Busta’s Person of the Week: Don’t miss valuable refunds! William V. Thompson gives ‘straight talk about taxes.’

Busta's Person of the Week: Don’t miss valuable refunds! William V. Thompson gives ‘straight talk about taxes.’ The post Busta’s Person of the Week: Don’t miss valuable refunds! William V. Thompson gives ‘straight talk about taxes.’ appeared first on WS Chronicle.

Busta’s Person of the Week: Don’t miss valuable refunds! William V. Thompson gives ‘straight talk about taxes.’

By Busta Brown

It’s that time of the year when millions of Americans will begin filing their 2023 tax returns. Many of us miss out on thousands of dollars due to lack of education or misinformation about taxes. I sat down with financial guru William V. Thompson to get the “straight talk about taxes” so that we will not miss out on our hard-earned tax refunds. William is the owner of Cash Flow Strategist, where he empowers individuals, businesses and churches to create innovative cash flow ideas to fund & fulfill their vision. 

I asked the husband, father of one, and amazing man of God some important advice on how we can better prepare our taxes, pay less and get more on our refund. 

What are the first steps we must take as we prepare for tax season?

The first step is going to be education and preparation. Everyone, no matter what tax bracket you’re in, needs to at least know the 10 basic tax deductions. … And then second, they need to prepare. They should have a checklist from their tax practitioner that tells them the key things to bring. So, between the preparation and the education on the 10 big ones, those are two major starting points.  

What does our taxable income include? And what can we miss on tax credits if we don’t file?

Your taxable income represents the number that the IRS is going to use for you to pay taxes on. To calculate that, you take your gross income, things like your W2, your interest earned, your profit from your business, and taxable Social Security,  any type of taxable income. You take that, and you normally deduct that from what’s called above-the-line deductions. It could be like a regular IRA or interest on a student loan. That comes down to what’s called your adjusted gross income. Then you either take the standard deduction or you do the itemization, whichever is greater, and you deduct that. So, it’s your gross income minus above-the-line deductions, minus your standard deduction or itemization. That’s taxable income. And we simply go to the tax tables and, based on that taxable income number, determine what your tax liability is before we deduct what you paid in credits.  

If we don’t do that correctly, what can we miss out on?  

That’s probably the hardest part, because people don’t always include all their reportable income. A person may, let’s say, make a $1 ,000 royalty check and they get a 1099 from the company, but they forget to put that on (their tax return). That means they underpaid in taxes. Or if someone’s able to do the long form, deducting your charitable giving, your mortgage interest, etc. Many people won’t go through and maybe get those 10 things on that schedule A that allows you to itemize your deductions. Then you’re overpaying taxes.  

What info do we need to have for our tax preparer?

I think the biggest thing is you need to bring last year’s tax return in. … They should have given you a checklist, particularly of those things that you’re going to be reporting to the IRS, like your W-2s, your 1099s, your mortgage interest, or your Social Security. Make sure that those things that the IRS is going to be aware of. You get those forms from your tax person and then you make sure that they give you a checklist of deductibles to reduce that taxable income.

What are the rules for some common business deductions we can make?

I think I normally take my clients back to IRS code 162 and it says if you have a business that’s in the pursuit of profit, IRS regulations say that any ordinary and necessary expenses you can deduct. For example, if someone –  let’s say is a yard maintenance person – then their ordinary expenses are going to be in a lawnmower, gasoline, edge cutters and some seeds. Whether you get the low-grade seeds or the highest-grade seeds, it doesn’t matter. When you document it, that’s a potential deductibility. 

Do I qualify for the qualified business deductions? 

If you have a business in the pursuit of profit, if I say to you, Busta, I’m now selling ink pens and I’m really trying to make a profit from selling ink pens, anything that would help me become a better ink pen salesman can be deductible. I may go out and buy a hundred different ink pens and I test them all out. I’m trying to find the best one. Those pens are deductible. Or if I did a survey and I pay people to do a survey to use the ink pens, those are deductible. If I interned, bought books or did marketing. Anything that’s going to help my business become profitable, ordinary and necessary, can potentially be tax deductible.

What are the changes we need to know from the TCJA?

TCJA (Tax Cuts and Job Act) – There’s a lot of little moving parts, but the biggest moving part that’s going to affect most people is they have expanded the taxable income bracket. Let me give you an example: Let’s say if you’re single and let’s say from maybe $50,000 to $100,000 (income), you would tax it arbitrarily 20%. That’s arbitrary numbers only. The new limit would take it from $50,000 to about $107,000. So, they’ve expanded every bracket an additional $7,000. The design is to help the middle-class people pay less in taxes. So, remember, we went from $100,000 to $107,000. That new $7,000 might have been taxed at 25% last year. Under the tax law now, that extra $7,000 is taxed at 20% and not the 25% in the past year. 

What can we do to reduce our tax bill and get more on our return?

I would say three things: Number one, education. I don’t expect people to become tax professionals, but they should at least know those 10 major items that are tax deductible to them. And they should know about the credits that they may qualify for. Second, I think it’s planning and organization. Most people are running around right now or the next month or two, getting their tax documents together. You’re going to miss deductions. So, the biggest thing is that every month, capture those 20 tax things that you do in January. So, the biggest thing is going to be education, as well as organization. And the third thing is a little more difficult … but learn how to earn income that’s taxed at the lowest rate or tax free. For example, because I’m 59 and a half, I could pull $10,000 out of my Roth IRA account. That’s tax-free money. But if I earn $10,000 speaking (giving presentations), that’s taxable. So, learn how to change or create income that’s either not taxed or taxed at a lower rate.  

What mistakes does the average taxpayer make and what changes should be made?

I go back to that word again, education. They simply go to a professional and they expect the tax person to do it all for them. It’s like when you go to the doctor. If you go in and don’t ask questions … they’re going to ask you five or six questions, give you a high bill and walk out. But if you go in and already have your questions together, you’re going to get a better experience and better benefits. Think about your tax professional. Ask for a checklist on the front end, prepare that checklist and go in with your tax person and ask questions. They shouldn’t charge you more, but if you become a more educated tax (payer) … then your tax results could probably increase 10 to 20 percent.

What are some of the scams we need to be aware of?

I think the biggest scam is if you have somebody telling you over the telephone, I want to do your taxes. If you would give me your Social (Security number) and give me your children’s Socials, I’ll make sure that you get the maximum results because I have all this fancy equipment that nobody knows about. So, the biggest scam is people saying that they know things that nobody else knows. That’s a red flag. And over the telephone, people are asking for your Social Security numbers because what they’re going to do is they’re going to claim your children, and they’re going to claim you. They’re going to file before you do. And when you go to file, the IRS is going to say: warning, warning! These Socials have already been used! So those are probably the biggest and the basic ones right there. 

If we don’t file our taxes, will it damage our credit score?

Potentially it can. What I mean by “potential” is the IRS does not report to the (credit) bureau. However, if you go years and years and don’t file and then you have to get a loan to pay the IRS back, let’s say a $20,000 loan, you get that loan and you max it out day one, that’s going to hurt your credit. So, it’s more or less the indebtedness that will potentially hurt you by paying them after years and years of non-payment.  

What are the first steps someone three years behind on their taxes needs to take?

Step one would be, and this may sound like a very tough one, but if you don’t know what years you have to file, contact the IRS. I know people think, oh my God, they’re going to get me. They already know that you haven’t filed. I would say, preferably talk to your tax practitioner that’s been doing your taxes for 10 or 20 years. They can tell you. But the biggest thing, find out what years you  haven’t filed. That’s number one. Then work like crazy to get those years in order. I will file all of those together. Of course, separate years, but at the same time, because I want everything to hit it one time. And then the IRS calculates three bills, but they’ll wrap them into one. That way if you don’t have all the money, we can ask for an installment payment. And that way gets it (caught up easier) versus filing one at a time. And then stay current.  

Why do so many Americans not file their taxes?

 I think there are a couple of reasons. One, because they know they owe. They know that they’ve had little to no taxes withheld. They know that they’ve owed it for the last three or five years. And second is because of disorganization. I’ve had clients who missed out on $5,000 and $10,000 refunds because the IRS only gives you three years to file from the due date. And they came in here four or five years later and missed a $10,000 refund. If they had simply just filed, they would have avoided the failure to file penalty and the IRS would be more lenient in working with them to resolve the matter.  

Is it wise to file an extension?

Yes, if for whatever reason you’re not ready April 15th. Hopefully, it’s not because of procrastination, but maybe some forms got lost, misplaced, maybe a mileage log you couldn’t find, particularly if you are someone that has a business and you know you’re missing some key deductions, and even if maybe you changed tax practitioners and your first tax person only told you about deductions one through seven, the new one told you about deductions one through twelve, and those five new ones you haven’t documented. So, you may need time to document to support that. It’s okay to file an extension if by chance you need more time to get missing documentation.  

What is the number one pro and the number one con to filing an extension?

The number one pro is it gives you time to calm down, gives you time when your tax preparer has a little bit more time, and they can walk you through and hopefully give you better results. But I don’t really see a con in filing an extension unless you are not going to do anything to better your situation.  

When is it wise to file for bankruptcy? How does it help and hurt us?

As a Christian, I believe that we should pay our debts that are due. I think if you’ve done all you can to try to save your business, save your personal life, but you just can’t. I mean, you’ve gone to counselors, you’ve sought professionals, you’ve tried to negotiate and right now if you don’t do something, you’re going to start losing your house, your car, etc. At that point, for protection, not avoidance, it would make sense to file bankruptcy, and then on top of that, to show that you want to do what’s right. Then get yourself in order financially.  

Leave us with a scripture that will help us understand the importance of being a good steward over our money.

Matthew 17:14-21. Jesus is approached by the Pharisees about paying taxes. And Jesus, in essence, said so that they find nothing in us and so they can’t talk about us, Peter, go down to the river and get a fish. And in that fish, you’re going to get a gold coin. Go pay my taxes, Peter, and pay your taxes also. That’s number one. And then in Romans 13:1-7, Paul says the government is ordained of God, whether they’re good government or bad. But Paul is saying, first of all, whether they’re Republicans or Democrats, whether it’s a white man, Black man or woman, male or female, the government is ordained of God. So, if the laws don’t violate the word of God, we should adhere to it. So, in Romans 13, he says, therefore, those who want to do right by God, do right by the government, and, in turn, follow the rules of the land until they contradict the word of God. 

William is also the author of over 50 books and courses. You can purchase those and his newest book, “Escaping the Debt Trap & Creating $ Without a Part-time Job,” and get more info at https://williamvthompson.org. 

My phenomenal Person of the Week is William V. Thompson. 

The post Busta’s Person of the Week: Don’t miss valuable refunds! William V. Thompson gives ‘straight talk about taxes.’ appeared first on WS Chronicle.