Ryan: Welcome everyone to the Open In Indiana Podcast, where we feature the people, places, and events that make Indiana a great place to live, work, and visit. Today our guest is a local tax expert, Jeannette Pederson with Pederson Tax Service. How are you doing today, Jeannette?
Jeannette: I’m well thank you, how are you?
Ryan: I’m doing very well. Jeannette, we’re coming up on the tax deadline here, in just a few short weeks and I thought it would be a great opportunity to ask you some of the differences or some of the things that you’re noticing, that’s new for anyone preparing their 2019 tax return?
Jeannette: The changes that have been made for this year include a little bit higher standard deduction, for 2018, it was $24,000 for a couple, married joint, this year, it’s $24,400. And individual went from $12,000 to $12,200. So, we’re getting a little bit more free income.
Ryan: And, so that means for the average person who doesn’t itemize each of their deductions, it gives them a bit of an advantage going in?
Jeannette: Absolutely, it does.
Ryan: And, so we’re about a year in now to the new tax brackets, what are some of the biggest differences you’ve noticed in preparing people’s tax returns?
Jeannette: There haven’t been significant changes, but with the standard deduction a little higher, I do have several people who paid expensive childcare, so that’s a consideration when you’re preparing your taxes. If you have a flexible spending account or an HSA, you can get pretax dollars to pay for your childcare.
Ryan: And, so that’s a big difference over previous years, is it not?
Jeannette: Not necessarily, but it’s more important to take advantage of it now, because the numbers have gone up for childcare, it’s very expensive.
Ryan: And, so are there any kind of deduction that have gone away since the last tax year?
Jeannette: Nothing new has gone away. There have been changes made with the 2017 Tax Reform Act that people are still getting accustomed to. For those who are self-employed, there’s a category called meals and entertainment. That one has basically been gutted.
Ryan: And, so that means your meals and entertainment expenses are no longer tax deductible.
Jeannette: The meals are deductible still, at a rate of 50%, but entertainment costs have just about gone away.
Ryan: So, you can no longer take a client out. You can have a meal, but you can’t then go see a show later on or go golf and count that as an entertainment expense?
Ryan: And, so, let’s touch a little on the self-employed individual cause we met through networking and we’re both entrepreneurs. What are some of the biggest changes that have happened to someone that is self-employed?
Jeannette: The main difference for someone who is self-employed, who used to have a job, you’re responsible for your own social security tax and you’re Medicare tax. That’s approximately 16.3% of your net profit. So, that’s money that has to be paid, whether your business makes a profit or not.
Ryan: And, so, what is the deadline to get that submitted?
Jeannette: All tax deadline is April 15th. If you have a corporation, the tax deadline is March 15th.
Ryan: So, corporation is like the INC designation, or LLC, or S-Corp?
Jeannette: No, S-Corps and LLC both flow into your personal tax return. But the corporation is the one that has to go by March 15th.
Ryan: Okay. And, so, you talked about someone who was employed and is now self-employed, are there any kind of real things that they need to pay attention to to make sure there aren’t any surprises come tax time?
Jeannette: The main thing is just setting money aside to make sure you can pay your self-employment tax and your Medicare tax. The other thing to consider, in keeping track of your expenses, detail is important. You need to keep track of all of your revenue, all of your expenses. When tracking your automobile or trucking expense, it’s the mileage you want to keep track of. For 2019, it was .58 cents a mile. For 2020, it drops to .57 cents a mile. But if you’re somebody who drives 10,000 or 15,000 miles, that can be a big deduction off of your taxable income.
Ryan: So, let’s talk about the importance of getting these expenses documented when they happen. What are some of the ways that self-employed individuals can get these things recorded so it’s easier to recall later?
Jeannette: There are several mobile apps that you can get for your phone. Will allow you to designate what’s business and what’s personal. It will keep track for you. If you go continually to the same place, such as our networking meetings, where we go either once a week or once a month, the app will remember those for you. The other way is to just to record your mileage just in a notebook. Keep it in your car, record the beginning and ending mileage when you go someplace, keep track of who you saw and what the purpose for your visit was.
Ryan: And, so for someone who’s considering now what their tax liability is as we get closer to tax time, there are still a couple of ways that folks can get their tax liability reduced for their deadline, correct?
Jeannette: Yes. At this point, the only option you have is to make a contribution to your IRA, not a ROTH, but an IRA. Those are deductible from your income taxes.
Ryan: And, so for getting everything ready this year, 1099s, W2s, those were all due out at the end of January, correct?
Jeannette: Yes, that’s correct.
Ryan: And, so what happens if someone has not received all of that documentation yet?
Jeannette: They need to be on the phone with the person who was supposed to provide that. If the person is still lagging behind, they can actually call the IRS and file a complaint that if you do not file those forms on time, there could be a penalty. Up to $750. Per item.
Ryan: For the issuing company?
Jeannette: For the issuing company, yes.
Ryan: And, so, let’s talk about changes that happened over the last year. Is there anything a couple who got married or a couple that got divorced or a couple that had children in the last tax year, that they need to be aware of?
Jeannette: For people who have children, they need to provide a social security number for the child. Those are done almost immediately upon the birth of the child now, but you must have that to file your tax return. For people who have divorced, in Indiana, we do not have anything called alimony, but there is something called spousal support. And the state will give them, or the judge who’s ordering the issue, will sometimes give support to one of the spouses, either 2 years, 3 years, might be a big amount of money, might not, but that money, under the old tax laws, was tax deductible for the payer. The recipient of that money had to file and show that money was received. As of December 31, of 2018, that is no longer the case. So, spousal support is no longer deducted, nor does it have to be reported.
Ryan: Interesting. And, so what about couples that got married or divorced in the last year?
Jeannette: For those who divorced, they would actually file just a single, as a single person. Their exemptions are cut in half, $12,200, but they are only responsible for themselves. Not for anything the spouse did earlier in the year, prior to the divorce.
Ryan: Okay. And, so, when it comes time to prepare your taxes, I know you talk a lot about the importance of having a real live set of eyes look at everything. Can you talk about some of the advantages that anyone would have in seeing a tax expert like yourself versus some of the self-serve online solutions?
Jeannette: Yes, thank you. Having someone take a look at it, and actually prepare the return for you, someone who has had the certification by the IRS that we know what to look for, what to take advantage of to get you as much money back as possible. The other difference is that with some of the prepackaged plans, especially if you’re a self-employed person, they don’t always ask enough questions for you to get all of the deductions that you’re allowed. In some states, the prepackaged plans don’t allow for retirement income to be entered on the tax return.
Jeannette: So, that can be a big issue. Or, it’s entered on the federal return, but it may not be taxable in the state, and so your state return may be wrong.
Ryan: So, it can lead to some pretty serious inaccuracies in your return.
Jeannette: Yes, that’s correct.
Ryan: And, so when the IRS finds something that’s been misfiled or incorrect on the form, that can really come back to cost that person?
Jeannette: It can, yes.
Ryan: And, so even if someone has already filed a prior year, you can still give it a review and either make sure everything was done correctly, or file an amendment to that return to fix it, right?
Jeannette: Yes, that’s correct.
Ryan: And, so Jeannette, how would someone reach out to you if they wanted to schedule an appointment or learn more about how you can help them avoid surprise tax bills?
Jeannette: First, you can contact me at 317-989-2708, or go to my website, and you can schedule an appointment to meet with me. It’s www.pedersonaccountingservices.com. Pederson is spelled P-E-D-E-R-S-O-N.
Ryan: Fantastic. Jeannette, thank you for being our guest today, and everyone, thank you for listening. Catch our next episode soon!
Ryan: Thanks for listening to this episode of the Open In Indiana podcast. This podcast is produced by Henry Marketing Group, LLC, DBA Open In Indiana. To listen to more episodes, visit www.OpenInIndiana.com/shows. Thanks for listening!