Help! I Just Got a 1099 - What Is It and What Do I Do Now?

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In a world where crushing debt keeps you trapped, where living paycheck to paycheck has become your new normal, and where the dream of retirement seems impossibly out of reach, there's hope. Join financial evangelist Ralph Estep Jr. A man who's walked through the fire of financial failure and emerged stronger on the other side.

Welcome to Ask Ralph, the show where real world experience meets biblical truth. To break the bondage of financial despair.

Get ready to take control of your money, break free from the financial stress and align your resources with God's purpose for your life. This is Ask Ralph with Ralph Estep Jr.

Ralph Estep Jr
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Well, good evening and welcome to the show. On tonight's show, we've got some great questions to answer and we'll also answer your questions as well so you can put them right in the chat.

Tonight we're diving deep into the questions that are keeping many of you up at night. Going to meet Angie. Angie's a free a faithful freelance wrestling with tax fears after receiving those dreaded 1099 forms.

Her story might just be your story.

We're also going to tackle some tough questions about single parenthood and taxes, helping you better understand exactly how to maximize your benefits while staying true to your values.

And last but not least, if you've ever wondered about the real difference between a tax credit and and a tax deduction, or breaking it down with a thousand dollar example, that might just change the way you think about your tax strategy forever. Tonight I've got real questions, biblical wisdom and practical solutions. Because listen, this is more than just a financial show.

It's your opportunity to align your money matters with God's principles.

So whether you're struggling with business decisions, financial family issues or tax concerns, we're here to help you find clarity through faith based wisdom. So don't miss a minute of tonight's crucial episode. And remember, your questions matter.

So if you're facing a similar dilemma, remember you can submit your question right here in the chat or send them over to just askralph.com. so thank you again for joining me on our weekly voyage of answering your questions. This is your weekly opportunity to get your questions answered.

So like I said, feel free to ask your questions right there in the chat. Just click on the chat window and then type it in. And if you got a comment, you can do that as well.

Well, let's get started with tonight's Bible verse. I like to get started with scripture and this one comes to us from the book of Proverbs.

This is chapter 3, 9 and 10 and it tells us this Honor the Lord with your wealth, with the first fruits of all your crops. Then your barns will be filled to overflowing and your vats will brim over with new wine. And you think about it.

That's a powerful principle and reminds us that managing our finances isn't just about numbers and forms. If it was, it'd probably be a heck of a lot easier.

It's about honoring God with every decision we make, including how we handle our tax obligations and business and personal financial responsibilities. Well, let's get right to our gratitude statement.

As you know, a couple weeks ago I started talking about gratitude and I think we all need to work on finding things to be grateful for on a daily basis. So here's my gratitude statement for tonight.

I am deeply grateful for the trust you place in sharing your financial concerns with me, from your tax anxieties, the parenting responsibilities, and for allowing me to be a part of your stewardship journey each week and every day when I do my show. Your questions remind me that we're all growing together in understanding how to honor God with our resources and decisions.

So thank you for being part of this community where we can openly discuss our financial challenges and find biblical solutions together.

Well, let's get right to our first question tonight and like I said, if you've got a question, I'm going to encourage you to type it right in the chat. So this question comes to us and I'm going to read it directly here what she said and says this.

It says, Dear Ralph, I'm writing to you with tears in my eyes and anxiety in my heart. Last week I received several 1099 forms in the mail and I feel completely paralyzed with fear as a new freelance graphic designer.

I started this business last year after being laid off from my corporate job. I was so excited to use my God given talents to serve others, but now I'm overwhelmed with the financial responsibilities.

These 1099 forms are sitting on my desk and every time I look at them my stomach churns. I've heard horror stories about freelancers owing thousands in taxes and I'm terrified I might have to set aside it.

I'm terrified I haven't set aside enough money. My husband and I are trying to be good stewards of our resources, but my three kids in a mortgage were already stretching every dollar.

I lay awake at night wondering if I made a big mistake stepping out in faith to start this business. I want to honor God in my business dealings, but I feel lost in this maze of tax deductions how do I handle these 1099s correctly?

Am I supposed to pay quarterly taxes? What can I deduct as business expenses? And most importantly, how do I maintain my integrity while managing these financial challenges?

Please help me understand what to do next. I'm trying to remember that God has a purpose for this business.

But right now, I am struggling to see past these intimidating forms with hope and prayer. And that was signed by Angie. Now, listen, Angie, I'm going to start by saying this. I understand the deep anxiety you're experiencing.

I deal with this every day with my clients, and I can. Let's talk about specifically. So you're dealing with an unfamiliar tax obligation. You've gone from that corporate job to doing this freelance work.

And you're overwhelmed because you're getting these 1099s in the mail. You're stacking them up on your desk. You're worried about maybe you're going to owe a large tax bill, and you haven't prepared for that.

But clearly, you haven't been putting money aside. You've not been making quarterly estimated tax payments.

And then at the same time, you're balancing family financial responsibilities with your business. You're even questioning your decision about starting freelancing in the first place.

Now, one of the things I really like about what you're saying here, Angie, is you want to maintain both financial and spiritual integrity. So I. I have got the answers for you. And let me just tell you, Angie, I can help you through this process. So let's start by saying, what can you do?

Well, here's how you handle this situation. First thing, Angie, I want you to do this right away. Take a deep breath, because here's the thing. You need to understand.

Your anxiety is normal, and it's shared by many freelancers. I deal with this every day.

People that have gone off on their own or started a new business, this is the huge area of concern for them because they really don't know what to expect. In fact, I just had a client in not too long ago this evening, and we were talking about it.

He's doing some driving, and he's like, Ralph, I'm not even sure what I need to give you. So don't worry, Angie, you are not alone on this. Take a deep breath. And see, the thing that I really am impressed by.

This is really impressive to me, is the fact that you're concerned about doing things right. Because here's the deal, Angie. This is exactly what it does. It shows good character, and it shows you have good business sense.

So let's talk about what are some practical steps that you should take right now. First thing I want you to do, organize your documents. You told me you've got these 1099 sitting on the desk. Gather all those 1099 forms.

That's the starting point because that's going to be the basis of where we go and get your revenue dollars or your sales dollars.

Next thing I want you to do, I want you to collect receipts for any business expenses and then compile records of any tax payments you've already made. Now, you might not have made any. That makes it simple. Well, and you might be saying, Ralph, well, how do I figure out what my business expenses are?

I'm just going to throw a couple things out at you. Maybe you're going to take a deduction for home office space.

So take a look at your size of your particular room that you use exclusively for business, and maybe that becomes a deduction. Maybe you've paid for some software or equipment. If you're doing freelance work, you probably have.

Maybe you've done some professional development classes. Maybe you've spent some money on marketing. A lot of times you may have spent money on office supplies.

And then also don't forget about your Internet and phone usage for your business. Bottom line is you want to take and capture anything that was spent as far as an expense in going after getting this money.

Here's another thing I want to encourage you to do now, if it might be too late for you, Angie, now, but you can always start this fresh for the new year. It's a great time to establish a system. You might be saying, Ralph, what do you mean by that?

One of the big things I always promote to my clients is open up a separate business bank account. That way you can really keep things separate.

You know, if it's a business thing, the business income gets deposited to the business account and the business expenses get paid for through the business account. And why that's important is because if you are the unlucky winner of the audit lottery, it's a lot simpler.

If you've got separate records, they can go grab your bank statements for the business or go grab your credit card statements for the business business and really assemble that information. Now, I'm going to also encourage you to look at something like QuickBooks or one of these other tracking systems. Now, that's the first step.

Second thing you want to do. And Angie, again, you might not have done this in the past, but if others are listening, set aside 25 to 35% of your future income for taxes.

One of the things I tell clients to do is set up a separate savings account. And whenever you get paid by a customer, take 30, like I said, 25 to 35. It depends on your particular situation.

I don't want to just say to you, hey, it's going to be this much. If you want to be ultra conservative, make it 40%. If you want to be real simple, look, here's what I want you to do.

For every dollar of income that you bring in, take 40 cents of that dollar and put it into a savings account. You might be saying, rob, that's a high number of tax. Well, you might just owe that much.

When we look at your federal tax, your state tax, if that's applicable, then you're going to have to pay Social Security and Medicare tax or what we call self employment tax. But if you want to be ultra conservative, set aside 40%.

Now the other thing you want to talk about is consider doing quarterly estimated tax payments to avoid future stress.

And I'm going to be doing a show probably in a week or so about that because I got another person sent in a question about Raf, Do I really need to pay estimated taxes? And I'm going to talk about that now. The next thing I want to encourage you to do, Angie, is get some professional help.

This thing is bigger than a bread box, as my mom used to say. Look and find a tax professional that's experienced with freelancers. You're welcome to reach out to me.

You can do that by going to askralph.com I meet with clients all over the United States and in fact, all over the world.

But that is a huge investment in your peace of mind because it's those things that you don't know that can get you in trouble and they can help you set up a proper bookkeeping system. Now, one of the things I'm going to encourage you to do is moving forward, start tracking that income and expense monthly.

So you're not trying to do that all at the end of the year so that you're trying to struggle and figure out, you know, Ralph, what do I do about this? What do I do about that? If you're tracking it on a monthly basis, it makes it a lot easier.

Now, a lot of times I'll say to clients, if they don't have a lot of individual pieces to this puzzle, go and buy yourself 12 big envelopes and just write on there, January, February, March, you got the idea. And then every month, just drop those receipts. Drop bank statements for the business Those credit card statements, put them right into that envelope.

Then when you get to the end of the year, you can take those envelopes and assemble that. Now, that's not the most efficient way to do it from a technology standpoint, but it works.

Another thing I'm going to encourage you to do is set up an emergency fund for tax obligations. Like I said, maybe you consider setting up that savings account where you squirrel away that 40% of every dollar that comes in the door.

Now, there is some really good accounting software for freelancers. Most of my clients use QuickBooks online, and you can customize that to be exactly what you need.

And listen, they've got programs at QuickBooks online as low as 10 bucks a month. So that might be a really good decision. It's called. I think it's called Intuit Ledger. But they also have a simple start.

You don't need anything big and elaborate. In fact, I was talking to a friend of mine, Mark, today, and he had been on QuickBooks Desktop, I think he said, back to 2007.

And I said, mark, wait a second, dude, that was years ago. So he just opened up a QuickBooks online file, and he's learning all about bank feeds and all the different things that can do.

So there is some really excellent software out there to help you. And last on my list here is maybe you want to think about joining some freelance groups that can help you, some professional groups.

Maybe there's some support things. Maybe you can find a Facebook site or some kind of Facebook group that does this. But here's the thing.

I'm going to encourage you, Angie, and anybody else listening, you got to take action now. We're already getting close to the middle of January, and you need to take action to start putting these things in order for two reasons.

Number one, you're going to need to start thinking about filing a tax return, because that personal tax return is going to be due April 15, which isn't too far off. I've already got my book starting to fill up here. My clients already scheduled appointments and all that kind of thing.

So that's the first piece to that. But, Angie, one of the big things I heard you talking about was this feeling of anxiety.

Well, one of the best ways to reduce that anxiety is to get your stuff in order. And that's where a professional can help you find deductions you might miss.

And listen, early organization is going to prevent larger problems later, and you'll be positioned to focus on growing your business, and you'll have clarity about your financial position. Because remember this, you're second guessing yourself. I don't want you to do that.

Because using your talents to serve others through business is honorable. And think about this, tax compliance is just part of that good stewardship.

You know, it says in the Bible, pay on the Caesar what is due to Caesar and pay on the God what is due to God. But this is where you've got to take control of your financial obligations. And it just doesn't. It's not just making business sense.

Because, Angie, one of the things I keep hearing you say in your letter is you are looking for peace of mind.

And if you take control of those financial obligations, yes, it's going to help you make business sense, but it's also going to create peace of mind that you need to serve your clients better because you're going to be able to focus on that. So, Angie, here's what I want you to do. Take that first step today. This is something you could do right away.

Gather your documents and make an appointment with a tax professional because you've already shown courage in starting your business. Now show that same courage and, and managing well. And listen, you've got this, Angie. Your concern shows you're on the right path.

You just need the right tools and support to move forward with confidence. So, Angie, I hope that's answered your question. I know I've given a lot to you to think about today.

And if you're listening to the show or you're watching the show right now, I'm going to encourage you. You can comment in the comments tab. You can send over a question if you'd like. I'd be happy to answer any questions.

We're getting ready to start filing. The IRS just said now they're going to start filing tax returns. You can start filing tax returns the last Monday of the month.

So once that date, now, you can get your taxes done before that. But tax preparers and accountants like myself, we won't be able to e file them until that last Monday of January.

And listen, the sooner you get those tax returns filed, the better off you're going to be. And I just recorded a show today about tax identity theft.

And I'll give you a little spoiler on One of the best ways to prevent tax identity theft is to file early. Now, I would tell you to, like they said, to vote, vote early and vote often.

I don't want you to file often, but you definitely should definitely file early. Let's move on to our second question in our mailbag today.

And this one is this it says, I'm a single parent who recently got custody of my two children. I've heard different things about tax benefits for dependents.

Yeah, this is why I'm gonna say right now, this is where you hear a lot of nonsense and people say things that they only made a concept about. But let me get back to the letter.

And some friends say I should claim both kids, while others mention something about splitting claims with their mother to maximize credits. I work full time making about $45,000 a year.

Could you break down how claiming my children as dependents would affect my tax situation and what factors I should consider when deciding how to file? Well, let me just tell you right now, this is a very important question.

It's one of the things that I face in my practice all the time because unfortunately, we live in a culture where there are these, I'm going to call it broken families. Probably not right the word. Probably not the right, the appropriate word to use.

But we've got a lot of, you know, people who are going through divorce. And this one claims this kid and this one claims that kid. It's just an inevitability.

It's a situation that we have because you got to be connecting as a parent. But you also have to make wise financial decisions because, look, I'm both an accountant and someone passionate about biblical stewardship.

That's why I do this show. So let's talk about, really, to answer your question, here are the main tax advantages. And again, again, I say this on the show all the time.

It really depends on your particular situation. Show. I'm going to give you some basic information, but you're going to want to talk to a professional about how best to handle this.

First, main tax advantage is the child tax credit. Now, currently that's $2,000 per child. So if you're able to claim that child on your tax return, that's a $2,000 child tax credit.

Now, later in the show, I'm going to talk about the difference between a credit and a deduction. But just think about that right now. The difference. Here's a $2,000 per child tax credit.

Now, depending upon your income, you might also qualify what's for what's called the earned income credit. And it depends on your income. It depends on all those things, how many children you have. So that may be a part of this.

Now, another thing you might want to consider is your filing status. Your filing status will be dependent upon this as well, because if you're able, let's say you're divorced, right?

And each of you live is in your own home and you're going to split the kids. That's one of the things you mentioned in your, in your question here.

Well, each of you may very well be able to claim what's called head of household. Head of household gives you a preferential tax rate. Well, in order to qualify as head of household, you've got to have a dependent child.

So a tax strategy you might want to consider if you guys are amenable is if you have two children, each of you could claim one. And if you're living in separate homes, then you basically both could claim head of household, which might give you a better tax rate.

It also gives you a higher standard deduction. So those are all the big pieces of that puzzle. Now, I did a show a couple of weeks ago about what we expect is going to happen in 2025.

Now if things don't change, if the Congress doesn't approve this, we're going to go back to a completely different tax situation as it relates to the child tax credit. But for right now, it's $2,000 per child. Now, one of the things you're kind of alluding to is this idea of custody.

And let me just tell you right now, this is where I see some real battles going on in my situation with my clients. You know, I'll have a client, husband and wife, they divorce, but maybe they're still both clients.

And then there's this race, there's this race to get to me to file first because they know that once somebody files and uses that child, if they go to file their tax return, they're not going to be able to claim that child. So generally, and this is a real general statement, the custodial parent, the parent that the child lives with generally will get priority.

So you're going to have to look at, you know, where the children live the most.

Now, a lot of times, from my understanding, I'm not an attorney, but a lot of times now with these agreements for children, they do what's called joint custody. So both parties have equal custody of the child. So you're going to have to look at where does the child live, how much time does the child have?

And listen, just like anything else, if you can come up with an agreement between the two of you that you're not fighting this out in court or you're not fighting this out at the irs, because listen, that's just a lose lose for everybody. So look at your custody agreement and take a look and see what you can do. Because here's what happens.

Let me tell you a real simple example because I've seen this year after year. So let's say you're divorced and let's just I'm going to pick on the dad here for a second. The dad comes in to get his taxes done.

Doesn't matter with you.

And let's say there's two children involved and the dad says, I want to hurry up and get my taxes done and I'm going to claim both kids on my tax return. Well, we would e file the return. The IRS acknowledges the return. Everything is great.

Well then let's say a week later the ex wife goes to file the tax return and she says, well, you know what, I'm going to clean both kids.

Well, she goes to e file that return and whooping the alarms go off because the IRS is going to send a letter or it should be an electronic acknowledgment back to the tax person and say, wait a second, this return has been rejected because someone else has claimed this dependent. And trust me, I see this at least three or four times every tax season. So you might be saying, Ralph, what happens then?

Well, I'm going to tell you what happens right then the person who got the refund got the refund they filed first. Now, it's not over because then what the person who didn't get the refund can do is they can paper file their return.

We're not going to be able to electronically file it, but they can paper file it, print the tax return out, send it, mail it in and wait whatever how many months it takes. And I'm not picking on the irs, but whatever months it takes to get that tax return process.

And then what generally happens next is, is the IRS says we've got a problem here. And what they do is they send a letter out to each of the parties and say, listen, both of you have claimed the same children.

So now what you've got to do is you've got to prove who's entitled to the deduction. And like I said, the IRS is going to first look who's the custodial parent.

Well, maybe you have this situation where you've got joint custody and then it's going to get down to the days.

Believe it or not, the IRS is going to say, okay, you show me the dates on the calendar where child A live with you and child B live with you and vice versa. Then it gets even more complicated than that.

Then they're going to want to see receipts for food, clothing, Shelter, medical bills, whatever those things are. Where was the kid set up for school? So it becomes a contest. And here's the thing about it. Like, it drags out and drags out.

Now, eventually the IRS is going to make a decision. And I'm going to tell you, from my perspective, generally, it's the custodial parent who wins or it's the parent who has the most documentation.

Because the IRS is relentless on this. They want to see document after document.

And the problem is, a lot of clients will say to me, Ralph, well, you know, dude, I didn't keep track of all the receipts for the grocery store, and I didn't keep track of all the clothes I bought, and I didn't keep track of all the trips to here, the trips to the doctor, or all the school records. Now, you can go back and get those things, but if you can avoid it, listen to what I'm saying to you.

If you can avoid it, avoid it, sit down and have a conversation.

Now, a lot of times what I'll do is both parties will come into me and I'll prepare the tax returns and we'll look at the impact on each of them and we'll make a decision. What's best for everybody collectively doesn't always work like that because sometimes when people get divorced, they're not friends anymore.

So I can only hope that some way, somehow, you can make this work. Now, the thing I'm going to tell you is you need to honor God in this. Because think about this just like we talked about the beginning of the show.

Proverbs 3, verses 9 and 10 tells us to honor the Lord with our wealth.

And here's the thing, like, and a lot of people don't like to hear this, but part of honoring is being truthful in your dealings and making wise decisions that benefit our families. So you got to be truthful about this.

You got to think about what's in the best interest for the family, and then what is the best wise decision making? So here's my action steps for this particular question. First thing you want to do, review the custody agreement.

Because maybe the custody agreement sets it out exactly what it's what it is. You know, it might be, it might be, hey, it's not joint custody. Party A has full custody. Makes it a little bit more complicated.

But then you're going to have to document the children's living arrangements. I mean, you think I'm joking, but literally, the IRS will ask you for a calendar. How many days were they with this parent?

How many Days were they with that parent. So you can calculate different scenarios. But again, the best thing I can tell you is discuss this with your ex spouse and document an agreement.

Make sure everybody's on the same page because unfortunately what a lot of times happens is they'll have this agreement, they'll talk about this and October, November, everybody's happy, it's Christmas time, everybody's excited. Oh, are you going to file with the kids? No, no, I'm not going to take the kids. You go ahead and take the kids.

Or maybe it's a conversation of, well, you take one, I take one. Well then all of a sudden January comes on and the bell rings and it's time to file and one of the parents is at the tax file in place.

And man, before the IRS even flips the switch, man, they have got their taxes returned done. So listen, you're not alone in this.

It's a complicated question and that's why I'm going to say I'm going to encourage you, get professional help if you need it. And here's the thing I want you to do. Take a step this week.

If you're in this situation, reach out to that other person and say, hey, how can we make this right? How can we do this for everybody involved? And like I said, pay attention to the details if you know you're going to get in this situation.

Keep all those, keep all those receipts. I'm talking about every receipt, grocery store, clothing, whatever it is, school records, doctor's visits, co pays, pharmacy. You think I'm joking?

Like I've dealt with clients where I've had one party that had a stack 3 inches thicker receipts and the other person, I've even had situations where the other person was clearly the one making all the payments because the other party didn't even have a job or didn't work much. The IRS doesn't care. They want to see receipt evidence. Well, let's move on to our third question for the night. That's our question.

Another one from the mailbag. And this is, we're going to talk about that whole idea of tax credits versus tax deductions. Like I told you, I promise you, we get to that.

So this one's a funny one. It says I was arguing with someone at the office the other day because they said a tax credit and a tax deduction are the same thing.

But I don't think they're correct. Can you answer this simple question? Here was their question for me.

Would you rather have a thousand dollar tax credit or a Thousand dollar tax deduction. I'm going to ask right now in the chat, which do you think is better, $1,000 tax credit or $1,000 tax deduction?

Because a lot of people don't understand the difference. But I'm going to get to that answer in just a second. But was everybody have any comments in the chat?

All right, well, let me just lay out for you, give you some basic concept introductions. So tax credits and tax deductions and think about it like this. The best way I can friend this are like two different tools in your financial toolbox.

Because the truth is they both save you money, but they work in completely different ways. So think of it this way. A tax deduction, it's like getting a discount on your purchase.

So you go to the store and they're having a sale and you've got 20% off everything in the store. That's basically what a tax deduction is.

On the other side of that, a tax credit is like having a gift card and we're all getting over Christmas, maybe we got those gift cards to spend. So that's the real difference. A tax deduction is a discount on your purchase while a tax credit is having a gift card.

So if you think about it, the answer to the question is I'd rather have that tax credit. Because here's the deal. Tax credits are the heavyweight champions of tax savings. That's what I call it, man.

That's the Mike Tyson, that's the Muhammad Ali's. They're the heavyweight champions of tax savings dollar for dollar because they work as a dollar for dollar reduction of your actual tax bill.

So let's say you owe $2,000 in tax and then you say, Ralph, well, I did this and I'm entitled to this tax credit. Well, that's fantastic. Let me give you an example.

So if you owe $5,000 in taxes and you get $1,000 tax credit, well, guess what, your bill drops straight to $4,000. That's still a lot to owe, but that's the deal. Now, common tax credits are the one we talked about, the child tax credit.

It's $2,000 per qualifying child. Another tax credit that's out There is the EV or the electric vehicle tax credit. One is up to $7,500.

There's also a tax credit called the American Opportunity tax credit. That's for education. That one can go up to $2,500. And then there are a bunch of home energy improvement credit. Home energy improvement credits.

So those are your tax credits. Now let's talk about deductions. So we said that the, the tax credits are the heavyweight champions.

And like I said, deductions are more like a discount on your taxable income because what they do is they reduce the income that you're taxed on, not the tax itself. So I hope everybody's understanding what I'm saying.

A credit is a dollar for dollar tax reduction, while a tax deduction reduces your income that you're ultimately taxed on. And see, here's where it becomes an issue. So you said the question was what would you rather have?

Well, see the thing is this, the higher your tax bracket, the more valuable a deduction becomes. But if you're in like the 10 or 12% tax bracket, that credit is worth its weight in gold.

And now common tax deductions are these things we're familiar with. Mortgage interest, state, local income taxes, charitable contributions, student loan interest, business expenses. Those are the typical deductions.

Well, let's run some numbers with some real world scenarios. So imagine two taxpayers, both are looking at $1,000 tax benefit, but taxpayer A gets $1,000 tax credit and taxpayer B gets $1,000 tax deduction.

For sake of our discussion, let's assume they're both in a 22% tax bracket. Well, taxpayer A, he got that thousand dollar tax credit that saves the full hundred, or excuse me, the full thousand dollars.

But taxpayer B, who got that tax deduction only saves $220. Let me tell you how I got there. So that tax credit is a dollar for dollar.

Whereas that tax deduction, that thousand dollar tax deduction is multiplied by that tax percentage. And we said they're in the 22% tax bracket. So think about it, that's a $780 difference for the same dollar amount.

So the answer to the question, ding ding, ding is a tax thousand dollar tax credit is far superior to a thousand dollar tax deduction. So here's the thing you got to think about. When you're looking at tax benefits, you always want to look for credits first. And here's the deal.

I'm gonna be honest with you. It's the way they do this big picture. Credits are typically designed when the government wants specific policy goals.

And you might be saying, Ralph, what are you talking about? It's when they want to accomplish some type of behavior.

For example, they want to encourage education, There's a child, there's a tax credit for that. They want to support families. That's why they have the child tax credit. They want to promote green energy.

That's that whole EV credit, they want to help low income workers. That's that earned income tax credit. So you get the idea. It's all about trying to change behavior, big picture.

Now, deductions often reward specific behavior or expenses, like we talked about. Mortgage interest. Well, they're trying to promote homeownership, charitable giving. There you go. That's a deduction.

They're trying to promote people being charitable. Same thing with business investment, health care costs. Now, I don't know that.

I mean, people want to promote health care costs, but that's a, that is a deduction, not a tax credit. So you might be saying, Ralph, that's great, I get it. What is the point? What is strategic planning points that you have?

Well, here's something I'll tell you and I tell clients is all the time if you can stack multiple credits when possible. So if, you know, you've got education expenses and if, you know, maybe. Here's a great example of this.

I've had many clients over the last few years who have bought these electronic cars, these EVs, and they know there's a $7,500 tax credit. So they'll look at their tax return and they'll sit down with somebody like me and they'll say, hey, Ralph, I'm going to buy this EV.

I know I'm entitled to a $7,500 tax credit. Now make sure you're going to get it. Because I've had clients that haven't gotten it because they didn't follow all the rules.

But let's just assume you're going to get it. And they'll say to me, Ralph, what do I do? Because I don't want to just have this huge refund because. And this gets into a whole level of weeds.

But basically, credits can't go greater than what you owe the irs. So what I tell clients to do is this is a simple example. Let's say you make $50,000 a year and you normally pay into the IRS at 10%.

So $5,000 you pay in.

Well, one of the things I'm going to tell you is, hey, maybe you go exempt for the whole year so that by the time you get to the end of the year, you know you've got this $7,500 tax credit. Well, if you don't pay anything throughout the year, then you're saving that money as you go.

Now, that's not to say that you should ignore deductions because they're not worthless. And the thing is, you need to Understand? I talked to Liv this about it a minute ago. There are some credits that are refundable.

Like one of the big ones of that is an adoption credit. So even if you don't have enough income or which you know, leads to you not having enough tax, some credits, they'll actually send you a check.

They won't just send you your money back, they'll actually send you a check. It's what they call have refundable credit. But you really need to understand the difference between a refundable and a non refundable.

And I know I just lost everybody, but that's why you want to come and pay somebody like me to make sure that you don't get yourself into a problem. Because those non refundable credits can only reduce your tax to zero. They're not going to send you a check. Let's just use that same example.

So we had that, that person that, that earned $50,000 in income and they paid $5,000 in throughout the year, but now they're entitled to the $7,500 tax credit. Well, when you figure out their taxes, they're not. The IRS isn't going to send you a check for the difference. You use it or lose it.

So big, big, big closing takeaway. Always remember this.

Now that you know this, you've been educated so you can go back to the water cooler at work and say, I was right, $1000 credit is always worth more than a thousand dollar deduction. You know why I can say that with 100% surety? Because unless the tax rates were 100%, a deduction is always going to be worth less than that credit.

So credits equal a direct reduction in taxes and deductions equal a reduction in taxable income. And listen, understanding this difference can lead to better tax planning decisions.

Well, let me talk to you for a minute about something I see every day in my accounting practice. We've talked a lot about tax tonight. You know that feeling when you're staring at tax forms and your stomach is in knots?

Just like Angie in the first question today. She's, she said as she said, Ralph, my stomach's in nuts. I'm looking at these 1099. I'm worried that I'm going to owe thousands.

Or maybe you're worried about missing deductions. And perhaps you've heard that new tax laws are coming out, but you're aren't sure how they affect you.

And listen, I get it because that's exactly why I founded SAO Management Group as both an accountant and A business owner. I can tell you firsthand that tax season doesn't have to be a nightmare.

I had somebody the other day say, Ralph, coming to see you is like going to the dentist. I know whether to take that as a compliment or not a compliment, but I thought about, you know, here's what keeps me up at night.

And this is the truth. Last year, I saw countless hardworking people and business owners who overpaid their taxes and listen to this. By thousands of dollars.

They overpaid them simply because they didn't know about available deductions and credits. They were literally leaving the money on the table.

So whether you're running a small business or filing individual tax returns, tax laws are constantly changing. I have several clients that have say to me every year, Ralph, I don't know how you keep track of it.

We're seeing major shifts that could impact your bottom line. And so here's the story. At size, you imagine we don't just file your taxes, but we help you build a strategic plan to legally minimize what you owe.

The Supreme Court decide is tax evasion is illegal. That's the thing they'll put you in jail for. But tax avoidance is your right to do that. So you might be asking, Ralph, what makes you different?

What makes me different is I'm not just a tax preparer. As you can hear, I do this show every day. I do this live show once a week. I am your financial ally. I handle everything.

I handle everything from individual taxes, business taxes, estate planning, succession strategies. And listen, here's the big thing. I don't disappear after tax season. You come to find me. I'm here year round here on the farm.

I am here year round to help you make smarter financial decisions. So whether you're in California, Texas, New York or anywhere in between, I do taxes all over the United States and all over the world.

To be honest with you, my virtual tax preparation services give you that same personalized attention as if you were sitting right in front of me.

Like some of my local clients, we use secure video conferencing, we do screen sharing, we use encrypted client portals, and we can handle everything seamlessly, just as if you were sitting in our office. So listen, Angie, and everybody else listening, don't wait until you're stressed about deadlines.

You know, you don't want to be waiting till the 1st of April or maybe the 10th of April, or maybe you're worried about. Get that on it. Make sure you never pay more than your fair share in taxes. And remember, I'M not just reading this ad.

I own this firm and I personally stand behind every service I offer because your financial peace of mind, your financial peace of mind is my business. So again, you can schedule today, just go to askralphpodcast.com/tax rep. Again, that's askralphpodcast.com/taxprep and you know what?

Here's the truth. Some of my clients have saved enough on their taxes to pay for our services multiple times over. Now listen, that's not just a promise.

That's just what smart tax planning can do. So again, if you're interested, go to askralphpodcast.com/tax prep. Well, thank you for joining me tonight and every Tuesday evening at 7.

Please do me a favor and share the show with other friends and family members. Because remember this, my passion is to help you achieve financial success. I want to see you live out your dreams and grow in your faith.

Because together and I know this is the honest to God truth. Working together, we can master your finances from a Christian perspective.

So as I close tonight, I want to remind everybody out there to join us every Tuesday night at 7. You can catch my Daily Show. Just go to askralph.com, stay financially savvy out there and may God bless you abundantly.

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