What Should I Know Before Filing My Taxes? with Vonne Williams & Genar
On this episode of Financially Naked: Stories from The Financial Gym - Gymsplain Series, our host is Genar Mendez, a Level 2 Certified Financial Trainer, and joining him today is Vonne Williams. Vonne is a Tax Strategist & Accountant, a Business Coach, and Angel Investor. She helps people build wealth for their families and communities by helping them open businesses and become profitable and sustainable. We all have to pay taxes, and it can be confusing, so Vonne is here to answer some of the most frequently asked tax questions we get at The Financial Gym.
Podcast Notes
How do I know whether it's best to hire a professional or if I can do taxes on my own?
If things in your life are pretty simple: one W2 job, one child, and a mortgage, it's pretty straightforward to file taxes on your own. If you're a sole proprietor, have a small business, have multiple homes, or have contractors working for you, it's time to hire a professional. Tax laws always evolve, and you don't know what you don't know.
What is tax liability?
Everyone pays taxes. Depending on how you earn money, we pay those in different ways. If you have a W2 job, this is done through withholdings. You'd get a refund if you paid more throughout the year than you owe in taxes.
Some calculations and considerations happen on the tax return, influencing your overall tax liability. It's basically settling up for the year with the government.
How can we lower our tax liability?
Credits, deductions, and write-offs can reduce your taxable income. These can include mortgage interest, tuition, student loan interest payment, child credits, electric vehicles, and solar panels. These things can change from year to year.
If someone used to get a large refund and now they owe, what are some reasons that could have happened?
If your children grow up and age out of the child tax credit. Once they turn thirteen, the childcare expenses no longer qualify for deductions.
The refunds can dwindle if you earn more money but don't adjust the withholdings.
If our clients want to avoid paying taxes at the end of the year, what steps can they take?
If you have a W2 job, make sure your withholdings are correct. If you need help, check in with HR, a tax professional, or a video online.
If you're filling out the W4 the first time, make sure you're filling it out correctly. Check your pay stubs to ensure enough tax is being taken out. You want to look at your Federal (IRS) taxes first. Next is your state and local withholding, depending on where you live.
How do you pay if someone files their taxes and owes a bill?
Tax bills are due on the deadline day (in 2023, that's April 18). When filing, you can set up a direct debit from your bank account. This is the easiest way to pay the IRS and States on time.
You can also pay the IRS and your state online. They are separate entities that must be paid separately.
If you can't afford to pay your bill in full, you can set up a payment plan with the IRS and state online through your account. You will need an ID.me account for this process.
If you don't pay by the deadline, there will be interest, which is calculated based on the amount of taxes you owe.
When should I open an LLC for my business?
A Single-Member LLC is taxed the same way as a sole proprietor. A Limited Liability Company provides you legal protection, which depending on your industry, can be beneficial as soon as you start your business. If you were sued, an LLC protects your personal assets.
A Single-Member LLC and sole proprietor can write off the same expenses for their business. A sole proprietor has less structure and protection and an LLC.
For some folks, an S-Corp can make sense. This is a type of tax structure you can elect for your business. An S-Corp has benefits but additional requirements that aren't worth those benefits for some. For example, setting up payroll and filing an additional tax return by March 15 each year. If you have an LLC already, once you've grown the business, you can evolve into an S-corp with just one form.
If I'm married, how do I know whether it's better to file jointly or separately?
Vonne is a purist because the IRS looks favorably at those who do what they're encouraged to do. As a married couple, filing jointly usually produces a better tax result.
This depends on the couple, and there are some exceptions where folks have to file separately.
Final Reminders
Tax law is always changing and, in general, is written by business owners for their business owner friends.
If you work on a W2 job, review your paycheck to check your withholdings and ensure enough is being taken out for taxes.
If you are a Sole Proprietor or Single-Member LLC, take all the expenses you qualify for.
And most importantly, track those expenses and all of your income throughout the year. It makes tax time so much more simple.
Resources
Connect with Vonne
Website: www.VonneWilliams.com
Instagram: @vonnewilliams_dontdiebroke
YouTube: @vonnewilliams-dontdiebroke865