Professional Development

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Homework

0:00:03.2 Professor Walden: Hello hello. So here we are, NP Collective, we are live, so I’ll just give it a minute and allow everyone to kind of jump in and get settled and start watching. I am very excited. I think this is perfect timing. Tax Day has just been completed, and we have been through a tumultuous year, you’re trying to figure out these taxes with the ways and things, so very excited, excuse me… Very excited about our guest and who is here and definitely here to answer questions and give us some insights on to why we should do certain things and what we need to be on the look out for. I think that you guys are gonna be very happy with the information that you receive. And so I am honored that she has agreed to come see us and give us this information.

0:01:00.7 Professor Walden: So I am bringing to the table Caitlynn, Caitlynn Eldridge, so super excited. She is a CPA, so none of these funny business guys, so all of these Facebook group gurus who you see talking about taxes, no, no, no, we’re gonna bring in a professional who’s going to tell us the right way to do things. And that is exactly what we need. So let me introduce Caitlynn to you. So Caitlynn has been developing her love for numbers and spreadsheets over the last decade as a CPA specializing in business taxes. After working for public firms and corporate offices, she decided a year ago that it was time to connect with other clients on a personal level, and have her own corner office. After leaving the corporate office, Caitlynn has been helping women and small business owners across the country take ownership over their numbers. Through education and breaking through the fear of money, her clients have not only… Her clients not only have someone preparing their taxes, but someone who empowers them to make decisions about their numbers.

0:02:10.7 PW: She recently launched a membership site that takes dreamers and young businesses from confused to thriving with regard to their bookkeeping taxes and all of those numbers in between. When not running her business and educating business owners, she’s a mom to three adorable little girls, four and under a wife to an Air Force pilot, and dreaming of the day she has time to hit the golf course again. So this is very, very important to us. So we, again, as a team, decided to bring you a professional. I cannot say that enough to kind of give us some background as to how we should be approaching our taxes, she is very aware of the atmosphere, meaning healthcare and how we maneuver in this arena. So I think it’s gonna be a good one. So let’s bring Caitlynn to the stage. Hello, Caitlynn.

0:03:10.2 Caitlynn Eldridge: Hey, thank you for having me. I’m so glad to be here.

0:03:13.4 PW: I’m excited, and I know that we definitely have some folks who are joining and they are excited as well, and one of the first questions that we already had was, What’s the difference between a 1099 and W-2? And I know that’s one of the things that you’re gonna talk to us about.

0:03:32.5 PW: It is.

0:03:33.8 PW: So definitely gonna get some questions answered. So guys, you all know who I am. We are gonna let Caitlynn take it away, and I will be sitting here and I will be listening and taking notes as well, so let’s go ahead, what we’re gonna do right now is we’re gonna add her presentation and take it away, Caitlynn.

0:03:54.1 CE: Awesome, thank you so much and it’s so timely. Just today, I took a two-hour refresher course on employees versus independent contractors or W-2’s versus 1099. So all fresh information. And so it’s gonna be great. As mentioned a little bit about Me, we hit all the high points. I love coffee, good books, great crime shows, lots of podcasts, and I just have absolutely loved my time doing this. So before we go forward into that 1099 versus W-2, I wanted to take a step back and really just talk about what our tax system is. So we often play in this tax system, without thinking about it. We’ve worked for somebody for so long, they take taxes out, they submit it to the government, we file our taxes, call it a day without… But as we start to gain those tax brackets, all of a sudden we wanna kind of clue in a little bit, we want to think about what’s going on, how we can stay within the rules, but work them to our advantage, how can we save tax money, what does that extra dollar of income really cost me and really start thinking about this.

0:05:07.8 CE: So the USA, we use a marginal tax system, which means as you earn more, your tax rate goes up, that does not mean though, that if you earn… In this case, if we look at this table, if you’re married earning $525,000, it does not mean all of your income is taxed at 37%, we go up in these brackets, and so if you look here, you can see that for a single individual, the first $9950 are taxed at 10% when you are $9951 that next $1 is at 12%, and we continue this bracket climb as you earn more money. And so when you are negotiating for a job, when you’re accepting a new pay raise, when you are working that second job, these brackets start to matter because you want to be aware if you’re jumping the brackets, and it’s that $1 that will bump you, so it’s not… I would never discourage someone from earning more money, ’cause as you can see, our highest bracket is 37 cents, so you’re still taking home 63 cents for every dollar you make, but just be aware of it for planning purposes.

0:06:27.5 CE: The next part of our system is a pay as you play, as you earn that money, you’re required to pay those taxes. It’s easy, again, as a W-2 employee because your employer takes the money and sends it off for you. You never have to really think about it until you file your taxes and you’re trying to decide if you’re getting any money back or not. But if you’re self-employed 1099 independent contractor, all interchangeable terms, then you now are responsible for sending that money in to the government. And you need to do that quarterly so that you stay compliant, if you miss those quarters, it is not like some guy in a suit is gonna come and show up at your house with some handcuffs and say you’re super in trouble, it’s that you’re gonna get interested penalties. So it costs you in money to not play in the system, and that’s why we really encourage you to do so.

0:07:23.5 CE: We also have really kind of two different taxes. We have income taxes, and that’s at the federal and state level, this bracket here is the federal bracket. Your states usually run anywhere between zero, ’cause we have no income tax states up to 10% to 15%, depending on the state you’re in. Many, many states, I’d say, fall in that 3% to 7% range, but that’s our income taxes. So that’s these levels.

0:07:53.7 CE: And then we have social security and Medicare taxes, they’re also often called FICA taxes when they’re lumped together. The total employee responsibility on social security and Medicare is 7.65%. The total employer responsibility is 7.65%, so when you work as a W-2 employee, half of that is taken care of for you, so someone else is paying that 7.65% and matching what you’re putting in. When you’re self-employed though, you are responsible for both parts of it. When filing your tax return, you’ll see that you get a break on this, that they allow an adjustment and a deduction for half of it, but they add back the whole amount at the bottom. So it’s kind of a funny calculation where they’ll black out the employer apart, and then they’ll add in the total, so you get credit for half of it, but you still end up paying a decent chunk of money.

0:08:53.3 CE: And the… So this is a big part of it. So the other piece that I wanted to touch on is bonuses, so when you’re a W-2 employee, you often have either negotiated for bonuses, it’s part of your contract, it’s just how the employer works, if we’re talking negotiations and we can negotiate the timing of a bonus, we would love to see a kind of earlier in the year, and you might have no control over this, boards often have more control, so if you’re working for something with a board of directors, they’re gonna kind of direct it, accounting rules will direct some of the bonuses, but if there’s any way that you can be like, Hey, I want you to pay me out my bonus in March, it’ll help plan a little bit better for the taxes. Often a bonus will bump you in to the next tax bracket, especially if you’re married, so you have some other income to consider, if you’ve got capital gains, if you’ve got dividend income, all of those combined when you add a bonus on top of it, it often will bump you up.

0:09:53.6 CE: And so you’ll notice on your bonus that a lot more taxes are withheld, so the employer is required to withhold additional taxes on a bonus, but if you get it in March, you have the rest of the year to go into the IRS calculator and really work out how that bonus is gonna affect the rest of your taxes. A lot of bonuses drop in December so that the company can deduct it, and it doesn’t leave you much time to tax plan, to work around that bonus or to see or to plan for those taxes, it’s just kind of like, Here’s your bonus, we’re taking out all these taxes, we hope that’s right. Good luck when you file. And so it’s something to consider. Something to definitely be aware of. So if you can plan, even if they’re gonna pay it in December starting in January, if you at least have a rough idea what that bonus is gonna look like, you wanna make sure you’re accounting for it throughout the year. It’s just one of those areas that people will kinda get dinged on when they get to their tax return, and then it’s gonna be, Oh right, I got that bonus and now I owe all these taxes, we just don’t want you caught in that situation.

0:10:56.7 CE: And so that leads us, which we’ve kind of touched on, is the employee versus contractor discussion. So the one thing to take away from this is I’s effects and circumstances, whether you’re an employee or a contractor, you can’t really sign it away and say yeah, even though I’m acting like an employee, I really want you to treat me as a contractor, it’s gonna get the employer in trouble, they’re gonna… If they get audited, they’re gonna owe a lot of back taxes, if you’re acting like an employee, you need to be treated as one. If you’re a contractor, then you can be treated as a contractor. So what are we talking about? An employee is going to fill out a W-4 and they’re going to get a W-2 from that employer, and that W-4 is what outlines what you want them to withhold of your income taxes, it’s changed in the last couple of years, it changed about two years ago, and it looks like a funnier form than it used to. The purpose of the new W-4, and it’s something to really sit down and sit with is to put you as close to zero as possible, no tax due, no refund. The old W-4 tended to leave you generally with a refund, and so when we switched to the W-4 format two years ago, a lot of people were surprised when they got their taxes back because they didn’t get as much back, you had more in your paycheck every month, you took home more every month, but if you were used to a refund, this new W-4 really messed with you.

0:12:27.7 CE: And so if it’s still messing with you when we get to the end, I’ve got the IRS website in there, you can go and walk through the IRS’s estimator and they’ll let you know what it should be. And you can actually put in like, No, I’d rather have a $2000 refund, tell me what to withhold, but if you are just entering or getting back into the workforce, you’ve been out for a while and you haven’t seen the new W-4, I just wanna make you aware of it, ’cause it’s really thrown a lot of people for a loop. So an employee, though, what you’re doing is you’re working a set amount of hours, you’re working at someone’s location, you’re using their tools, you’re using their resources, they’re doing the billing for you, they’re collecting the revenue for you, they are in charge, they can fire you, they can tell you when to show up, they can tell you when to leave, they dictate your breaks, they have a lot of control over your job performance and how you’re doing it. You’re likely getting reviews from them, you might even manage people, you’re just very much in the organization and involved in the organization, and if we’re talking that you’re an employee, you can’t deduct business-related expenses on the current 1040s on the current tax refunds, so you used to before the 2017 Tax law changed.

0:13:53.7 CE: You used to be able to deduct a portion of your business expenses if you were able to itemize and if it was above 2% of your AGI. So a lot of ifs in there but it existed and that was the key part. It still exists in some states like California, but it does not currently exist at the federal level. So if you are an employee and you’re walking into the negotiations, this is the time that you need to actually negotiate for reimbursements, where you will provide them receipts and they will pay you because you can’t deduct that on your return, so if you can’t deduct it and they’re not reimbursing you, you’re just losing money, and that’s not where you want to be.

0:14:31.6 CE: So things to consider asking for is payment of your continuing education, payment of travel to that continuing education, Mileage reimbursement, if you travel for work. So if you don’t work at a set location, but maybe you’re traveling to houses or traveling to other offices asking for that kind of reimbursement. You can ask for uniforms, they may or may not permit it. And then you would also… Anything kind of ordinary and necessary to do that job, equipment that you use that might wear out over time, asking for a reasonable reimbursement of that, those are things to consider, so that you’re not left holding a bunch of expenses. Your phone could be, yes, if you need your phone for work, if you need to be on call, either they should be providing you one, it could be an ask or again, a reimbursement of a part of your bill. A lot of companies will find it easier to provide you with a work phone so that they can say, Hey, this is completely for business, we as the business get to completely deduct it.

0:15:37.9 CE: An independent contractor, you’re calling the shots, and so you get to say when you’re working, for the most part, you’re gonna be doing your own billing, you’re gonna be using your own tools and equipment, you’re going to not really have much at all to do with their organization. You’re not gonna be managing a lot of their employees. You’re not going to be using their insurance is a big one in this case, so you’re gonna carry your own malpractice insurance, you’re gonna carry your own umbrella policies, whatever that case may be, and you get to turn down work and you get to turn down hours too, and say No, if I’m too busy, I’m not gonna do that. You really can’t control me.

0:16:25.3 CE: And you’re likely also working for other places, and you as yourself have a business doing this kind of work. And so that puts you more in the independent contractor, that puts you to needing to fill out a W-9 and that just basically says to them that you’re an independent contractor. And then depending on how they pay you, they’re gonna send you a 1099 at the end of the year, and that 1099 is what flows through your tax return. As an independent contractor, all of these expenses we mentioned are now open for you to deduct, which means your mileage, your phone, your insurance, your continuing education, travel, a home office, so you can take a home office deduction if it’s applicable, advertising, marketing, anything you’re doing that’s ordinary and necessary to run the business, you can deduct.

0:17:20.3 CE: And so it allows you to reduce that income, but on the flip side, no one’s holding… Withholding taxes on you. You’re now responsible for that piece, you are required to submit them quarterly and you’re required to pay both those FICA taxes, both sides of it. And so that really can be a good thing, you can negotiate often for a higher rate as an independent contractor because you have to carry all these expenses and you have to pay all these taxes, but you… It’s also adding responsibility, probably some light bookkeeping using an Excel, keeping up-to-date on all of that.

0:18:01.4 CE: And so, if the facts and circumstances support a contractor, you can still even negotiate for an employee. So you can always default and they can always default to making you an employee, but justifying the independent contractor is a lot harder. It’s going to be a lot harder too in states like California that are getting very aggressive, very quick about independent contractors in wanting to lump people as employees. The purpose of that, we’re still not quite sure. Probably a political thing in California, but we’re seeing the movement away from employees and to independent contractors. And so it’s also something you’re just gonna want to keep an eye on because as states start to change the rules, we start to see it kind of filter up to the federal government and they say, Hey, maybe we need more of a federal ruling around independent contractors, or if states start winning this and start changing the laws, the IRS starts getting involved and saying, We’re gonna get stricter about how we test for an independent contractor versus employee.

0:19:07.0 CE: So the training I took today was really good and talked about all of this, but the other part they talked about is, sometimes you walk into a situation where you’re told you’re going to be an independent contractor, but everything else smells like employee, every part of what you’re doing says employee, and it doesn’t feel right. There are ways for you to report the employer to let the IRS know that they need to come and look at this. Many people are scared to do so, ’cause it causes an audit and you do you have to report who’s doing it, so it could cost a job, but if it’s something where you get to the end of the tax year, and you thought you were an employee, they handed you a 1099, you do have repercussions, you have a way to go through the system, and that’s something you can talk to your accountant about when you get there. And so I just wanna make you aware for something to put in your back pocket, just because some employers can be fishy, and they just don’t want the responsibility of an employee, because they do have to pay things like workman’s comp, and they just don’t wanna do it. So not all are that way, but in this area where it could go either way, just make sure you’re clear when you start the negotiation, you’re clear about the responsibilities, and you know what’s going on.

0:20:26.7 CE: Now to kind of further go down this independent contractor path, we’ve said that if you are a business, it really bolstered the argument, and that means you’re serving multiple people with your skills and services. And then we start talking about whether it makes sense to be a sole proprietor or an LLC. The LLC is going to be a legal protection, and so it’s not going to do much more tax-wise, it provides some opportunities for switching into an S corp later. But tax-wise a sole proprietor and a single member LLC is the same, goes on the same part of your tax return, the deductions flow through the same way. The nice part, of course, is that liability protection with what you’re doing as a nurse practitioner, it’s important to have… And I would highly recommend it, you need to check your state regulations and rules because some require you to be a professional LLC, so P LLC, so that you can fall within the guidelines of your state. I know what applies for accountants, it often applies for realtors, my guess would be it’s just something to look at as a nurse too, and that’s your secretary of state website.

0:21:39.6 CE: They’ll have a lot of good information for you if you’re in a less populated state, you can often call and get someone pretty easily and they’ll talk to you through all the things you need to know, so it’s liability protection, and you always wanna pair that with insurance but you have to protect your LLC, and that means you have to have a business bank account that you do not use for personal purposes, and you cannot use your personal for business.

0:22:09.7 CE: What they call that is piercing the corporate veil, so all this protection, you have this wall you have built between yourself and your business, starts to get chipped away, it’s like someone taking a sledge hammer and… Parts of that brick, every time you use that business bank account for a personal purpose, it suddenly makes it easier and easier that if someone sued you and said, Hey, they messed up, you no longer have that nice solid wall that says, Okay, you can go after what’s upper in the business, but that’s where it stops anything personal you can’t reach every time you co-mingle these funds, which is what I just said, using your bank account for the wrong purpose, you just chip away at that wall, any good lawyer at that point can come in, audit your financials and say, Yeah, nice try. You didn’t protect your LLC. We can now go after your personal assets as well as your business assets, so that’s where those business bank accounts, business credit cards, and then business bookkeeping makes sense and really keeping that as separate as you possibly can… Yeah, it can be. It sounds scary, it’s just a good…

0:23:23.6 CE: Honestly and truly, a good lawyer can likely get around an LLC even if you follow all the rules, a mediocre lawyer will start to get through the LLC if you don’t follow all the rules. LLCs often come… Also come with yearly filings or every other year filings with your state, some states it costs more to keep one. So California is extremely… Is on the expensive side at about $800 a year, just to have an LLC and register it with the state. Other states are somewhere between $50 to $200 and you’re gonna keep yours, so those are things you want to look into on that independent contractor side, but again, that protection can be quite useful. If, however, it’s expensive and it’s cheaper to just carry a lot of good insurance that’s something to do too. That way, you aren’t paying a lot of money for something, for the LLC, especially if you’re not using it, so some people will start an LLC and then drop it, and if that’s the case, you’re gonna wanna look at closing it, so you’re not paying fees just to keep an LLC open. Mileage, if you are self-employed is a big thing to track, you need to be able to justify it on your tax return, and you want to do that throughout the year, and I know we are four and a half months into the year at this point.

0:24:48.3 CE: And so you would wanna go back and recreate your records from January through now, and what that looks like is checking your calendar, where did you go, writing down in an Excel what you did, what that mileage was, and then the day you went there. From here on out, I would highly recommend looking into an app, if you’re not a person who’s gonna write this down, something like Miles IQ to track your mileage, you need to be able, at the end of the year, like I said, to justify your business miles first, your total personal miles, to get that deduction, it’s a nice deduction, it’s 56 cents a mile, but if you’re not tracking it, you can’t really take it and re-creating it next spring is going to be nothing but a headache, so you wanna do it now while it’s fresh in your mind. If you are a paper and pencil person, writing it down on paper and pencil, tallying it up every month… Perfectly fine, as long as you’ve got the records, you keep them for seven years, and it’s something… I mean, from a tax preparer perspective, something nice and easy you can hand to the tax preparer, don’t make them tally up all your miles, hand it to them, added up, that would be super helpful.

0:25:56.4 CE: And then your receipts, you need to keep your receipts for your business for up to seven years, and you need to find a system that works for you. So if you are, again, a paper person, or a lot of what you do is paper-based, a folder that you’re keeping somewhere safe and that you can keep for up to seven years is perfect. You need to be able to go through it. So if you’re a super detailed person, you can organize it by month and type of receipts and staple them all together and go gung ho, if you are insanely busy, which you probably are, you can just toss it all in a folder, put the year on that folder and just know that it’s there. Most likely, your tax preparer person isn’t gonna need those receipts, it’s for your documentation if the IRS comes knocking, however, if they don’t quite understand something, they might ask for it, if you’re electronic-based or you just tend to be more techy, you can save all of your receipts in an email folder, you can save them in Google Drive, you can save them on your hard drive, like plenty of options here, we just need something we can access seven years from now, the IRS typically only audits back three years, but they are allowed to go back seven, usually that’s for fraud. So it’s very rare that we see it happen, but that caveat needs to be there, and you just need to have those records.

0:27:19.7 CE: If you’re looking at me right now and saying, Oh, I don’t have my receipts from two years ago, I’ll start now, but what happens now? The risk at that point just becomes that if you ever got audited that the IRS would disallow that deduction, so it’s not… So if you deducted $100 on advertising, you have no receipt for that $100, they add back that $100 to your taxable income, take the tax on it, so you’re not paying back the whole $100, you’re paying back whatever your tax rate is, what we looked at on that first slide, so 15% plus interest and penalties, so it’s not as scary as it sounds, it’s why you will hear some people take the risk, even though it’s not a legal risk to take, even though they cannot support it upon audit and all of that means you should not take it, but it’s why some people will take that risk and say, Oh, if they catch me, I’ll deal with it later, that’s not the path I encourage any of you to take.

0:28:20.0 CE: I just want you to understand when you’re in those Facebook groups and you’re with your friends, that that might be their mentality, and that’s why understanding the why, it tends to help. Okay, that was a lot. And so as you start earning more, the questions start becoming, Well, how can I reduce my tax liability? And when you’re employed… A frustrating part of that is there’s not a whole lot we can do outside of our employment to really reduce that, we can add some extra money into a traditional IRA if you’re young and you talk to a financial advisor, they might be like… They might not encourage it, and so this is where you need a good team, you need a great tax person, and you need a great financial advisor person. Because what you want to do is to analyze, does it make more sense to pay more taxes today versus when I retire? Do I think I’ll be in a lower tax bracket when I retire? And if so, if you think when you retire, you’re gonna be in a lower tax bracket then doing something like a traditional IRA with pre-tax dollars will lower your tax liability today, it’ll probably raise it in the future.

0:29:42.9 CE: And that’s because you have to pay taxes on the growth in that IRA, because you put in pre-tax money, where if you tend to be younger and you’re like, Oh no, right now, because of… Our income isn’t that high, or… I just… I think even at retired, it won’t be a big deal. I would rather use a Roth IRA, you get no tax benefit today for that Roth IRA, but all of that money you put in gets to grow tax free, so when you take it out, you’re just in a better place, which is really nice. So those are things to consider. However, if you’re a W-2 employee, look at your employer’s 401 [k] options, ’cause they should have a pre tax and after tax option, but it’s pre-tax, then again, you’re deferring that tax liability into the future. Look at your HSAs, your FSAs, both of those. I would highly, no matter your tax bracket, because it’s just… It’s setting money aside for something you’re going to use that you don’t have to pay taxes on, so your HSA is for a high deductible plan, and you get to chunk a bunch of money into it and use it for medical expenses.

0:30:56.2 CE: What I love about an HSA, and if your employer has it, I would just love to see everyone use, because it gets to grow, so an FSA, you have to use within the year, so you have to put in the money that you know you’re gonna use that year, an HSA gets to carry on, so if you can chunk $5000, $10,000 away into it, it keeps growing, which is really, really nice. The FSAs are often used for childcare, so if you’ve got a kid and you know you have to pay child care, basically, you chunk a bunch of money in pre-tax, and then you pay your child care provider with that, and now that $5000… I think it’s $5500. No it’s $5000 even, gets to just pass through basically without ever having touched taxes until It gets to the childcare provider, so that’s really a good thing you’re gonna pay for this anyway, might as well, save some taxes on it, and then some of your insurance options might be pre-tax. I’ve got a question, but before I get to that, I want to go back to self-employed, so if you’re self-employed what options do you have? SEP IRA is a nice one. And this is again with pre-tax dollars, this actually might answer that question too.

0:32:12.5 CE: So if you’re a contractor, you’ve got a 1099, a Schedule C, you can use… You should be able to use a step IRA, talk to your financial advisor about it, but a SEP has a much higher contribution limit and it’s 25% of your net income or $56,000, whichever is less, so if you are making a good chunk of money, a SEP is definitely something to consider because of how much you can put into it. If you are completely self-employed, so this wouldn’t apply if you’re also a W-2, your health insurance premiums can adjust your tax liability down. The one thing that you do not want to take a deduction for if you are self-employed is your disability premiums, I know it sucks not to take a deduction, but don’t do it, because if you don’t take your disability premiums as a deduction, when you… If you ever need to collect short-term, long-term disability, you get to take that tax free, if you deducted those premiums though you’re stuck paying tax on that income, what it comes in, so you really…

0:33:15.8 CE: It’s the one thing you wanna be careful of when you’re putting that schedule C together, just pretend they don’t exist, is the best way to do it. And you don’t need to pass to your tax advisor on the off chance, they’re gonna just kind of say, Oh, it’s insurance and not read what kind of insurance, a good one will, but just pay your disability premiums, suck it up that you won’t have a deduction for it, and then you’ll be better off in the future if you do ever have to collect on it. So if you were both a W-2 employee and a contractor, you’re gonna have to plan for it, you can use your W-2 job to pick up your taxes of your contracting work, so you can withhold it a higher rate at your W-2 job, it’s not like that’s reducing your liability though.

0:34:03.9 CE: It’s gonna be retirement accounts, and at that point, I would probably lean a little bit more on my W-2 side and use a pre-tax 401 [k] because the limits are higher on my W-2, I can put in about $19,000 of income into my 401 [k], so it’s gonna bring your W-2 income down, but you’ve got that independent contractor bringing you back up, but at least then you can defer some of the income that way, otherwise as a contractor would be talking to SEP, a Traditional IRA, lose out on the health insurances if your employer offers you insurance, if for some reason they don’t and you have no other insurance options then as a contractor, you could deduct your health insurance premiums that way. It’s hard, it’s hard when you start doing that and when you start bringing in all of that money to play that… The other option is not negotiating on the W-2 side for them to reimburse you for expenses, most reimbursements are tax-free so I wouldn’t… If your employer will pay for it, but taking all of that into your contractor work, so all of your continuing education, all of your contractor…

0:35:18.0 CE: The bummer is though, then you’re just not taking that income home, so as much as we push and push to reduce our tax liability, it takes cash to tax plan. So keep that in mind. When we talk about things like retirement, we have to have that cash to do so, and then it’s still money not coming into your house, and so when a business tries to get as close to maybe a net income of zero, that means you’re spending a lot of money on expenses, and that’s not necessarily pushing you forward to where you want to be, which is building wealth, and so it’s gonna sting to pay the taxes on it. But again, like we had kind of shown in that first slide, the most you’re paying is 37 cents plus your state income taxes, so not really the most, but you’re paying that 37 cents, you’re still keeping that 63 cents, and that’s 63 cents, you get to control and you get to build wealth with, so don’t try to cut off your nose just about your face, so don’t try to drive your contracting job down to as little income as possible and have just spent all this money that may be for business purposes, you wouldn’t have made that decision like don’t only do it for tax purposes. If it’s a good expense to spend because it’s gonna get you to where you need to go, that’s a different story.

0:36:38.2 CE: Okay, and then special considerations, so when we’re filing our taxes, the most common thing I often get asked by those with uneven incomes in a household is what about married filing separately? And so, married filing separately will sometimes lose you trial tax credit, so if you’re married with kids, you really do wanna look at this calculation and make sure that the taxes, potential additional taxes outweigh or are not more than what you would save on the interest. So why you would do this is for student loans, some student loans have an income-adjusted payment plan, and so if they’re your loans and you’re not quite the highest income earner, but your spouse, miss, maybe is earning a lot more than you… You might wanna consider a married filing separate to lower that student loan payback if you’re carrying a lot of student loan debt, but again, weigh that, make sure that you’re not… Not paying the interest, but then turning around and paying a bunch more taxes, but most… Again, most softwares, tax prepare softwares can easily run the calculation and let you know.

0:37:51.5 CE: If you do have to file married filing separate, it is two tax returns, and so you might pay a little bit more on the tax prep side, but it should be worth it on the savings on your student loans. And then just as consumers of the news, keep an eye on legislation, we’re hearing a lot more talk right now about potential forgiveness, that forgiveness will be capped most likely in an income level, and that how they treat married filing separately will be important because if they say the cap is, let’s say $150,000. And if you make 80, your spouse makes 100, well, you may have phased out, but if you do married filing separate, is there a good chance that you can get your loans forgiven? Correct. So you have to look at the child tax credits. Some of them still pass through and some of them don’t, but that’s the weight of that. Can you lower your student loan payments enough that maybe losing that child tax creditor portion of it makes sense? And if you are married, you have two options, married filing separate, married filing joint. If you’re in the process of divorce, it might look a little bit different.

0:39:03.8 CE: But if you have found someone who tells you that even though you have lived together for 12 months, that you have been in that same house, that you have paid all the bills together, whatever that case may be, and they’re trying to tell you one of you can file head of household and when if you file single, they are wrong, that is not how you file. I wish there weren’t tax preparers out there who did that, unfortunately, I’m constantly reading stories about it, so I just wanna make sure you’re aware. And then travel nursing. We saw a lot of it in 2020. I also know it’s a popular thing to do. Just be aware of the state you’re in, and the states you’re earning money in. Some states like New York, a day there justifies you having to file New York taxes. Some states will give you a break, that if you’re there for less than 10 days, you don’t have a requirement to file. Anything over 10 days, you do. And so you’re gonna then have probably a requirement in the state you travel to, in the state you lived in for taxes, and if you’re traveling to multiple states, you might have multiple states you have to report in. If you are an employee, then they should be tracking that for you. If you are not, though, as an independent contractor, you’re gonna wanna keep a really good calendar of what dates you’re where, and be prepared for multiple state filings.

0:40:27.8 CE: Most states will give you credit, so if you end up owing taxes to California and Georgia and Mississippi, a lot of states will give you breaks for the taxes that you’re paying elsewhere, so you shouldn’t have triple taxes on your state income. But just don’t pretend that doesn’t exist, and don’t put your head in the sand about it. Your tax preparer can help walk you through it. If that’s the case, if you’ve got multiple state filings, that’s definitely a time to hire a professional just because bringing in all those states can be such a pain on any kind of self-prep tax software, Turbo Taxes, Tax Act. I don’t know what else is out there. But they’re just not as robust and prepared to deal with it, so it’s gonna be worth the expense of hiring somebody at that point to help walk you through it and make sure that you’re filing appropriately and meeting all the state requirements. Keep your receipts, of course, if you’re an independent contractor doing all that traveling. Meals for 2021 are 100% deductible, any restaurant for a business purpose, and for traveling it would qualify too, so keep that in mind, keep those receipts.

0:41:49.6 CE: Alcohol is never deductible, because it’s considered entertainment. But if you’re meeting, let’s say your new boss or something out for a meal and you pick up the tab as an independent contractor, you can do that, and you could pay for that meal. And, yeah, taxes where you filed and worked. So that is a lot. I talk extremely quick. So these are the resources. That W-4, I just wanted to put that website out there. I can pass it along too, so you guys can click it later if you want. But the IRS site, what it’ll do is walk you through all of your income possibilities and then tell you how to fill out this new W-4 to get the result you want. Like I said, if you wanna end up as close to zero as possible, if you want a refund, if you’re like, “Oh, no, I’ll owe $500,” you can really play with that form to get there. You can also use it as a self-employed individual as you know your net income, and plug that in to give you an idea of your total tax liability. Student pay those quarterly taxes.

0:42:46.5 CE: If you formed an LLC and you want to one, like I said, the Secretary of State website is the best for kind instructions how to form it. A lawyer, of course, too. But if you wanna do it yourself, there are ways you can do that. And then traveling nurses, the State Departments of Revenues of the states you’re traveling in, really good resources for the requirements you might have in that state for tax purposes. Super friendly people, so for the majority of State Departments of Revenues, they’re fairly knowledgeable and they’re easy to get a hold of, which is really nice. And you don’t even have… You don’t have to give them any information either, so you don’t have to worry that you’re flagging yourself or anything. You can just call up and say, “Hey, I’ve got a question,” and they’ll walk you through the answer. So a bunch of resources. I covered a bunch. If there’s any questions, I’m still watching. But yeah, that’s a lot.

0:43:44.2 PW: No, it was great. I appreciate it, Caitlynn. No, it was good. So I definitely have some takeaways and probably some areas just for clarity’s sake. So early on you were talking about bonuses. And NPs definitely do get bonuses. It is something that they… That they will just get. And you said talking about the timing, and I just kinda wanted to know more so for those of us watching who are working in the industry. Remember, you do get bonuses. Those bonuses are typically based off of RBUs, which we’re gonna have someone come talk about. But think about and remember what Caitlynn said, “If we can kind of negotiate the timing, it’s going to be helpful for you.” Because everything that she mentioned is kind of trying to… And correct me if I’m wrong, is trying to lower that tax liability. So that first slide that she showed that had the tax brackets, we’re always trying to get out of the high ones and go to the lower ones, because as we tend to make more money, we jump to the high ones, correct? 

0:45:05.5 CE: Correct. And so some of that bonus is also just to be prepared. So you have that cash and a lot of our tax planning abilities and our abilities to lower that tax liability, when the clock strikes midnight on December 31st, run out. And we really lack a lot of options other than a traditional IRA. So if we can get that bonus earlier in the year, we have that cash to play with throughout the year, to talk to our financial advisors and be like, “Hey, what’s the best plan?” But we also can be prepared for it. So like I said, going into the IRS, we can say, “Hey, I got this huge chunk of money, what am I looking at for taxes now?” So we don’t get surprised.

0:45:42.1 PW: Right, and so that’s where it comes in, which, guys, I’m gonna email Caitlynn to see if she’ll play with the calculator with us so we can get some ideas. [laughter] But that’s when… When she’s saying, “Hey, we got this chunk of money,” going to that calculator and playing around with that calculator, like, “Oh, my income is looking like this, so how again do I lower that tax liability?” Again, how do I get out of that high tax bracket and come back, fall back into those lower tax brackets so when April comes around and we’re filing our taxes again, we are not caught by surprise.

0:46:26.9 CE: Correct.

0:46:28.4 PW: Awesome. So it looks like you have a question.

0:46:31.1 CE: Yeah, so if you are a W-2 employee, you can’t set up an LLC to pay yourself as an employee. You can set an LLC up. You can elect an LLC into an S corp, but you would need to fall under those independent contractors to do that. And as an S Corp, it’s a tax planning entity, because you can pay yourself a reasonable salary and then take the rest of that net profit home and only pay income taxes on it, and what we’re saving at that point is those FICA taxes, that 15.3% by being able to split a reasonable salary out. Keep in mind though, the IRS is auditing S Corps more. And a reasonable salary as an NP is hard if that’s the only thing flowing into this independent contractor and LLC. It becomes a lot harder to say that the whole amount isn’t the reasonable salary.

0:47:32.6 CE: However, if you do other activities like this and you’re teaching courses and you’re an NP and all of that is under the same LLC, now we can really pull out a reasonable salary. If you’re actively working for that work, it’s really hard to say the whole thing isn’t reasonable. You’ll find people who can make that argument, but as I sit here today, I’d have a very hard time as a tax preparer saying, “That whole thing isn’t a salary,” ’cause you worked every hour to make that money, you probably got a bonus, but that was all due, all of that income was due to your input. And so an S Corp, it’s a lot of complications, at this point, for not a whole lot of salaries. But that’s where, like I said, you would have an LLC with a W-2. But if you are a W-2 employee, you’re a W-2 employee.

0:48:20.0 PW: I think that, and that’s where we get into that Facebook thing. So let’s kinda stay there for a second, ’cause I actually wrote that down. So if you are W… This kind of helps with that question as well. If you are a W-2 employee, that means that you work for somebody else. You work for a clinic, you work for a healthcare organization, and you are their employee, they withhold the taxes for you. Everything that Caitlynn said earlier. You cannot file as a business within that organization, is basically what Caitlynn is telling us, because for tax purposes, it just doesn’t line up. But let’s say that you work for that organization and you get hired instead as a 1099, and she touched on this, you get hired as an independent contractor. And correct me if I’m wrong, this is where you could file as an LLC, and then this is when you talked about, but you had to have a separate business bank account, so that you didn’t intermingle your money. You needed to keep the receipts. You needed track your mileage. There are certain book-keeping things, because you are now looked at as a business, that you need to keep track of so that you can hand those things over to your tax preparer at the end of the year and they can file you appropriately. Could you pay yourself as an employee from your LLC if you are an independent contractor? 

0:49:56.2 CE: No. So if we are a single member LLC, independent contractor filing on a schedule C, you are not an employee. So all of that money, you take your income, take all those deductions, and it flows down and says, “Hey, here’s your net income. This is what we’re going to pay FICA taxes on, and this is what we’re going to pay income taxes on.” You can have an employee, so you can hire someone, let’s say you’re hiring a billing manager. So you can pay a billing manager as an employee, but as a single member LLC, you still are self-employed and you’re not going to pay yourself as an employee. If you want to pay, ’cause often when we talk about paying ourselves, we’re like, “How do we get the money? I want the money back.” We’re talking about transferring money from our business account to our personal, nothing more than that. So we’re not gonna hire a payroll software for ourselves. We’re not going to submit our taxes and get a W-2 at the end of the year when her single member LLC, we’re just gonna move the money from our business account to our personal.

0:50:56.4 CE: If you’re doing the book keeping yourself in a software, you just call it like an owner’s draw, it doesn’t affect your net income. So don’t go move every last penny and look at your bank account and say, “Oh, I have no income at the end of the year, I’m good to go.” That’s not how we play. So you have to report that income. But it’s always that functionality of paying yourself, and it’s really pretty easy. So if you’re going to go to the grocery store and you need money, you need to pop on real quick, transfer the money from the business to the personal account and use that personal card to buy those groceries.

0:51:27.8 PW: So again, if I’m the LLC, and that’s how I was hired as an independent contractor, I can pay myself. I cannot move all of the money, that is what she’s saying. We’re not doing that, we’re not moving all of the money. But you can act as though you are paying yourself. So every two weeks, move some of the money, a valid percentage that you need to live on. Leave some money in the bank account, and then go pay your personal bills or anything. We just cannot directly take money from the business bank account and pay our personal bills. I hope for either of you that makes sense.

0:52:06.9 CE: Yeah, and you can remove all of the money, I just have known a number of tax payers who estimate their taxes based on their bank balance. And so if that bank balance reflects money you’ve paid yourself, then it’s not the right balance. There’s still taxable income you missed, and so that’s what it is. Or they’ll mis-classify it on the profit and loss, and be like, “Oh, look, I had no profit because I paid myself all of the money,” but that money you paid yourself is taxable income. So we just need to make sure that we’re doing that right when we’re estimating our taxes throughout the year.

0:52:39.3 PW: Gotcha. So if you notice, again, just kind of reiterating, you can, as an independent contractor, create an LLC where you can get more deductions and things. However, be very clear that there are certain book-keeping things that you need to make sure that you are keeping track of and that you have so when the end of the year comes, it’s all legal and your tax preparer can get the right deductions for you. So that’s basically what we were trying to say. So again, 1099 is great, because like you said, “There is a movement that is happening where we’re starting to see a lot of, especially healthcare workers, they’re starting to hire a lot of us just under that 1099 umbrella,” which is great because we can get deductions. So we can get deductions and that’s fun because it lowers us, it brings us out of that high tax bracket, puts us in a lower tax bracket. But we have to pay attention to those taxes that are not being withheld, and that’s where people get in trouble. And that’s why I always say, “If you’re not good at financials and you don’t have someone else like a Caitlynn or somebody to help you, you’re gonna get in trouble.” Because at the end of the year, you’re gonna end up owing a lot of money because you haven’t set aside an appropriate amount of money to be ready to pay the government back.

0:54:06.5 CE: Yes. No one wants the piece of the pie.

0:54:09.6 PW: Right. Right. So those were great questions. And basically the things that I wanted to hit on. I know that with Caitlynn be… And this is a be the last thing, the IRS, the link that you put up, the withholding calculator, it’s a little intimidating. So it’s a little intimidating for us, which is why, fingers crossed, guys. I’m gonna try to talk her into it, no promises, but I’m trying to get some scenarios, we can make up some scenarios and then go through and play with the calculator to show us what that looks like so that we have an understanding of how that works, and what we do, if we do get a bonus. How we make those adjustments. What we do if suddenly we went from making $80,000, now we’re making $110,000, and what adjustments we need to make and how we need to look at things. So no pressure, but those are the kinds of things that we’re looking at so that we have an understanding of how to look at that.

0:55:22.6 CE: Definitely, we can walk through that. And your pay stubs are your best friends whenever you’re pulling up that IRS calculator. So I could never just look at it as a person. Even when I was employed, I had to pull up my own pay stub and be like, “Okay, what did we do?” So don’t go into it cold and be like, “Oh, I can just remember all these numbers.” You’re just gonna want that recent pay stub you had. But I’d love to walk through it. I’m happy to record a video and show you guys how it works.

0:55:51.2 PW: Yay! So that would be awesome. So with that being said, I so appreciated this. I know that everyone clearly appreciated this. There are lots of questions that were flying around. I’m sure we’ll get lots more in the group, and we’ll definitely throw them at you. If we have some issues, I’ll be like, “I don’t know, let’s call Caitlynn and see what she says.” But I appreciate you so much for coming and doing this time, and just kind of giving us this background info.

0:56:26.2 CE: Yeah, my pleasure. And before you let me go, it’s hitting the news waves. We are getting a Child Tax Credit pre-payment starting in July. So if you have kids, what they’re gonna do is they upped the amount. So it used to be $2000. They’re upping it to $3000 for kids 6-17, and $3600 for kids under six. And rather than getting the whole chunk on your tax return in April, they’re gonna divide it all out and give it from July through December. If you make married filing joint over $150,000, they’re gonna phase you out. To determine this, they’re using your 2020 tax return.

0:57:05.8 CE: So if 2021 is gonna be an amazing year compared to 2020, if they overpay you, you’re gonna have to pay taxes back on what they paid you. And so unlike the stimulus bills that we got, and we didn’t have to pay back if they shouldn’t have paid us, this one you do. So in June a portal is opening, and you can pop into that portal and you can say, “Hey, just don’t send it to me, I’ll deal with it on my tax return.” Or you can say, “Hey, this is what I think my income is really gonna be, 2020 wasn’t accurate.” And that will help the IRS and that will help you get everything a lot more correct and less surprised, hopefully, at the end of the year. So I think I’ve seen everything from free money to paying for children and all these things, and so I just wanna make sure that you’re aware that this one’s a little different in that we have to pay it back if we shouldn’t have gotten it. If you’ve ever received the Marketplace Premium tax credit, it works like that, where if you’re over that limit, there’s gonna be a calculation and there’s gonna be some money added on. It’s not free. There’s always a catch. But yeah, we’ve spent a lot floating around on the Instagram.

[overlapping conversation]

0:58:20.0 PW: That’s hilarious, though. [laughter] I appreciate you so much, and it’s been great. We can’t wait to have you back. And I’m absolutely sure we will, so we’ll talk soon.

0:58:34.4 CE: Sounds good. Have a great one.

0:58:35.2 PW: You too. Alright guys, so I am super excited by that, lots, lots of great information. It looks like we’re gonna be able to have her back and talk a little bit about… And talk about this withholdings calculator, and try to get some scenarios for you guys so that we can kind of walk through those, get some… We’ll find some paycheck stubs or something. We’ll figure it out. You know how we do. And we’ll get that to you so that we can kind of walk through that and show you what that looks like, again, to better help you. Because remember, like I said before with Naseema, one of the things that we’re also trying to do in here is to make sure we take care of you holistically, and we normalize being millionaire nurses, like this is a normal thing. We normalize talking about money. We normalize understanding money, because that’s half the battle, right? So we wanna do that. So if you have questions, please make sure that you post them so we’ll get them to Caitlynn if we can’t answer them. But please post them in the group and we’ll get them to you. So as always, super respectful of your time, and we are right at an hour and I appreciate you and I hope you enjoyed it. Alright, I’ll talk to you guys soon. Bye.