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It's nearly the 4th Quarter; Time to Plan for Tax Return


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We are almost into the 4th quarter of 2022, which means that you need to consider your 2022 tax return. Many shops are having a very good year, which means there may be more taxable income at your bottom line.

What do you do to plan for and minimize paying taxes, while still maintaining a cash reserve? 

 

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7 hours ago, Transmission Repair said:

Great reminder!  Because my wife is an accountant, she handles all accounting functions.  She has a 2-year degree in accounting and a Bachelors in Economics.  Lucky me, huh?  We met online and married in 2006.  Even with all that, she impressed upon me that we still need a CPA to double-check the tax liability amount.  So, we hired a CPA with whom we became great friends.

He told me the most common bookkeeping error he sees in small business is misclassifying employees.  Businesses will hire someone and claim they are a subcontractor and no withholding in their paychecks.  At the end of the year, the employee is shocked to get a 1099.  Often times that would trigger a tax audit.

As our CPA was telling the story, I felt like he knew my history because that's EXACTLY happened to me in 1986-87.  I was audited by the Texas Tax Commission only to discover I owed $50K in payroll taxes to the IRS.  It took me 5 years to pay that off.  Even as I write, a cold chill comes over me just thinking and writing about it.  My tip:  There's no such thing as a 1099 employee.

 

Wow, thanks for sharing that!  I hope everyone reads this post! 

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5 hours ago, Transmission Repair said:

Speaking of taxes...

There has been a lot of controversy over the student loan bailout program.  Whether a person is for it, or against it, it's costing tax payers money.  Here's a tidbit of tax information few, if any, think about.

I'll start off with a hypothetical scenario.  Let's say a person gets $10,000 in loan forgiveness.  That's a taxable event.  The person that gets a $10K in loan forgiveness still owes the tax that would be due on the $10K.  Yes, they owe state and federal income tax on $10K because loan forgiveness is viewed in the same light as if it were income.

IMHO, if a person can't afford to pay off their student loan, they would be hard pressed to have the money for the taxes due on $10K worth of loan forgiveness.  Think about it...

You bring up a great point.  How did they get into this situation to begin with?   What would they do if there were no bail out?  All good points. 

 

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1 hour ago, Transmission Repair said:

They got into that situation because nobody has thought that far ahead to think of it, Joe.  Biden promising a $10K bailout just compounded the problem.  I was never good at paying bills with HOPE.  Assuming 2 different $10K of student loans are paid 2 different ways.  One is loan forgiveness and one other way is the old fashioned way of simply paying your bills.  

In both cases, you're going owe the tax due on $10K either way.  You're going to owe taxes on $10K to pay toward the loan you took out.  And in the other scenario of $10K of loan forgiveness, you're going to owe taxes on $10K to pay toward the loan on your student debt because it's a taxable event.

Further assume both parties are in the 23% tax bracket.  That ends up costing either party $2,300 in taxes on the $10K.  So... the student loan  pay off is really just $7,700 worth of effect debt paid.  If it's still unclear, post me a response.

You should work for the government as an advisor.  I get it, and you make sense. 

People need to go back to old fashion values and be accountable for their actions. Not looking for a bailout. 

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12 hours ago, Transmission Repair said:

Our Democrats, both inside and outside the White House, always look for a government bailout.  Did you hear President Biden just promise Florida and Florida residents that the Federal Government will cover the costs of Hurricane Ian?!?!?   Oh, brother...

Not to get political, but we need to move from a mentality of entitlement to a mindset of accountability. That is not to say that if people need help, we should help them, but moving forward we need to define clearly what the government should do, and not do. 

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