Join us as we sit down and answer some common tax questions in our first episode of Casual Conversation with Molen & Associates. We will get answers to some frequently asked questions like – What kind of services do we provide? How much should I withhold from my paycheck? What should I do if I receive an IRS letter? What is the first thing I should do if I’m starting a business? If you have any questions or need some assistance with your taxes call us at 281-440-6279. You can also visit our website, https://molentax.com/, to find out more about us and the services we provide.
Crystal Molen: Hello, I’m Crystal Molen, with Molen and Associates, my husband Ward and I are the owners of the company and we want to welcome you to our first installment of ‘Casual Conversations.’ Joining me today are Austen Long, Charles Steinmetz and Kevin Molen. Austin is a tax adviser that joined our company almost two years ago and after just a year in the industry, he received his enrolled agent licensed. Charles is a senior tax adviser and has worked with us for over 10 years, having prepared thousands of tax returns, he really knows his stuff. And Kevin is our tax advisor manager. He grew up in the company and is part of our leadership team. Welcome, gentlemen.
Kevin, Charles, Austin: Thank you.
Crystal Molen: The plan for today is to go over some questions that are either interesting, controversial or are commonly misunderstood. So are you ready? OK, the first question I have for you is, what’s the first thing you will tell someone who’s starting a business? Who wants to take that one?
Kevin Molen: Yeah, absolutely, I’m super passionate about this. So the the the first thing I tell someone when they start a business usually surrounds how they have it set up. So a lot of people just set up an LLC because their neighbor, or their friend, or their coworker mentioned that they might need one. And so the very first thing I talk to my clients about when they tell me that they’re going to start a business is how do we need to have it organized? And I wrote a whole blog post on this, so go and check it out if you’re interested in it. But it will include a link in here for that. (https://molentax.com/the-most-important-thing-to-know-before-starting-your-own-business-2/) But the first thing that I tell my clients is don’t just set up an LLC willy nilly. An LLC is what the IRS calls a disregarded entity. A lot of people it that because they think they need to. The reality is you might need to for limited liability protection, but you might not need to. And you really ought to consult with with a tax advisor to determine how you actually need to have it set up. So that’s usually the first thing that I tell people. Charlie, what about you?
Charles Steinmetz: One of the things that, I don’t know if its exactly the first, but I stress and I spend the most time focusing on is talking about and stressing and illustrating the importance of admin in the business. I pointed out, even us, out of 10 employees we have 2 to 3 people who do nothing but admin and so we’re spending 20 to 30 percent of our total payroll on people who aren’t generating any revenue. It’s hard as an entrepreneur to sacrifice time when I could be making money to sit there doing paperwork and things. But as you can see in different businesses, that the admin side is of vital importance to that and is trying to talk to them about the paperwork, keeping their records together, etc.. Just the how you’re diving into this. This is something to make sure to be cognizant of. This is a really important piece, not for me to make my job easier but for you when we go into some of those pieces. I spent time, probably 10, 15 minutes that.
Crystal Molen: Does that include accounting? Like, obviously they are making money, right?
Charles Steinmetz: Thank you. Yeah. Keeping up with it, how it’s organized.
Crystal Molen: So, what do you do if they that they haven’t kept all of that. They come to you after a year and they’ve got this business and they kind of know their numbers. How do you handle that?
Charles Steinmetz: I have a special fly swatter on my desk that I ….
Kevin Molen: Whack them.
Charles Steinmetz: We work through it.
Crystal Molen: So you talk them through it, you help them to recreate.
Charles Steinmetz: Correct. Sometimes it can be done verbally with some of their recollection of deductions. We did a lot of staring at ceiling tiles of what certain numbers are, but there are other times where it’s just there’s a lot going on and we give them a guideline of here’s how to go back to your bank records, organize them and just these six categories. Just give me at least this list will suffice for this one, but then now you have a template to move forward. So in those kind of cases, it’s a duality of we can bend it like this, but you need to use this then going forward so you’re not stuck in a situation next year.
Crystal Molen: That’s a good point the admin part, ya know, accounting, admin, all of that, because you may be really good at what whatever it is that you do, making widgets, but if you don’t or can’t account for it.
Kevin Molen: Step one to owning a business is being good at business, not being good at what you do. Wal-mart has one of the most successful, but they’re the second largest retailer in the world. They’re the largest employer in the entire world. And I don’t talk about Wal-Mart products like their top shelf products. Right? They have a really fantastic business model. Don’t have to have the best product, you don’t have to be the best plumber out there to have a good plumbing business? You need to have a good plumbing business. Right? And you need to be at least passable in your job. Most people don’t want to hear that. Most people just want to have the best product. And the reality is the best product almost never wins out.
Crystal Molen: So, do you guys just do taxes then or do you do something more than that, especially businesses, do you help with accounting and that sort of thing?
Charles Steinmetz: As a firm we do, depends on what way you want to ask. If you’re asking us, the advisers, in our role as a tax adviser during an appointment, no, we don’t go into the accounting side of things. That’s done before or after the appointment, just focusing on just building their tax returns. Does Molen and Associates offer those services? Absolutely, we can off load that task from you. We will help teach you those tasks, what things to do and how to do all that and offer a service if you’d like to just not bother with that. So we focus on education and other things. We also have as a service, but generally in our appointment, which are to focus on what we’re best at, what the best time is best served up for that moment. But do we offer that as a firm? Yes, we do.
Crystal Molen: Awesome.
Austin Long: So I kind of have first questions for my sole proprietors, which is what I deal with mostly at this point, is kind of along with what Charlie was saying, the record keeping, you know, the IRS lets you go back in and figure things out even if you don’t have a perfect book or accounting and all that stuff. And so for the first year at least, we will go through the checklist and miles was always a tough one. People who are driving a lot to and from the home and doing everything, just learning what, miles can I use, what deductions can I use, what’s business, what’s personal? And once that’s down, I think it really is a much easier process of at least filling out that checklist before they come and see me and and writing down any questions. And once we go to prepare the taxes, then we can filter out anything that might not apply.
Crystal Molen: Good. So, what you’re all three telling me is that you’re here to assist and help them to get to the to the right end result. Right. OK, so let’s go on from businesses and let’s go to individuals. And we get this a lot, how much tax should I withhold from my paycheck? And, you know, it varies from year to year with the laws and everything, so how do you advise your clients with that?
Austin Long: I mean, as I learned from my manager, Kevin, it depends.
Crystal Molen: It depends, ok.
Austin Long: It depends on the client. And so that’s the first thing to get down to is, you know, you should withhold as much tax as you want to see on your tax return. You want to see less than the tax that you owed. Do you want to see the exact amount down to the dollar of what you think you’re going to owe? Or do you want to an extra 10 grand that you can get when you file? So wrong answer, but that’s how much you should withhold with however much, you know, you think is appropriate.
Crystal Molen: How do I know? So let’s say I’ve decided that I want to get a refund, when you do my taxes, I want to get a refund of two thousand dollars. How do I calculate that?
Kevin Molen: Well, now knowing what you want, which is what Austin is talking about, right? First, you’ve got to know what you want out of the tax return because I have people who want to give a ten thousand dollar refund like Austin was mentioning. And I’ve got people who, if they don’t owe at least a thousand dollars, they’re just hopping mad because they want to write that check on the deadline day because they’re going to stick it to the man in any way they possibly can. Right? So you’ve got a large spectrum of where people want to be. And so to answer your question, well, now we have some contextual information now. We know that you want to get about a two thousand dollar refund. So now it’s a math calculation. So someone like Austin, someone like Charlie, someone like me, we can help you actually arrive pretty close to that. Now, the reality is it’s a projection for the future and if you can tell me exactly to the dollar what you’ll earn and exactly to the dollar, what your insurance is, what you’re 401K contributions are and if you can tell me all that to the dollar, then I can actually get you to where you’re going to be. The reality is, is you can’t tell me exactly. So that means it’s kind of this garbage in, garbage out mentality, right? If the data is not perfect, then what I’m going to spit out in my simulation is not perfect. But we give real quotes right now. We can get pretty close. And so maybe we get within fifteen hundred dollars or twenty five hundred dollars of your two thousand dollar kind of desired outcome.
Crystal Molen: And do you do that kind of advising? You would help me to, if I wanted to get to whatever number I want to get to, you could help me to, to figure that out. You’ll talk me through it and that sort of thing. OK, good. Ok, number three is what are your opinions on the recent most recent tax reform, the Tax Cuts and Jobs Act? Where do you fall on the spectrum with that?
Austin Long: I wish I had some long term assets to sell.
Crystal Molen: (laugh) It would be a good idea if you had long term assets that you ought to be selling? Ok, that’s going to help you on your on your taxes..
Austin Long: better than before the tax cuts, certainly.
Crystal Molen: Okay.
Kevin Molen: So the Tax Cuts and Jobs Act was the largest tax reform since nineteen eighty six. It added eleven hundred pages to our tax code. Pretty, pretty dramatic as far as the changes that it made, it adjusted the withholding, it changed a lot of different things. Ultimately the intent of the code or of the passing of this is that it would reduce overall taxes across the board for most people. It reduced the corporate tax rate from about thirty five percent down to about twenty one percent. And so that change, so I’ll speak specifically to that one, because that one to me was really important. We saw the unemployment rate, that the two years after the change, now we’ve got about two years, little more than two years after the change here. That change in and of itself I think impacted the unemployment rate pretty significantly. Right? By reducing the tax rate of businesses, businesses pay less tax. They have more money in order to hire more people, in order to push out more product and earn more revenue. The more revenue they have, the lower tax rate they have, it’s a compounding effect. And so for that reason, I think the corporate tax reduction was very helpful. And I think that there are other areas of the Tax Cuts and Jobs Act that were helpful in regards to stimulating the economy, which really was the intent to begin with. And you really saw that through all the different economic factors, right? The GDP and the unemployment rates and all that kind of stuff.
Crystal Molen: Anything to add gentlemen?
Charles Steinmetz: Nothing in particular. When there’s a lot of moving parts that or some things that were good, some things that were not good. Some things got easier, something things got more complex by nature of other things being easier. And so it’s difficult to peg a ‘where do I land on it?’ It’s circumstantial, like any tax answer, it depends. Maybe it depends on the individual I’m working with where it stands for them.
Kevin Molen: So, how about you personally?
Charles Steinmetz: Me personally, I mean, fantastic. Here’s one that touches on a bill, and so there wasn’t really a lot of what she wants to go after that, but getting taxes down and stuff. Right. But just in my own personal life would have been an opportune time. There were different budget changes going on that happens to help bridge some pieces. So it was just opportune moment.
Austin Long: Yeah, for me, it’s kind of the only tax code I do now since I came in right as that was taking place. And so I didn’t have the background that these guys had with the the previous laws. And so it was nice to learn ok this is how it is right now. May change in a couple of years. Yeah, but yeah. But personally it was nice because I have this huge standard deduction. I wasn’t going itemize anyway, but now that we bought a house it’s kind of like disappointing. You know, I always thought taxes doing my taxes doesn’t at all would be fine, but it would require, you know, getting that interest and getting the taxes and getting these totals together and saying, OK, I bought a house, I can use it to my advantage. But at this point, even with all the interest in taxes, it doesn’t look like that’s going to be the case.
Kevin Molen: Of course, you’re new baby.
Austin Long: I was going to say, ya know that’s doubling. So a two thousand dollar child tax credit is nothing to complain about.
Kevin Molen: It used to be one thousand. Now it’s two thousand. And those are real dollars.
Charles Steinmetz: So four or five diapers are a little bit of the formula, maybe a up a little bit. So that takes us right into our next question, which is how much should I pay to get my taxes done? Because if this is simple for me, is there an advantage? So maybe this is a two part question. You know, what is the range of what I should be paying? If I decide that that’s what I want to do? And at what point should I decide that I would want to engage you to do my taxes? Where is the complication point that I need to do that or is there not one?
Kevin Molen: So it really just depends on what you’re looking for. Again, the right answer from every tax professional ever is it depends because it really does depend on the context. But no, it’s seriously in this case, it depends on what you’re looking for. If what you want is the forms filled out correctly, having no true understanding of your tax or financial situation and just the compliance to be met correctly, then it depends on the complexity of your tax return. Right? So, for example, the college student with one single part time W2 not paying for their own college, being claimed as a dependent by their parents, I would advise you to pay nothing. I would advise you to do it yourself through a free file service, IRS, Free File, Tax Act, H.R. Block, even or Turbo Tax. Some of those can be free. Right? And so it’s almost impossible to screw those tax returns up. But even a working individual who has just a single W-2 themselves is going to have issues when it comes to 401K contributions, withholding questions, eventual purchase of homes and having children and all that kind of stuff and so that person who’s looking for not just the annual compliance requirement. Right? They’re not just looking for just the tax returns to be filed, but also some tax planning and being able to have some kind of idea of what their finances and their taxes are looking like for someone like that, which is really where we come into play. You should be looking at paying somewhere in the three hundred to five hundred dollar range, depending on your complexity. I have very, very few highly complex tax returns that are a thousand dollars or more. But if you’re paying two hundred dollars or less to have your tax return done, you really should expect to get what you’re paying for, meaning the education and the advice that you’re getting is probably not going to be in depth or very valuable. That’s really just meeting your compliance. A lot of people who are just view the tax return as transactional are using Turbo Tax, something that, hey, look, the software is going to help prompt me a little bit. Right. And give me some kind of idea of what to do. But really, I’m just taking these numbers on this government form that I’m getting right from my employer and putting it in the software and then they fill it into the right box and send it to the federal government and I’m done. And that meeting that compliance is obviously important to some extent. But our value proposition is that we will save you far more than we ever charge you over the course of our relationship. And I could talk about this for days. I don’t want to do that in this format. So I want to help your guys this time.
Charles Steinmetz: It’s a very similar sentiment. It’s just the you have to influence looking someone, the person who perceives the I think as soon as I’m paying you to do what I would have done myself, if you want this monkey to punch in numbers, you’re not looking to pay lot, your outlook so to hear even one hundred dollars or more is not going to be what you want to hear because it’s your perception of what you’re doing. But again, it’s the what it is you want of the service, right? Something like first class versus business class like that. It’s just a what are you looking for? Do you want to actually have the information, understand how things are and make educated, informed decisions going forward, then that is the quality of what you’re looking for in a tax advisor versus the tax return. You’re right. You want your tax return done, but that’s quantifiable type deal. How many pieces are moving in it? But it’s what you want on tax adviser that you’re getting into what is it you actually want.
Crystal Molen: Good. OK, I have one last question. What should I do if I get an IRS letter?
Austin Long: Panic. (laughter)
Kevin Molen: Oh my gosh, you guys are terrible.
Charles Steinmetz: You taught us. (laughter)
Austin Long: Send it to Charlie.
Charles Steinmetz: So, easy one.. as a firm, what we’ve seen a lot of is that people don’t even open them. So I say the very first thing out of my mouth would be to open it and look at it.
Kevin Molen: Great advice. No, really, no, it’s not even a joke that people are going through and they’re looking at bills and they’re looking at everything they’ve got going on. And then they see a letter from the IRS and a panic. They freak out or they’re worried and they set aside and they wait to talk with their spouse about it or something like that. Right. Which is I mean, there’s some value there. But the reality is, is they put it on the mantle and then they just leave it there for too long. I cannot tell you the amount of times that I have a client who gives me an IRS letter and they’ve got two weeks ago and I’m like, you got to tell me about this a lot faster, know?
Charles Steinmetz: So that would be probably the number one thing. Number two is just more of an internal knowledge thing. What happens to many is that fear, those heart palpitations. Right. This because it feels like the IRS has now put you under a microscope. The reality is the vast majority of the letters that are issued are auto generated by a computer. It’s not that you’ve got some IRS agent breathing down your proverbial neck.
Crystal Molen: Are you sure? Because it really does feel like that.
Charles Steinmetz: I understand. That’s what I’m trying to tell you. In many years of experience, but not every single one, true. But the vast majority of them is just a computer generated automated stuff. So give me an example of that like computer generated, because what…
Kevin Molen: Oh, I have a great one. Yes. OK, so this is this really actually happened, OK? And in fact, it’s happened a bunch of times. I had a client who received a 1099 from an extra job that they worked.
Crystal Molen: Now I’m sorry, I don’t know what a 1099 is.
Kevin Molen: Sure. So, so someone who worked a side job for six hundred bucks, kind of like a temporary staffing contract, labor contract labor. Six hundred bucks on a 1099. So this 1099 is a form issued from the person that they worked for, that the federal government requires that they issue that form to that, that taxpayer. So, so my client worked a side job, earned six hundred dollars and received a 1099 for six hundred dollars and we included that six hundred dollars on their tax return. Now, three months later, my client receives a letter saying that they underreported their contract income by what, five hundred and ninety nine thousand four hundred dollars because the IRS in their system, somehow this got entered as if it was not six hundred dollars but six hundred thousand dollars. And that my client’s letter was that they were owing somewhere around two hundred ninety something thousand dollars. Could you imagine getting that letter?
Crystal Molen: And they opened?
Kevin Molen: Oh, absolutely, they freaked out and they contacted me immediately, thank you so much. And we looked at it and I said, no, no, this is I knew within 20 seconds of reading this letter that this was not anything that my client would owe, in fact, this was an IRS error. In fact, there was a study done in 2011 that over 58 percent of the IRS correspondence that’s issued is done in error of the IRS. So 58 percent of the time, you can immediately assume that this is something that the IRS should.
Crystal Molen: So that should calm my heart down and that should make it a little easier. It doesn’t.
Charles Steinmetz: But with that commonly it’s… think of it like a matching system, right? So your employer, the bank, your investments if you have any. They send you forms. January, February, the same forms get sent to the IRS. To do your tax return the IRS is just simply matching. Here’s the forms I got a copy of. Here’s the forms you could have on your tax return. If they don’t match, it’s easy for computer to go AABBCC… D, where’s D? Right? So it sends you a letter saying where’s D, it doesn’t look like it’s in your tax return, please say why. What’s common in that? The most common one is it’ll calculate some kind of tax and in English we read left to right. And so what it actually says is proposed amounts due and everybody closes their left eye and they just see come out due. They don’t see propose, it’s just a hey, there’s this possibility that some more all they see is you owe this money. So everybody reads these IRS letters with their hand over their left. And they only see these two words ‘amount due’. And I’ll bet you get some calls that people are freaked out. I’m sure that that comment was like a freak out.
Kevin Molen: Oh, absolutely. Which is totally reasonable to worry about seeing IRS letter from a powerful organization that follows due process but still can absolutely impact your personal finances to a significant degree. Saying you owe two hundred and ninety something thousand dollars. And they did the right thing and they contacted me and we were able to write a letter very quickly and send it off. And we never heard anything from the IRS after that because, of course, they don’t write an apology letter. So sorry if you were under durress.
Crystal Molen: Yes, maybe that’s why everybody gets so scared is because they know it’s all demand letters, right. It’s not going to be a letter that says, sorry, we made a mistake.
Austin Long: They’re not all demand letters either. I mean, there are your audits, self audits. It’s a lot of them are just informational. And so, like, I logged into IRS.gov, set up my account. I got an IRS letter, became enrolled agent, got a letter from them. I certainly was expecting them. But even ones you don’t expect. I just did a blog about identity theft. And if you are getting letters from the IRS, there is account activity, but you didn’t do anything. And that’s a red flag that someone may be using your social and maybe trying to file taxes in your name or just looking and getting information from you that way. And you need to contact the IRS at that point. And, you know, maybe you get a letter that just says, well, you owe five hundred dollars and you do and you haven’t paid it. And they want you to set up some kind of payment plan or do something. And, you know, there’s no.
Crystal Molen: They’re not going to just come and take your house. They’ll work with you on a payment plan.
Austin Long: As long as you don’t let it get to that point. I think, as Charles told me, they start off pretty nice and they just say, hey, you do owe all this money, but here’s some options. You know, don’t ignore us. It’s a relationship. And so if there’s one way communication, the IRS is sending those letters, sending those letters, eventually the interest and penalties and continued accumulation of tax is going to get to the point where you do have a serious problem.
Kevin Molen: So, yeah, they just want to be ignored.
Crystal Molen: They don’t want they don’t want to be ignored, okay.
Charles Steinmetz: It’s perfect relationship wise, not that everybody wants relationship with them, but I’m sure that everybody who is reading or listening has engaged in a relationship at some point in their life. A relationship tool that everybody needs to have its communication right? And one if person isn’t communicating at all the other person starts going over those worst case scenarios in their minds. Right. That’s just what happens.
Kevin Molen: You fill in the blanks yourself?
Charles Steinmetz: Correct. And so the same thing happens to the IRS. They have sadly a healthy distrust of people not paying taxes and so they’ll send a letter that says, hey, something’s up, and then you just ignore them to say, hey, after six or seven letters, I mean, imagine texting a spouse six or seven times and hearing nothing. Are you dead or you crashed, are you in jail, what’s going on? All these horrible things are going through my mind already.
Crystal Molen: So on that same the line of communication, let’s say you have a teenager who.. I have a friend who has a teenager..
Charles Steinmetz: They’re just the best at communicated.
Crystal Molen: and yeah, they’re so good at communicating. And they worked part time job, OK, and this teenager was just at 18, had just turned 18. How is, maybe this is a two part question. Number one is how does that affect my tax return? And number two is what are some things that I can do to prepare this child to understand and to be able to do their responsibilities for taxes.
Kevin Molen: So let me take that one, because I had this conversation with many of my clients, part of at Molen and Associates, part of our passion is building relationships that last generations. And so I talk with my clients very often about bring your kids to your appointment to let them by virtue of osmosis, just pick up some of what we’re talking about, the advice that I’m giving or better yet pay me to do their tax return. Remember I told you that those types of tax returns are really just do them on Turbo tax? They’re really basic and that kind of stuff, but then they get no knowledge or information about how taxes work. There are no high school classes on how taxes work. Most kids learn how to do taxes from their parents, and their parents aren’t paying someone to do their taxes. Even if they are. The parents probably don’t know the answers to these questions or can’t expound upon their knowledge. And so I tell my clients all the time it’s probably worth it at least just one time. Pay me to do their tax return. Have them come in. I promise I’ll take the whole hour just giving them all kinds of information that they never wish they had. And I’ve got clients who take me up on that. And whether the client or whether the kid retains that information or not is up to them. But to say that they never even had a chance to get that information is truly a shame, because there’s a lot of value that comes from sitting down with one of our tax advisors. And let’s just talk to you about, well, here’s what the Social Security Medicare is, because I guarantee if you if you pull a teenager aside and say, hey, you see the Social Security, Medicare that’s coming out of your check, did you know that your employer is also paying that on your behalf? They don’t know that. They don’t know that their employer is matching that contribution or why this federal income tax withholding is coming out or how the standard deduction works for them and why their parents are claiming education credit right from college instead of them getting it on their tax return. Commonly misunderstood pieces. And so so having the opportunity to to explain that to the younger generation to me is highly satisfying.
Crystal Molen: So this friend of mine that her son worked this part time job and so and in that non communication, he wanted to be like, he’s a tough guy. And so he did his own tax return. And when they went to do their tax return, all of a sudden they got a rejection that they couldn’t get their tax return through. And so how does it affect how how did how did teenagers affect tax returns of the parents and what’s the best way to handle it?
Charles Steinmetz: So I’ll take that one. As you mentioned I’m able to file your tax return and the social can only be used once. Makes sense. And so if a teenager manages to get into the taxes before their parents and they file as a taxpayer and as an adult right.
Crystal Molen: Oh, but they are sure they are adults.
Charles Steinmetz: I understand, but they have now filed as an adult and they can’t be listed as a dependent on a parent’s tax return. And so having that done first is what prevents the parents who may have to do some unwinding and it can be complicated. So often what we advise parents to do is if they have a child who is working, that they whatever funny joke you want to put in their drop a couch on them, sit on them, take phone their home away from them, put it up on the mantle, whatever that is to prevent them from doing it themselves. You do your taxes first, then you can do their taxes. And almost every case, teenagers who are working as an employer, as an employee, are going to get a refund. You have three years to claim a refund. And so stressing about that teenagers are going to be frothing at the mouth to get their $50 refund, right? Right. And so they’re going to put all that pressure on the parents. But the parents can do it in February. They can do it in July on their own taxes, because afterwards they can do it the following year and you’ll get every dime back for that teenagers return..
Kevin Molen: Or a day after we complete the parents tax return. So the next piece to this is the mathematical one, right. So if if the if the child or the teenager, the young adult in this scenario. Right. The young adult in this scenario holds off on doing their tax return. Let’s just use a hypothetical scenario. The parents earn one hundred thousand dollars a year. The young adult earned ten thousand dollars that you’re working part time. OK, the young adult gets a standard deduction of twelve thousand two hundred dollars. No questions asked whether they claim them that they themselves are an adult taxpayer or whether they claim that they are a dependent of their parents. They get the same deduction either way. So they earn ten thousand dollars and they withhold two hundred dollars. Right. They get a twelve thousand dollar deduction that eliminates the whole ten thousand dollars of income. So now what’s their tax? Zero. Nothing. And how much did they pay into the system. Two hundred. So their refund is now two hundred dollars.
Crystal Molen: So they’re getting back everything that they put in.
Kevin Molen: That’s correct. OK, whether they claim themselves or they don’t. The difference here is if they are a dependent on their parents tax return and let’s say they’re 18 years old and they’re dependent on their parents tax returns still live at home, go to school, just working part time, the parents could stand to get a five hundred dollar credit for having that young adult as a dependent on their tax return. And that’s not even talking about the education credits, which could be upwards of twenty five hundred dollars.
Crystal Molen: So that’s a very big difference to the parent.
Kevin Molen: Mathematically, it matters. And so even when the parents split it down the middle with the young adult, here’s two hundred and fifty more to your refund. Here’s two hundred and fifty two to offset some of my taxes. So that’s oftentimes what I recommend to the parents is just split the difference or give them a piece of it. Help them to understand that there is actually a numerical value to them for you claiming them. And they will be incentivized to make sure that you file more timely. And it just comes down to understanding the math. And again, so, again, it’s a knowledge gap, because the more you understand about your tax situation for your child, understands about their tax situation, the better decisions that both parties will make.
Charles Steinmetz: Getting to the young adult is always the best case scenario. Well, I often end up doing is giving information to the parent. I have a bias that I can imply in my explanation. But is that, you know, from my perspective, what I give them is you have two options, right? Either you can help them make sure they have the right withholding on their checks and it instills good habits because tween sixteen and twenty two, they may have eight or ten different jobs. And if they’re used to doing the old single in zero is a little bit different now. But doing that every single time, when they get that first career job, they have that good habit. They’re not going to get in big trouble, but that means we need to file their taxes every year. We have some stuff to go through at the same time, as long as they’re not doing contract type work or employee making less than twelve thousand dollars a year, you absolutely can teach your kid to just put exempt on that and have them take no taxes out, social security and Medicare will still happen. But that way what you could do is just you do this and then as a parent, it’s really easy.
Charles Steinmetz: You never have to worry about their taxes..
Kevin Molen: You just don’t even file..
Charles Steinmetz: You don’t even file a tax return.
Kevin Molen: Because you’re earning less than the standard deduction. So we’re kind of gone down a rabbit trail on this question, but I think we’ve answered it for you right.
Crystal Molen: Well, I really appreciate it’s obvious that all of you have a depth of knowledge to try to impart to your clients whatever situation that they’re in. And I really appreciate you taking the time to share some of these situations, answers that you might give. But of course, it depends.
Kevin Molen: It always depends.
Crystal Molen: But I appreciate you being here today. And I’m hoping that our audience will glean the things that maybe they didn’t know before and now they’ll have greater depth of knowledge.
Kevin Molen: Well, thanks so much, Crystal.