Tax Talk is about getting your answers to Tax Questions. Your Tax questions. In fact here is the audio and the transcript of our first show Jan 31 2010. Visit Jeff site at http://www.PickeringCPA.com or Rex Hogue at http://www.BigTexLaw.com. Enjoy the show.
Tax Talk Jan 31
Patrick: And welcome to Tax Talk. This is Pat Dougher with Jeff Pickering CPA. Today we’re going to be talking about taxes; taxes that you guys pay every day. In fact, one of the things that we want to do is really look for ways to reduce those taxes. I think most of us know that when it comes to taxes, honestly, I don’t think any of us really like to pay them.
One of the things we want to start with right off this hour is Jeff Pickering. Jeff, you have some interesting concepts that have come up this week, some things that have happened – current events.
Jeff: Sure, Pat. Taxes are such a serious topic that we kind of have to lighten it up to get into it, so we’ll talk about some of these things that are happening out there right now. First thing I’d like to talk about is the Haiti situation.
Patrick: Very good.
Jeff: Congress is going to let us do a time warp and time warp our charitable contributions back to 2009.
Patrick: Hooah!
Jeff: So, all of you who have given to Haiti, you can actually deduct it on your 2009 tax return courtesy of Congress.
And this year, the texting to give the contribution has become very popular. So, as proof of your charitable contribution, you’re going to have to save your phone receipts or wherever you’re being billed for the texting.
Patrick: That’s good. I know that technology is creeping up on us all. I know that there are several new things in some of the celebrities that have been in the news this week.
Jeff: Right. So, we look at things that are about taxes and we look at the taxes that you pay, that we all pay. This next one is actually something I didn’t realize until I looked at this article. You know the Leno, and Conan and Oprah thing that’s going on? It’s kind of a popular topic right now. I didn’t know that NBC was owned by GE.
Patrick: Right.
Jeff: And GE actually got our TARP money.
Patrick: Which would mean what?
Jeff: Well, Conan got a nice, big payout. He got $32 million for himself and he got $12 million.
Patrick: And that’s for being fired, isn’t it?
Jeff: For being fired which I would like to be able to be fired like that. So, he got that $32 million and the $12 million for his employees. It turns out that since GE got the TARP money, our TARP money actually went to pay for his bonus [03:11 inaudible] termination.
Patrick: So, the government paid Conan, essentially, his leaving bonus.
Jeff: Right. Actually, we paid it. It’s our money and we’re going to be on the line to pay Conan’s big leaving bonus.
Patrick: Very good. I also noticed – the one that really caught my eye was ‘I see dead people’s tax refunds.’ You want to tell us what that’s all about?
Jeff: Right, right. Okay. So, this is under the category of if they can vote, they can also receive tax refunds. A couple of guys out in California were filing tax returns for deceased individuals and getting the money.
One of the things they were claiming is the first time home buyer credit for them and stuff like that. Eventually, people like this will get caught. But, they had scammed millions of dollars by filing dead people’s tax returns.
Patrick: Ow! I know that one of the things that you really want to listen in this show for is the opportunity to call in. I hope that you’ll call in and get your tax questions answered. A lot of people don’t realize that – we all know that taxes are just – death and taxes, they just happen, right?
Well, this show is really dedicated to bringing you answers. See, Jeff Pickering CPA isn’t just the average guy. He actually has a Master’s in Taxation and can really give you the answers.
We’ve also brought on a guest today, is one of the sponsors of the show – Rex Hogue of Bolinger and Hogue. And one of the things that we brought him on for is he’s an attorney – an estate attorney that can help you with estate taxes, business formation as far as the way to set it up right so that you have the least amount of taxation. And so, we’ll be going to Rex here a little bit later in the show.
So with that, I want to really get into what are some of the other hot topics when it comes to taxes this year, Jeff?
Jeff: Well, one of the things I always try to mention to people is that we have people out there who will do it themselves and some of those people should be doing their own taxes themselves, but some of them really should not.
Patrick: Would that be an illustration of Mr. Geithner’s experience with TurboTax?
Jeff: Right. We’ll wind back to the beginning of last year. Treasury Secretary Geithner was being confirmed by Congress and it turned out that during the confirmation process, he omitted about $40,000 of taxes by doing his own taxes; tax return.
Patrick: So, he omitted the annual income of most Americans.
Jeff: He omitted $40,000. And just for those of you who don’t remember who this guy is, he’s the head over the IRS. He’s over the IRS entirely, as well as some other agencies. So, this guy, he tried to do his own taxes and in congressional testimony, it came out that – one of the Congressmen asked him, “Okay, what software did you use if you are actually doing it yourself?”
And it turned out he was using TurboTax. TurboTax is a very popular software edition. But, I think what he was using was the TurboTax Timothy Geithner Edition.
Patrick: Now, TurboTax wasn’t real pleased with this concept, were they?
Jeff: No, they weren’t. They actually illustrated where somebody could’ve gone wrong and misinterpreted their software. And they actually made changes to their 2009 version.
But really, the main point is I get people in that do their own. They do their own taxes and they bring them in on a TurboTax thing. I look at it and I say, “Okay, you did this wrong, you did that wrong, this is really going over here. We’d be better if you moved that over there.” So, being a monkey and keying in responses is no substitute for actual judgment.
I recommend that for people that are do-it-yourselfers that they should try to get their taxes done by a professional at least one, say, every three years just to make sure they’re doing it right.
Patrick: That’s really good. Now, I know you actually have people standing by today waiting for if someone does need tax information or tax help, they can actually schedule an appointment with you.
Jeff: Yes, they can do that. Our number is 972-378-5200 and our offices are on Preston Road at 6533 Preston Road in Plano, Texas.
Patrick: Very good, very good. Well, I know that we want to cover some of the new taxes that are coming out this year. A lot of people, I think most of us are really concerned with the expansion in the bailouts that have happened in the last few years. We have really had a lot of money thrown into the economy. But, there is no free lunch.
Jeff: Absolutely.
Patrick: That eventually has to be paid for, doesn’t it?
Jeff: Somebody’s got to pay for all this stuff.
Patrick: And that somebody is usually…
Jeff: It’s us.
Patrick: It’s us. So with that, I know that a lot of you are going to have questions. Coming right up, we’re going to be actually going to the new changes in this year’s tax return. With that, thanks so much.
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Jeff: That was Barack Obama.
Patrick: Giving us the Tax Man. The Tax Man commeth. Welcome to Tax Talk.
Jeff: I didn’t know he could sing. I guess he does sing.
Patrick: One of the things we want to make sure is that you guys have the number for today to call in for your questions, 214-787-1570. That’s 214-787-1570 or 800-583-1570. So, if you call in with your tax questions, Jeff Pickering CPA can help you out.
Jeff: Right. We’re going to go over some changes here that happened in the 1040 form. But before we do that, let’s talk to Rex. There was a recent article put out by the Congressional Budget Office about estate taxes. So, taxes are in all forms. Rex, what’s happening on that report there?
Rex: Well, first of all, we know that you can’t take it with you. So, the estate tax is what the IRS charges you for leaving it behind. More and more Americans from the chart we’re looking at from 1943, the number of estates that have been subject to tax has risen.
Now currently, if you’re fortunate enough to die in 2010, at least right now, there is no estate tax. But, we’re not having any luck getting people to do that. Most people just don’t want to do that.
Jeff: Right.
Rex: But, they need to have – everyone needs to do some estate tax planning.
Patrick: There’s a technical difficulty; just a second. Your mic isn’t working. I want to make sure that we get that done.
Jeff: Sure.
Patrick: What was Rex basically saying there for a second?
Jeff: Well, he was basically saying that for 2010, the estate taxes are repealed. So, for those people passing away in 2010, there is no tax due on their estate and he made the comment that although we’d like for people to pass away in 2010, they don’t seem to be voluntarily doing that.
So, the estate tax will come back in 2011. It’ll probably come back in full force as far as we know. We’ll be watching it. Just because they eliminated the estate tax for 2010, doesn’t mean you should avoid seeing your estate planning attorney. It actually means you should go see them and get some changes.
Patrick: Make sure that everything is in order.
Jeff: Make sure that your estate – there could be an advantage here for changing things for a year. So, Rex Bolinger – he’s with Bolinger and Hogue. For those of you who have estate tax concerns, his number is 972-309-0104.
Patrick: Very good. Well, I know that we want to get right into some of the tax changes that have happened this year. So Jeff, talk to us about some of the things we’ll experience this year in filling out our taxes.
Jeff: Okay, a lot of changes. Our Congressmen are busy, as they always are. They make tax law changes without considering us, the taxpayers. A lot of the tax changes are so complicated that it would be very difficult to do them by hand.
The first topping our list: the definition of a qualifying child for a dependency exemption. This always changes. It’s changed a couple of times the last three years. So this one, they changed the definition of a qualifying child for your dependency exemption.
To be a qualifying child, your child has to be younger than the person who’s claiming them. Now, that sounds really weird. But, you have to remember that you can claim a child who’s up to age 24.
With today, you have divorces, you have remarries and the fact that your child can be a child up to age 24 if they’re full time in college, it can make for some very strange…
Patrick: Tax returns.
Jeff: Very strange tax returns, exactly.
Patrick: Very good. So, what are some of the other things that people should be looking for this year?
Jeff: Okay. There has always been the joint return test. Let’s say if you have a daughter and you’re supporting her, she’s in college and then she gets married. Well, you cannot claim that child anymore if she’s married and files a joint return unless they are just filing it to get a refund as a claim for refund.
Otherwise, once your daughter’s gone, or son; whatever it is. Once they’re off and married, you’ve got to stop that gravy train of exemptions.
Patrick: Go ahead.
Jeff: So, in 2009, for those of you – look at your paystubs, you’ll notice that your 401k has gone up to 16.5; very nice. If you have a simple plan, that’s also gone up to 11.5. Basically, we have all of our retirement deferrals have gone up in 2009. There’s a new one which is an exclusion for unemployment benefits.
So, for those of you who got laid off, usually to add insult to injury, what happened is you got laid off, you got your unemployment benefits, you bring them into your tax guy and all of a sudden to add insult to injury, rub salt in the wound, you’re barely making it and now, you’re paying taxes on these unemployment compensation.
So, Congress did something nice for us. They excluded the first $2400 of unemployment compensation. So, I know that I’ve prepared a few returns right now that we got to take advantage of that. Most people who are getting money back are trying to get that done.
Patrick: That’s excellent. One of the things I’d love to do is go to a caller. We’ve got a caller on the line here. It’s Donna in Plano. And Donna, you’re on the air. Donna, are you there?
Donna: Give us your contact information.
Jeff: Donna, did you say something about contact information?
Donna: Yes. Do you do individual tax returns?
Jeff: Definitely. Our practice is devoted to individual tax returns and small to medium sized businesses. We do that. Our contact information, Pat?
Patrick: Yeah, go ahead.
Jeff: Our phone number is 972-378-5200. That’s our office and our people are working right now if anybody wants to make an appointment, for instance. And on the web www.pickeringcpa.com. Pickering is a very long word. It’s spelled P-I-C-K-E-R-I-N-G CPA.com.
Our offices are in Plano. It’s at 6533 Preston Road, Suite 300 in Plano. There’s two 6533’s on Preston Road. Ours is the one in Plano.
Donna: Great, thank you.
Patrick: Donna, did you have a question other than that?
Donna: That’s it. Thank you very much.
Patrick: Thank you.
Jeff: Thanks. And while we’re at it, if somebody has an estate tax issue, then Rex Hogue’s number.
Patrick: Sure. Rex’s number 972-309-0104. It’s Rex Hogue, Bolinger and Hogue. You want to call Rex literally tomorrow. I know that they can take a message now. You’ll leave a message now. But, the biggest thing is if you’ve got estate questions, estate tax questions, you need to connect with them. Now, I’ve got another caller on the line. It’s Carol in Carrollton, Carol?
Jeff: Neat. Hello, Carol.
Carol: Hi. I was wondering if there are any tax incentives for hiring employees in 2010, new employees.
Jeff: Well, yeah. According to President Barack Obama’s State of the Union Address, he actually is giving some very nice – he’s promising some nice incentives, but it’s really not up to him completely.
The last I looked, the Senate, as of Friday, is looking into making some of the incentives that he’s proposed come true. They include a credit for small businesses hiring employees and also, an additional credit for people who are on the payrolls and giving them extra hours or an increase in pay.
So, we’ll be watching those very carefully. Everybody will be, especially small business because that’s the thing that’s going to get us out of this recession, we’ll be watching that very carefully, Carol.
Carol: Okay. Will that be retroactive if you’ve already hired new employees?
Jeff: There was talk about that being retroactive.
Carol: Okay.
Jeff: But, for those of us who follow tax law, there’s the talk and then there’s what it comes out to be. So, we have to watch and see what actually happens.
Carol: Alright. I appreciate it very much.
Jeff: Thanks, Carol.
Carol: Okay, bye-bye.
Patrick: Coming up next, one of the things we’re going to do is talk a little bit more about some of the taxes that are going to be affecting you and I know that many of you have questions. So, make sure you call in at 214-787-1570 or 800-583-1570. You’re on 570 KLIF.
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Patrick: And welcome back to Tax Talk with Jeff Pickering and Pat Dougher. Jeff, I want to go right into some of these calls here in a second. But before we do, is there anything else that you wanted to talk about that changes?
Jeff: There are so many changes. There are so many changes that it would take a long time to get them out. Let’s just go ahead and take some calls and see what pops up.
Patrick: Very good. We’ve got Andy. Go ahead, Andy. You’re on the air.
Andy: Hi. I was calling in. My company this year went over to kind of privatizing cell phones, if you will; putting it on the employee. Is that something that if we also use our cell phones for – no one wants to carry two or three cell phones. But, if you carry one then for work, can you write off what you spend on the monthly bill? What’s a good rule of thumb to, say, 60/40, 80/20 on a $150 a month type plan?
Jeff: Right. Andy, you actually hit on a very hot topic that was actually very hot last summer. There was a lot of talk about the IRS just letting people, letting employers give free cell phone use to the employees.
It didn’t happen as so many initiatives – it didn’t have enough wheels to go forward. But, if you’re using your phone for business purposes and any asset that you have that’s both business and personal, you have to come up with some way to allocate the business and personal use.
So, for phones, it’s mostly the talk time. Our phone companies have come up with a very clever free weekends and free evenings plans, so that helps out a lot of people who are trying to write off their phones. But, for the most part, you’ve got to allocate your time.
Patrick: So, does he just pick a number? Is that the idea?
Jeff: Well, there are some practical – you’re not going to go through your whole phone bill for the whole year. You’re going to take a couple of sample months. If they’re representative in sample, then you’ll go through those and come up with a good percentage of personal use – personal and business use – and then, you’ll itemize those as a 2% itemized deduction on your schedule A which is a very bad place to put it.
If there’s any other way to do it, you should have your employer reimburse you instead of trying to deduct it on yourself because, for most people, those deductions get wasted at the 2%.
Patrick: I understand. Well, if you want to call in, it’s 214-787-1570, 214-787-1580, 800-583-1570 or #KLIF on your Sprint phone. Call in with your tax questions here on Tax Talk. This is Pat Dougher and Jeff Pickering. Jeff, let’s go to our next caller. It’s Christy. Christy, go ahead. You’re on the air.
Christy: Hi. I was looking at my schedule A with the sales tax worksheet and how it will give you just a set amount that you’re able to deduct.
Jeff: Right.
Christy: And then also, if you had another major purchase, you can also itemize that as well. For example, a car, or a boat or parts of your home.
Jeff: Actually, it’s almost like that. So, it’s a car, a boat or a plane.
Christy: Okay. I’m looking at the information. I guess the publication 600 is talking about a substantial addition to your house. It doesn’t really specify what that is.
Jeff: How that actually works. So, what happens is you get kind of a standard sales tax deduction or you can itemize. For most of my clients who try to itemize, they usually come out better taking the standard sales tax deduction. Itemizing takes a lot of work and a lot of things that you think are sales taxes are not.
For instance, your gas tax, it’s an excise tax, but it’s not a sales tax and then, your groceries. There are certain things that are taxable, some that are not. So, it’s a huge effort to try to itemize all this stuff.
I would say unless you had a major addition on your home, then take the standard. But, if you did a lot of renovation, then all those purchases would be taxable, and you can try to do the actual and you may come out better.
Christy: So, I put a new roof on my house this year. Would I be able to use that?
Jeff: That’s likely. Now, you’ve got to make sure your roofer charged you sales tax.
Christy: Okay.
Jeff: I know in the roofing business, there’s a lot of fly by night operations and stuff like that. So, you’ve got to make sure you were actually charged sales tax and paid it before you can deduct any sales tax.
Christy: Alright. Thank you so much.
Jeff: Sure.
Patrick: Very good, very good. I know that’s a big deal as far as when it comes to taxes how you set yourself up whether all your income is off your job or even setting up a self-employment – your own sole proprietor or something like that.
Jeff: Right, right. So yeah, it depends on where your income is and what kind of relationship you can make between your income and the deduction.
Patrick: Very good. Thank you, Christy. We’re going to onto Andrea. Is that right?
Andrea: Andrea, yes.
Patrick: Very good. Andrea, what’s your question?
Andrea: For somebody that had adjusted gross income of around $40,000, is the Making Work Pay credit possible to use?
Jeff: Yeah, the Making Work Pay credit is basically on earned income. And yes, $40,000 would do it. Yeah, you’ll get that.
Andrea: Is that new?
Jeff: Yes, it is. It’s one of the new ones. It’s $400 for single, $800 for married filing joints. It’s a refundable credit, so it works like cash back in your pocket. It’s a great credit. It’s like a little present. It’s not a lot of money, but if somebody offered me $400, I would definitely take it.
Andrea: Right. But in addition, whatever the number is, you have to bump up against that, that little $250 thing that they did last spring. Is that right?
Jeff: Okay. You’re talking about the regular credit that they offered for last year’s – they actually offered it as an advanced payment. Then, on 2008 tax return, they offered you the credit for it. That credit and this credit actually have no relationship to each other, Andrea.
Andrea: In the book that comes with your 1040, it had a comment that said, “This credit is reduced if you received a $250 economic recovery payment in 2009, blah, blah, blah.”
Jeff: There is one that was issued to…
Andrea: Retirees?
Jeff: Exactly, retirees. That does affect it, yeah.
Andrea: Okay, but if they’re not a retiree, then that’s not in play.
Jeff: Right, exactly. So, these people, the retirees got their checks around August I think is when they started giving them. So, if you want to check your checkbook. You don’t sound like you could be retired. You sound actually pretty young, Andrea.
Andrea: I’m not retired. I’m probably not that young and I’m also not retired.
Jeff: Good, plenty of work left in you.
Andrea: Okay. So, I can sit down and figure that one out, huh?
Jeff: Yes. It’s not too difficult. The Making Work Pay credit, it’s pretty automatic as long as you have earned income.
Andrea: Right. Is this going to be a one year thing, or is this going to be ongoing or what?
Jeff: As far as we know, it’s going to be gone.
Andrea: Be gone?
Jeff: Yeah, it’s going to be gone after this year. There’s been no promise of extending it. I should also make one comment about the Making Work Pay credit. For those of our combat troops that have worked, some of them will have tax free income. Even though they have tax free income, they can still get the Making Work Pay credit. That’s something nice our Congressmen did for our uniformed people.
Patrick: Very good. Thank you, Andrea.
Andrea: Thank you.
Patrick: Okay, we’re going to go onto Skip here on the car write off. So, Skip, you’re on the air.
Skip: Thanks. I just bought a slightly owned SUV to use in my business in November. Under the section 179, can I write the entire amount off or do I need to prorate it for the year? How does that work?
Jeff: Skip, that’s a good question and writing off a car is actually more complicated than you would think. When somebody tries to write off a car, I first of all ask them how much did they drive. So Skip, how much do you drive?
Skip: 5,000 a year on average.
Jeff: Very light, very light. So, most people drive about 12,000 – 15,000 a year.
Skip: I’m sorry. Okay, you’re talking about total mileage, not just business.
Jeff: Right.
Skip: Okay. Yeah, about 25,000 miles.
Jeff: Oh, that’s a lot. So, 25,000 is the cost of keeping your car. You have a choice of going actual – you probably know this – you have the choice of going actual or mileage. You’re saying 5,000 of it is actual business use, right?
Skip: No, 25,000.
Jeff: Oh, 25,000 is the business use. I’m glad I got that. So, 25,000 is business use and how much is your personal use?
Skip: About another 5,000 miles.
Jeff: Heavy, heavy, heavy. Okay. Usually, what I tell people who drive that much is they come out better getting a car that’s economical and has better than average costs to operate. You might want to consider that. I know you just bought the SUV. Section 179, your vehicle – there’s an additional 50% bonus depreciation.
So, you’ll section 179, you’ll get also a 50% bonus on any that’s leftover and then, the rest will be regular depreciation of which the second year will be the biggest.
Patrick: Very good. Thank you, Skip.
Skip: Even though I bought in November, I don’t have to prorate it for any – I can do it for the entire year, depreciate the entire year?
Jeff: Yes.
Skip: Okay, thanks.
Patrick: Thanks, Skip. I know a lot of you are going to have questions that are going to go way beyond this show today. So, to get a hold of Jeff Pickering CPA, it’s 972-378-5200. That’s 9720-378-5200 and also Rex Hogue of Bolinger and Hogue. They’re estate tax attorneys in the North Texas region. It’s 972-309-0104. That’s 972-309-0104 for Rex.
What we have coming up is more calls. If you want to call in with your question for Jeff or Rex, it’s 214-787-1570, 214-787-1570 or 800-583-1570 here on 570 KLIF.
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Patrick: And we’re back with Tax Talk; Jeff Pickering, Rex Hogue and we want to get into a little bit about some taxes that have to do with business entities and FACTA. Something that a lot of people are not familiar with is little known FACTA that we want to cover today. Rex, tell us a little bit about the business entities that you wanted to cover and then go right into FACTA.
Rex: Well, business owners frequently don’t have business entities. They’re not incorporated. There are three reasons that everyone in business should have a business entity.
One is it reduces the tax that they actually pay to the IRS. Another thing that it does is it reduces your audit profile because your tax return goes to a different division of the IRS, one that is used to seeing businesses so that it doesn’t show up on your schedule C.
The third thing that it does is a properly structured business entity can actually protect you personally. If something goes wrong in your business, it can protect you from losing personal assets and it can also protect your business if you’re involved in a car accident and are sued.
Now, FACTA is the Fair and Accurate Credit Reporting Act that all businesses are subject to and it requires that business owners protect the information both of employees and of the people they do business with.
So, if you’re a business and you get any personal information, FACTA says that you’re subject to a $2,500 fine per incident if, by chance, someone takes private information from you company. Perhaps they breach your computer system or they get into files and they use that information to, let’s say, steal the identity, or credit card theft or something like that. In addition, you’re liable for actual damages.
And there is something that you can do about that. There’s a program that you can put your company to to avoid that $2,500 fine per incident.
Patrick: Who’s going to be enforcing the $2,500+?
Rex: That’s what’s interesting. It’s not going to be the government. It’s going to be trial lawyers because of the damages. Damages for identity theft, on average range from – they’re around $16,000 of out of pocket expenses, but it can be a lot worse. Some people spend hundreds of thousands of dollars because of ID theft.
So, you can imagine an employer who has, let’s say, 100 employees. If 10% of those people were hit with $16,000, the actual damages of $16,000, but there’s an additional $25,000 – no, it’s $250,000 in fines potentially.
But, if they have a program in place to protect that, they can avoid the fines. There’s also things you can do to remediate the damages that people are incurring.
Patrick: So, the fine is $250,000?
Rex: Yeah, I believe that would be $2,500 times 100.
Patrick: Oh, for all the employees in your company.
Rex: Right, $2,500 per incident. And very few people know about this law. We’ve been talking about it for a while, but we’re finding that our clients don’t know about it, other people’s clients don’t know about it.
The Workforce Commission, the Texas Workforce Commission, actually put out in 2007 a brochure on this and we would gladly email this to anyone who wants to email me at Rex@bigtexlaw.com or go to our website, www.bigtexlaw.com. If you’ll give us some information, we can email you a copy of that report.
Patrick: Awesome. Well, we’ve got another call here. It’s Bill in Fort Worth. Bill, you’re on the air. Go ahead.
Bill: Yes, I had a question concerning self-employment tax. I’m a police officer and I work off duty. The last several years, I’ve gotten hit pretty heavy with self-employment tax.
Jeff: Yes, the self-employment tax is a tough one. When you file that schedule C, it’s 15.3% in addition to your regular income tax. So, your strategy is to do whatever you can to wipe it out, to wipe it down.
I tell people when they’re looking for tax deductions, imagine every time they’re doing something, and money is flowing out of their pocket and it has a business connection, then you want to consider it. So, do you use a tax preparer or do you do it yourself?
Bill: Oh yeah, I’ve used a tax preparer. The deal is when we work off duty, it has to be approved by our department. They say how many hours per week we’re allowed to work, what we make, and all that kind of stuff and where we can work.
And of course, you’re working in uniform under the color of your department and you’re subject to all the rules, and regulations and policies as if you were working for your department.
For the last several years, when I filed my taxes, the IRS has hit me pretty heavy with the self-employment tax.
Jeff: Right. So, what you’ve got to do is you’ve got to go through a thorough examination of every time you spend money that has to do with your off duty work. It could be the dry cleaning of the uniform. It could be your mileage, of course. It could be your mobile phone if you have mobile phone use, and you have to answer it and you have to be available.
There could be some other things. Maybe you have to schedule some things at home. It takes a long analysis, but I think for every dollar you save, if you’re in the 15% bracket, for instance, every dollar you save is going to save you $0.30 because you’re talking about the income tax plus 15.3% of self-employment tax. So, you just need to thoroughly examine what you’re doing.
Bill: Okay. I try to keep all my receipts and everything so I can turn all that stuff in.
Jeff: You know what? No matter how crazy it sounds, you should come up with the idea and then put it past your tax advisor and see if it flies.
Patrick: Very good. Rex, you had something you wanted to add on that.
Rex: Yeah. Depending on how much income you make, you may want to consider doing something like incorporating where you can avoid some of the self-employment tax.
Believe it or not, that actually helps. You probably need to be making $15,000 - $20,000 a year before it’s even worth considering.
Patrick: That’s where I put it too, yeah.
Rex: But, if you’re making that much off duty, you might want to look into that. There can be some real tax savings there.
Jeff: Right. Yeah, that’s what I tell people; around $20,000. If you’re making $20,000, paying taxes on $20,000 self-employment, then you might want to consider another entity. There are some ways that you can reduce the amount of self-employment taxes that you pay.
Patrick: Very good. Jeff, how do you want people to get a hold of you after this?
Jeff: Okay. Our numbers are 972-378-5200. Our website, www.pickeringcpa.com. Jeff@ pickeringcpa.com will do it.
Patrick: Very good. And with Rex Hogue, that’s Bolinger and Hogue, 972-309-0104. We will see you guys next week. We’ll hear you guys next week. Thanks so much. This is Tax Talk with Pat Dougher and Jeff Pickering.
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