have more than $7,500 of medical expenses to make it start counting. So, that’s my easy example. I tell people they did away with miscellaneous deductions, with that 2018 tax bill, and that’s where we had things like W two workers who could do office in home, or business type expenses, CPA fees and, and financial advisor fees, those were all in that miscellaneous section, and that’s where I got some unusual ones, although, in the medical section, way back, I had someone with their hot tube, there was a doctor note. So, they were able to deduct their hot tub and it was never audited. So, through after that they got rid of that deduction. Then, I had someone write off a therapy dog that was under miscellaneous deductions, not medical, because she brought it to school to work with her middle schoolers, it was a legitimate business expense that you could back then write off in miscellaneous deductions, it’s that bills, but can’t do that anymore. Don’t anyone do that? There have been a few over the years.
Lance Johnson 09:33
Along those lines, there are some discussions we’ll have with clients where they have choices to do PPO and HSAs. HSAs, you put money in pretax it grows tax deferred, but if used for medical, it’s tax free. Well, a chiropractor and massage therapists are part of that list where normally they wouldn’t be, but a lot of people don’t know this is if you get a let’s say you get injured and your doctor writes a note that you need to rehabilitate, then your gym can actually your gym news can be put on an HSM and so, you know, again, check with the CPA and so forth, make sure you get the notes. But those are all part of the, is that possible to do that? The answer is yes, it’s possible but you want to make sure they have the right proper documentation in your file. So, as you get audited using that HSA which is tax free, your membership dues.
Sue 10:43
Yeah, the key is to have the health savings plan what he’s referring to HSA because it wouldn’t be deductible on itemized deductions if your income was too high. But if you have the Health Savings Plan, you could put it against that those costs. So, yes, that is good, Lance.
Lance Johnson 11:03
So, what we would try to do is the conversation starts with the client is, I remember back in the seven 2017, I was able to do this, and the world has changed, and then it is like, well, you’re right, you can’t do that. But during open enrollment, if we were doing urine tax planning, and you notice that the person never really goes to the doctor, because they’re healthy, but they do use, you know, acupuncture, massage therapist, or maybe they did get injured or whatever rehabilitating, they might switch to an HSA, Max funded, which brings down their taxes and now you’re setting them up for next year, which has to be you have to do that enrollment during October to November of this year. Those are useful discussions with Sue that started with itemize but lead to a different direction.
Rob Delavan 12:01
Interesting. So, now we start getting to a little more interesting or a little more complex piece. What can I write off as a business owner?
Sue 12:17
Okay, so, different than itemized deductions because as a business owner, you’re going to write things, these you’re going to deduct things against your business, it goes to that small business conversation. But as an overall, it’s anything that you use to further your business, everything from marketing and promotions, to the basic office supplies, the ones that people always ask about are things like company parties, or things like that, which, yes, you can do that it’s employee, appreciation and development and things like that. So, yeah, that is a wide list of things that you can deduct as a business owner,
Lance Johnson 13:16
One of the things we could touch upon that tonight is you use an example is a business owner, small business, we always run into issues of them getting their bookkeeping done and part of it is, you got bookkeeping on the business side and then there’s bookkeeping on the personal side. So, example is, I have a home office and in that home office, I see clients and have a bathroom and I have to get to the office. What can I write off, and so, a lot of people are confused what they can write off? Some of these things show up on itemized lists like interest deduction and property taxes, but then a portion of their businesses out of their house square footage wise, and some of their utilities and property and insurance that are normally not written off or written off on itemize. We have to educate them about, okay, now portions on the business so it doesn’t show up on the itemize things like that and then when you start to take those and put them over here, now all sudden your charitable contributions are not written off because and so there’s a lot of, I’m going to call it lack of better words cause and effect relationship between itemize and business. I think Sue, what I would probably have you do is just talk about the benefits of getting those write offs further up the tax return on the itemized list and what the benefit versus business owner.
Sue 14:51
Well, to go back to the original statement is 90% of the people are using standard deduction. So, I think what Lance is referring to is, hey, if you’re using standard deduction on your personal, you know, maybe your mortgage is low, and you don’t have the charitable or something, you’re using that 25,000, let’s move some of it over to the business. So, we can take advantage of it there and that’s where you’re talking about your office and home and things like that, where if you’re doing a LLC, and you’re doing office in home, on, then we are going to have portions of mortgage interest in property taxes, as well as a percentage of those utilities that go into the office and home, and then you’re taking better advantage of it rather than where you’re using standard deduction and can’t use it on Schedule A.
Lance Johnson 16:00
It’s a big missed opportunity. These small business owners, I’ll just say that the ones between zero and say, $300,000 of gross income, maybe not necessarily net income, but just those beginning, they’re on their way up to building a more than a mom and pop shop. We just see them trying to do stuff their own, in different programmes that are online. You don’t know what to click or what’s after that clicked on TurboTax or h&r block or whatever. So, you don’t know, then you miss the opportunity of things that you could write off or position better on the tax return. There are missed opportunities, and we see it all the time.
Rob Delavan 16:50
Okay, so, the last question I have for the two of you is, how do I calculate charitable donations? What’s the best way to do that?
Sue 16:58
Okay. So, donations, like I said, all into a couple categories, the cash that you’re just here, I want to give money to church scouts, whatever it is, and the non-cash, the Goodwill’s, and the I cleaned up my house and that type of thing. So, cash is straightforward, anything over 250 have a receipt and most people, even those $25 one offs, if you’ve got them, you’ve got an email receipt, pretty straightforward. Now, it’s where the non-cash gets a little grey. So, up to $500, you don’t need too much documentation, they aren’t requiring such but over $500. You need a receipt from Goodwill, where you’ve detailed or you’ve taken pictures or that type of thing and according to the instructions, if it’s over $5,000 of non-cash items, then you need an appraisal. So, I tend to tell people, hey, I cleaned up my house, it’s got to be $10,000. I said, we’re going to back off a little on that. However, I have learned a few things, and done a little research that it could be over 5000 If you divide it into types of items. So, clothing, it could be a category, household furniture could be a category. Other types of tools could be a category, you know, you cleaned up the garage, but it again, you need some really good documentation. So, either a written list or pictures that you attach, and as long as you’ve got it, that’s the important thing. I will say as well other people donate stock, like to their church because the reason being is, they can donate stock, it is a donation at a fair market value. Their church gives them a receipt and says you donated the 600 shares of IBM on march 25 21 and you can use the fair market value as the deduction. However, you may be bought that IBM at $2 a share or something, you don’t have to pay the capital gain, but you get the full deduction and because there is a fair market value that’s online, that’s everywhere that you can see, it can be well over 5000 for stocker, there’s some other things people do. They want to donate, they want to make a big donation, but they don’t know where. So, you can put it into something like Fidelity has a fun You put it into a fun, it’s since they’re in your name, you get to deduct whatever it is 25,000 in one year, and then in later years, you tell them where you want it to be donated out to. So, you get the current deduction, but you get to a sign where it goes to let it later. So, there’s a lot to charitable donations and to backup to will Yeah, but I’m using standard deduction. So, with that I’ve seen people do one year on one year off, they do a big deduction, they double their deductions in one year. So, they can itemize and then maybe the next year, they won’t do the big deductions.
Lance Johnson 20:52
If I can interject on that, there’s so reiterating with her there’s just basic concepts. So, there’s compliance of itemized versus charitable. So, obviously, sometimes you’re in a standard, but this year, I think if cash donations are $600, and you’re at the standard deduction, you still can take $600 and write it off against the tax return above because it was cash donations versus a goodwill.
Sue 21:24
Yes, that is correct lens for this year and that’s in addition to your standard deduction, if you add cash donations, 600 or more, they let you throw that in.
Lance Johnson 21:35
Then there’s what I call best place practices type stuff. So, alluded to it is, if you are going to donate a couple things you want to do is don’t, instead of one bit, bring a big trailer one day, dump it all off one day, a couple things you’d want to do snap a picture, itemize the list more, what I would tell you to do is make multiple donations throughout the year and categories them with pictures and an itemized list and then you can use a programme called it’s deductible for some of the basic stuff and you’ll be surprised on how much a bag of clothes adds up. When you go to that and you realize you like I would have never put that in. But it’s a programme that the government and turtles TurboTax worked out to have a fair so you got a picture, you got multiple donation slips, you got an itemized list and you use this deductible, that that’s a programme that’s being used. I’m not saying you’re bulletproof, I’m just saying you’ve done a really the best place practices of documenting your stuff. Then what she talked about is what we call tax bunching. So, every other year, you bunch your charitable, especially maybe if you had huge medical, maybe it’s a year that your income is low. So, some of those things are the medical is more deductible, and you can put them, it’s not a charitable remainder trust, but like we use, it’s an it’s a charitable donation funds, where you can put 50,000 into one, put it in the programme, manage yourself. So, my brother in law did a couple years ago, put $150,000, its grown to 200 and some 1000. But he can then just dole out money, but he got the write off, whereas every year he wouldn’t get the write off because the full write off because the standard deduction. So there’s a strategy with clients where we tax bunch in particular years, and it depends on medical depends on income depends on your charitable content and then I agree with Sue, anything over 300 bucks going to a routine organization, we can draft a letter, my clients never use cash, cash is king. So, I agree with her, if you’re going to put $2,400 to your church or 200 bucks a month, I would tell you to talk to the pastor. What we do is January, we would donate a highly the most highly appreciated stock, okay in your nonqualified, that’s $2,400. You would make that donation but your cost basis might only be $200 and then at the end of the year, you’re looking for next year, I would do the exact same thing for next year, but I wouldn’t use your cash I’d keep your cash and that’s a best place practice. That’s a long story. But those are some of the things that we talk to clients about is are we bunching this year or next year, and how are we doing it?
Rob Delavan 25:00
Well, in the final thoughts here, I would say obviously, I’m noticing a few trends. So, number one, obviously document, document, document, write your document correctly, and you need advice advisement for that and then number two, strategy is literally, let’s make sure and I guess you can’t really document or do strategy without or make those strategic decisions without having things, you got to be ahead of it. So, if we’re going to make these decisions, we need to be making them in probably summer and fall. The concept of, you have to be ahead of the game, you can’t be strategic unless you know where you’re at. So, any other final thoughts between the two of you?
Sue 25:57
In order to do that strategy, and plan ahead, you need good advisors. So, tooting our own horn, you need a CPA and a financial planner. So, it helps when you’re strategizing and doing the right tax planning.
Lance Johnson 26:14
Okay, I know that I think those two people need to communicate, and not always does the CPA and the financial advisor, are they on the same page, nor do they communicate at the right times. So, you’re communicating to the client in tax season, I’m communicating clients in fourth quarter, having those in the fourth quarter, I think better what I call best place practice.
Rob Delavan 26:42
Awesome. Okay. I love it. Well, thank you, Lance. Thank you, Sue, for adding such value to our listeners. Again, the best way to find Sue as our guest in this series is www.ROI- tax.com. Again, that’ll be linked below in the show notes and stay tuned for the next episode in this eight-part series with Sue. In the next episode, we will be learning all about real estate and taxes. It’s a fun one. Love it. Thank you all for being here. Thank you all for listening and we’ll catch you on the flip side.