How do I prepare for handling my 2024 tax preparation?

Ralph
00:00:00

Are you feeling overwhelmed about the upcoming tax season? Does the thought of organizing your financial documents make your head spin?

If you're like many Christians trying to be good stewards of your finances, tax preparation can feel like climbing Mount Everest. But what if I told you there's a way to approach your 2024 taxes with confidence and peace of mind?

Stay tuned as we tackle this important question from one of our listeners.

Podcast Announcer
00:00:27

Welcome to the Ask Ralph Podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your Host, Ralph Estep Jr.

Ralph
00:00:56

Ralph Estep, Jr.: Well, thank you for joining me today.

Ralph Estep, Jr.: I'm passionate about helping you master your finances while growing in your Christian faith and I hope you had a joyous Christmas. Well, today we're going to get serious and talk about taxes. You know what they say, death and taxes. Well, if you missed yesterday's show, I had a special Christmas message for everybody where I reflected on God's blessings and help set our hearts on the right perspective for the new year. So I'm gonna encourage you if you missed it to go check it out.

Ralph Estep, Jr.: Today's question comes from Noah [00:01:00] all the way from Oregon and he writes this.

Ralph Estep, Jr.: "Dear Ralph, I'm feeling anxious about preparing for the 2024 tax season. As a small business owner and fatal tither, I want to make sure I'm handling everything correctly. Last year, I scrambled at the last minute and felt completely overwhelmed. How can I better prepare for my taxes this year?" And he signs that, Thank You, Noah.

Ralph Estep, Jr.: Well Noah, thank you for your question. You know what they say again about death and taxes. And many clients have told me, Ralph they said, coming to you is like going to the dentist. Well, my goal today is I'm going to try to make it a bit easier and Noah, it's great that you're reaching out now before we're in the midst of tax season to help get our stoves started and ready to go.

Ralph Estep, Jr.: And if you've got a question like Noah, I'm going to encourage you to send those over. Just go to justaskralph.com. Again, that's justaskralph.com and I'll answer your question right here on the show.

Ralph Estep, Jr.: Noah, your concern about being a good steward reminds me of a powerful

[00:02:00] verse from the book of Colossians.

Ralph Estep, Jr.: I don't use that often on this show, but this is a great one. Colossians chapter 3, verse 23 says, "Whatever you do, work at it with all your heart, as working for the Lord, not for human masters." Now you probably figured I was going to use the Bible verse about paying onto Caesar what is due to Caesar, but I really thought this was a great way to ground ourselves in scripture today.

Ralph Estep, Jr.: So let's get this tax party started.

Ralph Estep, Jr.: Let me tell you about my friend Fred. I met him after a financial counseling seminar I was presenting at a local church. And this is a story that you're not going to believe, but he was a small business owner. And he hadn't filed his taxes in over 10 years. And he pulled me aside.

Ralph Estep, Jr.: He said, I feel like I've failed as a Christian, Ralph. I know we're supposed to render unto Caesar what is Caesar's, but I'm terrified of what I owe. And he had a successful business. Fred had a successful business. It was [00:03:00] everything was going well. But his success masked some deep financial anxiety. And he shared with me, he was candid.

Ralph Estep, Jr.: He said, Ralph, this is affecting my marriage, it's affecting my sleep, and it's really affecting my faith. Because he felt this spiritual guilt over tax obligations and literally he hadn't filed in 10 years. So what was my go-to thing? I said, listen Fred, this isn't the place to talk about this, but I need you to schedule an appointment with me and let's come in and sit down and talk about this. And he came in, we sat down and I told him, let's combine two things here.

Ralph Estep, Jr.: Let's combine a spiritual and a financial aspect of this because I hear what you're saying. You feel like your faith is shattered because you haven't been doing what you're supposed to do. And I said that guilt, we can deal with that guilt. We can deal with that guilt through prayer and through counsel, I can help you get past this. And one of the things he really needed to hear from me.

Ralph Estep, Jr.: And I'm saying this to you, those of you who are listening right now. God [00:04:00] has grace over your financial mistakes. He's not going to hold you accountable for the rest of your time here, but you need to do something to change that. And that's exactly what I encourage Fred to do. We combine that spiritual and financial support.

Ralph Estep, Jr.: I said, listen Fred, let's pray about this. But the other side of that is that we have to get going on fixing this. So let's talk about how we did it. And it's what I called a practical solution. The first thing I told Fred to do. I said, organize your documents by tax year. You haven't filed in 10 years.

Ralph Estep, Jr.: Go get a folder for each tax year and then for each tax year, I want you to assemble those essential financial records. Now, most people only need to do this for one year. So if you're listening to this story and you're saying, Ralph, this is a bit much. These things and these principles still apply to you.

Ralph Estep, Jr.: It's just I'm hoping you're not having 10 years worth of tax returns to do. So that's where Fred started. We organize those documents by tax year. We assembled those essential financial records. Now for Fred, it was a little more complicated. Because he had a business [00:05:00] and he also had other income and expenses and mortgage interest.

Ralph Estep, Jr.: His wife had a job, a W2 job. And one of the big things that Fred didn't do a good job of throughout the years was documenting his charitable contributions. He hadn't put those things in order. So that's what I said to him. And at the end of our initial meeting, I said, Fred, here's your homework. Go get all your documents together for the next 10 years and we're going to, or excuse me for the past 10 years, I'm going to keep him straight for the next 10 years, but for the past 10 years, and we'll work together methodically, and I work through and get these things figured out. And what was interesting to find out, and this was a key discovery. When he came back to me, I want to say it was about two weeks later cause he had the fire underneath him. He wanted to get this done. It caused so much strife in his relationship with his wife. She didn't understand why he didn't just get these taxes. When Fred scheduled his next appointment, he came in, he was actually pretty organized. The problem was he just felt overwhelmed. And he qualified for numerous deductions. And that [00:06:00] charitable giving

Ralph Estep, Jr.: I told you? That worked in his favor. And we got through those tax returns. Now, unfortunately for Fred, we were able to get all those tax returns filed, but he did lose some refunds because he was actually due refunds in some of those years, but a dirty little secret. It's a dirty little secret, but it's a fact, is if you go back more than three years, the IRS will not give you that refund, even if they owe it to you.

Ralph Estep, Jr.: So there were some years where he was due a refund. He didn't get them, but fortunately, those last three years of filing, like I said, his documents were organized. He was actually a subchapter S corporation. He was taking a payroll check. He was paying taxes in. He was doing all the right things.

Ralph Estep, Jr.: He just wasn't getting to that point of being in compliance and filing. But fortunately we were able to grab some of those refunds in those later years. So that was step one. And a lot of times when I meet with client, I talked to them about my three-step approach. Step one is go back and figure out what happened in the past.

Ralph Estep, Jr.: Let's get all those tax returns filed. Let's get all of those documents in order. Then today, we're going to [00:07:00] implement a systematic tax major plan going forward and then were going to stay up to date. So with Fred, what I did was I did exactly that. I said, listen, we're going to have a rule here. You are going to file your taxes. You're going to start creating monthly system parameters so that you don't find yourself in this position.

Ralph Estep, Jr.: He actually signed on with me to be what I call a monthly client. And every month, we would process his books and we would give him a profit and loss statement at the end of each month. This way, his tax return honestly was a by-product of the work we were doing and he would, it would help him stay caught up on all his tax obligations. And during this process, this was miraculous. Fred found peace both spiritually and financially.

Ralph Estep, Jr.: And just last week, Fred sent me a text that brought tears to my eyes. He wrote this, he said, "Ralph, for the first time in a decade, I'm actually looking forward to tax season. Thank you for helping me make things right with both God and the [00:08:00] IRS." And now the funny thing about that is he's actually reaching out to other people in his industry and saying, listen, this guy, Ralph can really help you.

Ralph Estep, Jr.: Don't put yourself in that position where you fall that far behind. So let's take a minute and talk about the lessons that were learned. And these are true, I don't care whether you're 10 years behind on your taxes or two years behind or just current with your taxes. Financial problems often have practical and spiritual dimensions.

Ralph Estep, Jr.: That's what Fred was feeling. The practicality of it was, he was not in compliance. Honest to God truth is the IRS could have come and put him in handcuffs because he was criminally liable for not filing those taxes. But think about the spiritual dimension of that. It was bothering Fred. It was destroying his relationship with his wife.

Ralph Estep, Jr.: It was causing all kinds of health issues for him. He couldn't sleep at night. So there was both that practical and that spiritual dimension. And the [00:09:00] best part of this, the organization, a systemic approach can help solving these insurmountable problems. This is what we did for Fred. He saw this as being overwhelming.

Ralph Estep, Jr.: He saw this as something so complicated. He shared with me, Ralph, he says, I don't know how you do this. I said, well, Fred, we're going to put together a basic organization system. We'll have the systemic approach to get you out of these problems. And think about it. The big takeaway from this, what Fred learned would a lot of my clients learn is that proper guidance can transform that tax burden into a manageable process. So again, what can we learn from this? We learned that organization isn't just about paperwork. But it's truly deeper than it's about honoring God with our resources. And I was able to develop a system that I call the 'Faithful Steward's Tax Preparation Plan.' So get your pen and pencil ready, some paper, write these things down because here's what you need to do.

Ralph Estep, Jr.: And you'll also find these in the show notes. Regardless [00:10:00] of where you are, whether you've not filed taxes or you just normally let get normal person filing every year, here's the things you should be doing right now. Number one, start gathering your documents. It's the time to assemble this W-2 forms from your employers. If you work for yourself, if you're some sort of contractor, find those 1099 forms.

Ralph Estep, Jr.: So you have those additional income sources. Then you're going to start looking for those receipts. Maybe it's for charitable giving for their tithes. Maybe you support missionaries, whatever those things are, assemble those receipts. If you're a small business owner like Fred, assemble those business expense records, and then get any statement that you've got on your retirement account.

Ralph Estep, Jr.: So that's number one, start gathering your documents now. Number two. A lot of people laugh when I say this. But create a dedicated space for your tax documents. Now, listen. I know a lot of people use a simple accordion firewood labeled sections. Income, expenses. A lot of people say things to discuss with Ralph. [00:11:00] And it can be that simple. Put the year on the front of it and make those folders up.

Ralph Estep, Jr.: So that's number two, create that dedicated space for tax documents. Number three. Now it's time to take a look and review your income and expenses carefully. What I'm talking about there is what Fred had to do. Calculate your total income from all your sources. Track your expenses, make sure they're in clear categories and then analyze your cashflow patterns. A lot of clients will come to me.

Ralph Estep, Jr.: They'll say, Ralph, I don't even know where to start. Most of the time, if you've got a W-2 and you've got a mortgage interest statement, maybe you've got some interest from the bank, that's pretty straightforward. But a lot of my clients own small businesses. Now, some of them were in corporation, some are LLCs or partnerships. But a lot of people ask me and say, Ralph, what do you need from me?

Ralph Estep, Jr.: It's really this simple. I need to know what were your sales? What did you collect from customers throughout the year? And then I need to know what your expenses were by category. So for example. Ralph, all of my sales came through the credit card machine. Fantastic. [00:12:00] Give me that 1099-K form, or tell me what was deposited to your bank account. That's the income side. Then for the expense side, I just need you to tell me where you spent money.

Ralph Estep, Jr.: For example, let's say you had a cell phone bill. Okay. Telephone. There's an expense category. Let's say you did travel. Okay. Travel. That's an expense category. You understand. That's what I need and that's what your account or your tax repair is going to need and then that gives you the ability to look at some cashflow patterns. So that's number three and that's review your income and expenses carefully and document everything so that you're ready to file. Number four. You've got to understand potential deductions and credits that apply to your situation.

Ralph Estep, Jr.: Now, if you come into somebody like me, a professional, they're going to hopefully go over these things with you. But if you're not, and you're looking for where to find these things, don't miss out on these things. Charitable contributions. Those are huge. If you're a Christian listening to the show, when you're a regular either , make sure you're sharing that information with your [00:13:00] accountant or tax preparer. Second thing, as we talked about with Fred. Those business expenses. Make sure you've accounted for all the income and expenses related to your business.

Ralph Estep, Jr.: Number three, educational expenses. Maybe you're going to college or your children are going to college. Capture that information. Get that 1098-T form that you're going to need from the college or the university and then last but not least, consider those home office deductions. And again, that's a whole area for another show, but you can start to assemble that information.

Ralph Estep, Jr.: So that's number four and that's understand the potential deductions and credits that apply to your situation. Then once you do that, then number five is consider tax efficient strategies. This might include at the end of the year here, maximizing your retirement contributions. Now, if you're a W-2 employee, it might be too late to do that.

Ralph Estep, Jr.: But if you are self-employed, this is the time to potentially make those final contributions to your retirement account. Listen, if you're doing a SEP or something like that, I had a client in just yesterday. We had a [00:14:00] zoom call and we were talking about, she said to me, Ralph, she said, how can I fund my retirement for this year?

Ralph Estep, Jr.: I said, here's the great news. I said you have until the tax filing deadline in 2025 to make that contribution. And she's like, well, that's fantastic news. So that's one of the things that if you're self-employed you can do that. Now, if you're not self-employed and you're not covered by a pension, you still have the option to make an IRA contribution.

Ralph Estep, Jr.: Again, you can do those things up until that tax filing deadline. You also might want to consider right now as we get closer to the end of the year is making some charitable giving before the end of the year comes. This is a time to think about, well, you know what, I'm going to give this any way in 2025.

Ralph Estep, Jr.: Well, maybe the time to do it is right now so you can capture that tax deduction. Again, everybody's situation is different and it depends on whether you're able to itemize or not. And then if you're a business person and I meet with a ton of clients right now, my calendar is full, we're talking about make a new strategic business purchases. [00:15:00] Maybe it's, you know, I say this to clients all the time.

Ralph Estep, Jr.: If you're going to buy it in January anyway, it may make sense to buy that right now. So that's number five, consider those tax efficient strategies. So I want to go over those one more time this list because you may not have got it the first time. So here's what you need to do to be on what I call my 'Faithful Steward's Tax Preparation Plan.'

Ralph Estep, Jr.: Number one, start gathering your documents now. Like we talked about all those different pieces. Number two, create that dedicated space for those tax documents. Number three, review your income and expenses carefully. Look for those things to make sure you've got everything in order. Number four, understand those potential deductions and credits that apply to your situation and last but not least number five is consider those tax efficient strategies.

Ralph Estep, Jr.: Whether you want to maximize that retirement, plan those charitable giving, or make those strategic business purchases. Now I'm going to share some action steps you can take right away in a few moments. But first, let me ask you this. Has this show made a difference in your life? You know, did you have that aha moment when [00:16:00] something clicks about your finances and faith? That's exactly what someone else is searching for right now. Somebody else hasn't had that aha moment.

Ralph Estep, Jr.: So I'm going to ask you to do me a favor because your voice matters. Everyday people just like you are looking for guidance. And your story could be the nudge they need to transform their financial journey, just like Fred. And here's where you can help me. Your honest review helps them find us in a sea of all kinds of podcasts.

Ralph Estep, Jr.: I heard the other day, the numbers and the millions. But think about this. If you can do this for me, your review could have a quick impact and a lasting difference for somebody. Here's all you got to do. It'll take you less than 60 seconds. Go to askralphpodcast.com/review. Again, that's askralphpodcast.com/review.

Ralph Estep, Jr.: And do me a favor. Give me a five star rating review. And you might say Ralph, I don't know what to write. We'll share your breakthrough moment in that. Say I was listening to Ralph and he showed me this, or I figured out this. I [00:17:00] got debt-free. I started an emergency fund, whatever that looks like for you. Share that moment because that's going to be impactful. And just think about it. You may very well help someone else find their path to that financial wisdom that you found. Think about this.

Ralph Estep, Jr.: Think about the most valuable lesson you've learned from the show. That insight you're holding. That could be exactly what another listener needs to hear. So it's time. Take some action. Be their sign, be their guide. Again, go to askralphpodcast.com/review. Because the truth is, together we're building a community where faith and finance work in harmony. And listen, your review is more than feedback. It just is. It's a beacon for others seeking the same clarity you've found. Well, now I promised those actionable steps and I want to get right to them.

Ralph Estep, Jr.: Number one thing. Set aside 30 minutes this week to create your tax document organization system. It doesn't have to be complicated. Get some Manila envelopes, get some folders, whatever it looks like for you, but do it this week. Take 30 minutes and [00:18:00] organize yourself. I want to tell you, the clients that I see year after year who are organized just make out better.

Ralph Estep, Jr.: It doesn't feel like the dentist to them. So that's the first thing. Number two. Schedule a monthly tax prep check in on your calendar. One of the things I say to people all the time, I can do a great job of preparing your tax returns after the end of the year, there's value in that. But the larger value is in tax planning.
Ralph Estep, Jr.: So I'm gonna encourage you, meet with somebody like myself. You can book a call with me by going to askralph.com. But meet with somebody, whether it's monthly, quarterly, or at least a couple times a year. And let's talk about how we can improve your tax situation while there are still times to do those things throughout the year.

Ralph Estep, Jr.: So that's number two. Which leads me right to number three. And that's consider working with qualified tax professionals who share your values. Look for somebody who has that faith alignment with you. I've said this on the show a million times, I can show you how to be a very successful scoundrel, but if you listen to the show, my suspicion is you've [00:19:00] got that faith component.

Ralph Estep, Jr.: That's the whole point of the show. So that's number three, consider working with a qualified tax professional who shares your values. And here's the thing. Number four, start tracking your 2025 expenses now so that next year, when you get to the same point, you'll have something that you can use and you can do a simple spreadsheet.

Ralph Estep, Jr.: There are a ton of apps that you can use to do that. You can sign up if you're a business client to be one of our monthly clients and we'll help you stay organized. And number five, keep a separate account for tax payments if you're self-employed. A lot of people ask me that. They'll call me throughout the year.

Ralph Estep, Jr.: They say, Ralph, I have a small side business or I'm self-employed completely. How much should I be setting aside for taxes? And I always encourage them to set up a separate account and park those tax payments in those things. I'm going to go over those things one more time. These are the actionable steps. Number one, set aside 30 minutes to create your tax document organization system. Number two, schedule a monthly, quarterly, whatever that looks like for you a tax prep check in on your calendar.

Ralph Estep, Jr.: Number [00:20:00] three, we talked about consider working with a qualified tax professional who shares your values. Number four, let's start planning for 2025 and start tracking those expenses now whether it be in a simple app or in some kind of spreadsheet and number five, last but not least, my little tidbit for today is if you're self-employed, set up a separate account for tax payments if you're self-employed. Now tomorrow, we're going to discussing why you probably shouldn't consider a reverse mortgage.

Ralph Estep, Jr.: You know, you might see these television commercials constantly, Tom Selleck, and the lake of those who are talking about how fantastic it is to get a second or excuse me, to get a reverse mortgage. So tomorrow I'm going to tell you why that might not be true. So make sure you tune in for that important conversation.

Ralph Estep, Jr.: Now as I close today, remember my passion is to help you achieve financial success. This is why I do what I do. I want to see you live out your dreams. And I want to see you grow in your faith and I know working together, we can master your finances from a Christian perspective. So as I always end the show, stay financially savvy out there, and God bless you.

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00:21:18

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