You Might Also Like: Grown-Up Stuff: How to Adult

Summary

Podcast Summary: Grown-Up Stuff: How to Adult Episode: You Might Also Like: Grown-Up Stuff: How to Adult
Release Date: March 8, 2025
Host: Adam Graham

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Introduction

In the "Grown-Up Stuff: How to Adult" episode of The Great Detectives Present Dragnet (Old Time Radio), hosts Matt Stillo and Leah Palmieri delve into the often daunting world of taxes. As tax season approaches, they are joined by expert Russ Garofalo, founder of Brass Taxes, to demystify the complexities of tax filing, ensuring that listeners feel more confident and informed when handling their finances.

Meet the Hosts and Guest

• Matt Stillo: Veteran host bringing experience and enthusiasm.
• Leah Palmieri: Newest addition to season three, bringing fresh perspective and humor.
• Russ Garofalo: CPA and founder of Brass Taxes, shares his extensive knowledge on tax preparation and strategies.

Understanding Taxes: A Historical Perspective

Russ begins by providing a brief history of taxes in the United States, explaining that income taxes were introduced post-Civil War to manage national debts. Initially imposed only on the wealthy, taxes have gradually expanded to include a broader population. He emphasizes the evolution of the tax system as one of "cheating and then changing the laws so that cheating is not allowed," highlighting the dynamic nature of tax regulations [05:01].

The Tax System Simplified

Russ breaks down the concept of tax brackets, clarifying a common misconception:

“You should always take more money because the next money you make only ever goes into the next tax bracket when you've filled the previous bucket.” [09:25]

He explains that tax brackets are progressive, meaning only the income within a higher bracket is taxed at that higher rate, not the entirety of one’s income.

Tax Filing Essentials

The conversation transitions to the practical aspects of tax filing:

• W-2 vs. 1099 Forms: Russ distinguishes between employees (W-2) and contractors/freelancers (1099), underscoring the importance of understanding one's employment status for accurate tax filing [14:33].
• Starting Tax Preparation: He advises beginning the process early to avoid last-minute stress and to ensure all necessary documents, such as W-2s and 1099s, are accounted for [12:04].

Deductions vs. Credits

Russ elucidates the difference between deductions and credits:

• Deductions: Reduce taxable income (e.g., student loan interest, IRA contributions).
• Credits: Provide a dollar-for-dollar reduction in tax liability (e.g., Earned Income Credit, Child Tax Credit).

“Deductions are like a discount... Credits are like, we'll give you a refund of the money you spent.” [27:44]

Choosing a Tax Professional

Selecting the right tax preparer is crucial. Russ offers valuable advice:

“Work with someone who understands your industry and you feel comfortable talking to.” [19:35]

He warns against assuming that certifications like CPA guarantee competence and emphasizes the importance of communication and industry-specific knowledge.

Tax Planning and Withholding

Effective tax planning can prevent unexpected liabilities:

• Withholding: The amount deducted from each paycheck for taxes is determined by the W-4 form.
• Estimated Taxes: For freelancers and self-employed individuals, setting aside a percentage of income (typically around 25-30%) can mitigate year-end surprises.

“Withholding is money that they take from you before you get your money... If you get that wrong by $50 and then you get paid 26 times, now you owe $1,300.” [25:03]

Navigating Tax Refunds and Liabilities

Russ clarifies that filing taxes early can expedite refunds without altering the amount owed:

“You would get it sooner... not the amount.” [13:09]

He advises treating refunds as a form of passive saving, suggesting that overpaying taxes may not be financially optimal.

The Reality of Audits

Addressing fears around audits, Russ demystifies the process:

“An audit is just a scary word for show us how you got these numbers.” [38:45]

He reassures listeners that while audits can be intimidating, they are relatively rare and often involve straightforward verification of submitted information.

Self-Employment Tax Explained

For freelancers and gig economy workers, self-employment tax is a significant consideration:

“Self employment tax is a flat tax... You're going to pay 15%.” [42:30]

Russ explains that self-employed individuals are responsible for both the employer and employee portions of Social Security and Medicare taxes, totaling 15%.

Key Takeaways

• Start Early: Begin tax preparation well before the deadline to avoid stress and ensure all documents are in order.
• Understand Your Forms: Distinguish between W-2s and 1099s to accurately report income.
• Track Expenses: Regularly record business expenses to reduce taxable income.
• Choose Wisely: Select a tax professional who is knowledgeable and communicative.
• Plan Ahead: Adjust withholding and set aside funds for estimated taxes to prevent year-end surprises.
• Stay Informed: Continuously educate yourself on tax matters to make informed financial decisions.

Notable Quotes

• Russ Garofalo: “You should always take more money because the next money you make only ever goes into the next tax bracket when you've filled the previous bucket.” [09:25]
• Russ Garofalo: “Deductions are like a discount... Credits are like, we'll give you a refund of the money you spent.” [27:44]
• Russ Garofalo: “Withholding is money that they take from you before you get your money... If you get that wrong by $50 and then you get paid 26 times, now you owe $1,300.” [25:03]
• Russ Garofalo: “An audit is just a scary word for show us how you got these numbers.” [38:45]
• Russ Garofalo: “Self employment tax is a flat tax... You're going to pay 15%.” [42:30]

Conclusion

The episode successfully transforms a typically intimidating subject into accessible and actionable information. By breaking down complex tax concepts and providing practical advice, Matt, Leah, and Russ equip listeners with the tools needed to tackle their taxes confidently. Whether you're an employee or a freelancer, understanding the basics of tax filing, deductions, credits, and planning can lead to better financial outcomes and reduced anxiety during tax season.

For more detailed advice and resources, listeners are encouraged to visit brasstaxes.com.

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Note: Advertisements and promotional segments have been excluded from this summary to focus solely on the informative content of the episode.

Transcript

[Disney Inner Child]

Hi, friend. It's your inner child calling. And they want churros. A new toy and a new adventure. Or maybe five with the bestest besties on earth. Find your moment at Walt Disney World Resort.

[Leah Palmieri]

Where'd you get those shoes?

[Russ Garofalo]

Easy.

[Disney Inner Child]

They're from dsw.

[Leah Palmieri]

Because DSW has the exact right shoes for whatever you're into right now.

[Disney Inner Child]

You know, like the sneakers that make office hours feel like happy hour, the.

[Leah Palmieri]

Boots that turn grocery aisles into runways, and all the styles that show off.

[Disney Inner Child]

The many sides of you, from daydreamer to multitasker and everything in between. Because you do it all in really great shoes. Find a shoe for every YouTube at.

[Leah Palmieri]

Your DSW store or dsw.com hi, I'm Matt. And I'm Leah. And we're from the Grown Up Stuff podcast.

[Matt Stillo]

And just in time for tax season, on this week's episode, we're chatting with CPA Lisa Green Lewis about how small businesses can tackle their taxes using TurboTax Business.

[Leah Palmieri]

A Forbes study mentioned that a whopping 93% of small businesses overpay their taxes. And 17% of Gen Zers believed that you could write off any expense as a business expense.

[Matt Stillo]

So can't blame them.

[Leah Palmieri]

It's really important to do your taxes right.

[Matt Stillo]

Listen to Grown up stuff on the iHeartRadio app, Apple Podcasts, or wherever you get your favorite podcasts.

[Leah Palmieri]

Ruby.

[Matt Stillo]

Hello to all our favorite grownups. And welcome back to Grown Up Stuff. How to adult. I'm Matt Stillo.

[Leah Palmieri]

And I'm Leah Palmieri, your brand new host for season three.

[Matt Stillo]

That's right. We are so excited to have Leah joining the show. And before we jump into our first episode, a round of applause to Molly, who not only co hosted the show's first two seasons, but was the show's creator. We love her so much. She's off to bigger and better things, and we wish her all the best of luck in her future endeavors.

[Leah Palmieri]

And I know I'm stepping into big and also very cute shoes here, so I promise I'm gonna do my best to make Molly proud with my curiosity and naturally, my humor.

[Matt Stillo]

Okay, so, Leah, why don't you tell us a little bit about yourself.

[Leah Palmieri]

Well, a little bit is that I'm a Gemini.

[Matt Stillo]

Okay. That's actually a lot of bit.

[Leah Palmieri]

Yeah.

[Matt Stillo]

What are you, Sagittarius?

[Leah Palmieri]

That's right.

[Matt Stillo]

December, baby.

[Leah Palmieri]

Yes. Okay. I'm a June girl, so. Okay.

[Matt Stillo]

Well, this is good Yin yang. It's balancing out.

[Leah Palmieri]

Those two are actually like, they're a good pair together. They're the opposites of each other, but they have a lot in common, so they're a good match.

[Matt Stillo]

This is all melding well for the new season.

[Leah Palmieri]

Yeah, it really is. I'm so excited to be joining the show. I'm so excited to be chatting with you. And I'm mostly so excited to learn. We're going to learn so many new things.

[Matt Stillo]

We've already learned so much.

[Leah Palmieri]

Yeah, that's true. We really have.

[Matt Stillo]

Amazing. Well, we're so happy to have you here at Grown Up Stuff. And we have quite an exciting season ahead. We're going to revamp your cars, your mornings, and starting today, your tax returns.

[Leah Palmieri]

That is right, Matt. So coming up, we're going to be talking to Russ Garofalo, who is the founder of Brass Taxes.

[Matt Stillo]

Grown Up Stuff.

[Russ Garofalo]

Hi, my name is Russ. I founded brass taxes in 2008 when the economy slumped. My money job was a video editor. And so I realized I needed a day job and I just happened to get one with a friend of a friend's parents who is a tax preparer in Brooklyn. And within about three weeks, I realized I was doing my own taxes badly. Probably so were all my friends. I was losing out on money from what I didn't understand. And then I was curious why no one had come and sold me something to tell me this. Why didn't somebody come and say, if you make your taxes more complicated by dealing with this other stuff, it will save you more money than it costs additionally to do them. And you really have very little experience of doing taxes. Cause you do them once a year. So I feel like it's like a video game you play once a year.

[Matt Stillo]

You forget every time.

[Russ Garofalo]

Yeah. So you're terrible at it.

[Leah Palmieri]

Yeah.

[Matt Stillo]

Yeah. Every year feels new to me. I'm like, oh, what did I do? I forgot all that.

[Russ Garofalo]

Yeah. Anything you learned, you'll have forgotten.

[Leah Palmieri]

Yeah.

[Russ Garofalo]

And then really started to focus on those things that I didn't understand of when it makes sense to get tax help and when it does not make sense to get tax help and do it hopefully in a way that is even keeled enough that you engender enough trust that people believe you. And now we're fully remote and there's 25 of us and we have about 5,000 clients.

[Leah Palmieri]

You're going to tell us a lot today, Russ, and we're going to feel so much better going into the world. I think, just to start, could you give us a small history lesson on taxes just so we understand what we're even dealing with here? Like, what are Taxes, what do they do, and why are they so complicated?

[Russ Garofalo]

Most of the time we say taxes, and we're not defining what we're talking about. Normally, what we're talking about is income taxes. So when they discuss cutting taxes, they're talking about income taxes. There's also other taxes, but generally we're talking about income taxes. They started after the Civil War to try and deal with the debts that everyone incurred. And we created the concept that the federal government was going to help pay for state debts. Otherwise, each was going to kind of be left on their own. Initially, taxes were only for the very wealthy. And that has slowly become to everyone pays taxes, and that's largely how we fund the government. It's a series of, like, cheating and then changing the laws so that cheating is not allowed. Most of the illegal stuff is not having the largest impact. It's figuring out how to get around tax rules is its own game. And that's what a lot of lobbying is for. And when you hear Trump paid $750 for taxes for a year, that's why, like, he didn't do anything illegal. He just help craft a system that benefited him. So when clients come in and they're like, how do I do that? They're directly questioning income inequality. Those people have lobbied spending $5 million to save $20 million. And you have a different set of rules, but across the world, this is the best way we've come up with. And despite what you hear, it's largely an honor system. And Americans are, on the scale of people in the world, very forthcoming with just paying their taxes and being like, this is my share. I have to deal with it. I remember I had a client from Greece who said, we have a saying in Greece that only the stupid pay taxes, meaning everybody else knows how to get around them. And this was like, 2014. And in my head, I was like, yeah, but look at Greece.

[Leah Palmieri]

Yeah.

[Russ Garofalo]

And one piece I didn't realize about this before. I kind of got learning about it more was that the IRS is a really efficient organization. Like, it's kind of demonized, but for every dollar you fund it, it returns over $6. So it's really good at utilizing the money you give it. And from a business perspective, that means you should keep giving the IRS money a dollar until it returns 99 cents, as long as they keep returning more than they're taking. Like, that's an efficient use of business. But traditionally, when the Republicans come into government, in addition to cutting taxes, they underfund the irs. And when you underfund the irs. Less people get audited, checked in on, and there's less compliance with just what the rules are. Therefore, the country brings in less money. And then you can say, we can't afford all these social programs. Oh, so it's kind of a backdoor to being like, these are too expensive. But you also undercut the funding by lowering the money that the IRS gets. And most tax people I know, we like the irs, like, we want them to be easier to get a hold of.

[Leah Palmieri]

Yeah. Well, speaking of rules, too, I know even during an election, we hear a lot about tax brackets. What are tax brackets? And what buckets can people fall into?

[Russ Garofalo]

So picture five buckets from left to right. The bucket on the LeftMost is the 0% tax bracket. Another word for that is the standard deduction. So the first $14,000 of the money you earn go into that bucket. So you pay 0% income tax on that money. And then the next dollar you get falls in the 10% bucket, and the next 10,000 or so dollars falls in the 10% bucket. Once you fill up that bucket, you move to the next one to the right, and the next 30,000 ish dollars go in the 12% bucket. And then after you fill that bucket, your next dollar goes in the 22% bracket. So you only ever move to the next tax bracket when you filled the previous bucket. So a question we get that shows the misunderstanding is people are like, I just got a raise at work to $50,000, but should I turn it down? Because it's going to put me in a higher tax bracket and I'm going to end up with less money than I got when I was earning $45,000 in the lower tax bracket. And the answer is no, you should always take more money because the next money you make only ever goes into the next tax bracket when you've filled the previous bucket.

[Matt Stillo]

So basically, are you saying that like, just for simple numbers, like if you were making $45,000 and paying 10% tax and you go to 50,000 and you're paying, now you're paying 15% tax. It's only that $5,000 that's being taxed at the higher rate.

[Russ Garofalo]

Correct.

[Matt Stillo]

Okay, that's interesting. So now that we've laid this baseline on taxes for those people who are out there who are like, it's March, I gotta start, what are the first steps that they should take when trying to file their taxes?

[Russ Garofalo]

I mean, there's a big separation between are you self employed or are you an employee? And part of that Is what does self employed even mean? There's a lot of verbiage and monikers under self employed labeling, which is the gig economy, freelancing contractor. The answer is you're self employed. Anytime someone gives you money for doing something without taxes taken out, that's it. And that's where you enter that gray area of doing your taxes. And then at that point, you need to understand that there's separate rules for you as a person versus you as a business. And I think with some caveats, it makes sense to get help on your taxes as long as the person you're working with understands your industry and you feel comfortable talking to them. Otherwise, you're collecting a bunch of papers that are sent to you and trying to remember all the things. A very good place to start is look at your last year's taxes and be like, did anything go wrong with this? Did I get any letters? Because people forget like, oh, I have some random stock my grandma gave me that's always like $24.

[Matt Stillo]

This is me. Every year it takes Morgan Stanley until like March 18th and I'm like, oh, right, that one thing. God damn it.

[Russ Garofalo]

So essentially it's gathering up all those papers, filling them out either yourself with some anguished hours in front of the computer or paying someone else to do and then sending them in to the government to be like, yep, that matches what we got.

[Leah Palmieri]

I had to log into ADP this year to get a W2. It just wasn't sent to me in the mail. And it was. All of my previous employers were in there. And I was like, oh, this website has all of my everything from like the last 15 years. So that is a tip for other people too, that like, if you didn't get your W2 in the mail or something, go to your ADP and look at it there, because it might be there.

[Russ Garofalo]

Yeah, there's only a few big payroll processors, ADP gusto. There's probably three, four or five. But yeah, they have all your stuff. They're supposed to send you a W2 and they send one to the government, to the IRS. So they have one on file.

[Matt Stillo]

Tax day is April 15th. Right. And you typically get these forms, you're just talking about W2 form if you're employed, maybe a 1099 if you're self employed in January. So like, when should we start? Is it better to file earlier? Is it better to file at the last second?

[Russ Garofalo]

The answer to that is going to be largely dependent on what is going to happen at the end of this process and what Is it that you want from this process? Some people are just thinking about, like, is there a best money result? Am I going to get a letter result? And then there's the how long am I going to think about this question. So I think for most people, they want to get this over with, and the only reason it goes on longer is because they're not able to bring themselves to do it without an impending deadline. Other people think that they owe money, and so they're delaying that realization. You could do your taxes and not pay them immediately. The IRS is actually very considerate. They just want to not be ignored. Yeah, but, like, they don't put you in debtor's prison or, like, take all your money from you. Think of them as, like, a really nice credit card or an underfunded mafia. That's how they work. So you can do your taxes and then figure out payment separately. But I think for most people, they want to get it over with, move on with their lives, not think about this. So, yeah, I'd recommend getting started and getting it out of your head.

[Matt Stillo]

Does that affect, like, your refund?

[Russ Garofalo]

No.

[Matt Stillo]

So you wouldn't get it sooner if you filed sooner?

[Russ Garofalo]

Oh, yeah. You would get it sooner. Yeah. Not the amount.

[Matt Stillo]

That's what I meant. Like, you'll get the refund sooner. Yeah. Cause I think that that's where I've landed. Like, I used to panic about it and wait until the last second, and now I'm just like, I agree with you. Like, I just want to get it over with. And I also think it can be helpful for people to try, like, the one thing I always forget about, I'm like, oh, I donated so much money to all these different causes throughout the year. So I've started keeping a little folder whenever I make a transaction like that to, like, make sure that I document what I can deduct from charitable donations and stuff. So that's another thing that's helped me not panic at spring, that I have a record of stuff.

[Leah Palmieri]

I've done a spreadsheet, too, because every year, if you need to be thinking about, well, how much should I spend on my Internet this year? And things like that. And so I've been trying to be better about listing the things that I'm spending money on that are going towards my work so that I have them throughout the year. And so I'm not just in January, like, oh, God, what do I do? But on top of that, too, you know, again, we were talking about W2s. There's 1099s there's all these letters and numbers being thrown about. Can you explain a little bit the difference of those when it comes to like W4s, W2s, 1099s, 1040s, like all these different things. What are each of these and what information and documents do we need to have handy and ready to go when we're actually ready for tax time?

[Russ Garofalo]

So a good way to figure out even how you're about to get paid at a job is if they give you a W4. So a W4 you fill out and that ends up with you getting a W2 later.

[Leah Palmieri]

Okay.

[Russ Garofalo]

So that means you're an employee officially. If they give you a W9, that means they're going to pay you as a contractor without taxes taken out. So suddenly, like the roads have diverged one, you're going to have all the protections of an employee, minimum wage, unemployment, potentially benefits, and they're going to take taxes out as you get stuff. And the other way is that's your responsibility at the end of the year and you better save that money. There's a bunch of different 1099s, so we kind of use them colloquially to mean your freelancing money, but those are 1099 miscellaneous or NECs. But there's also 1099 ints for interest, 1099divs for dividends, 1099B's for your brokerage, 1099R for retirement. Generally, I would say if you get something with very boring, bold graphic design and boxes, you probably need that for your taxes.

[Matt Stillo]

Yeah, that's a good way to put it.

[Leah Palmieri]

Yeah.

[Matt Stillo]

And I feel like I only in the last couple of years started investing and having a 401k and stuff like that. And so I started getting the 1099 div and I was like, oh, God, the boxes and the bold letters. This seems important.

[Leah Palmieri]

Yep. I guess. Also if you're getting a lot of those papers with the boring boxes and letters too, is that when you sort of know, okay, I'm probably going to need some professional help? How do you break that down? How do you know, like, I got this, I can do it myself. Or when should you say, you know what, let me let a professional come in here and save my ass.

[Russ Garofalo]

I would not say the ubiquity of weird forms means you need to get any help. At that point. I think there needs to be a something else.

[Leah Palmieri]

Okay.

[Russ Garofalo]

Just getting those forms is still just type them right into the computer. When you get into self employed, gig economy, Airbnb, getting paid money without taxes taken Out. I think that's when it makes sense to get tax help. The other times that it makes sense to get help is if whatever you want to be happening isn't happening. Like, we have people come every year. All they have is two W2s. But every year they owe. They don't know why. No one will explain it, and nobody's incentivized. Like, your job can't tell you how to fill out your W4 to change the results on your W2. So every year, people just live with it. There's no other time in life where you're like, am I going to get back $4,000 or am I going to owe $10,000? It's like the crappiest casino in the world with such variability. And it's, like, weird that it's normal to us.

[Matt Stillo]

So I'm a W2 and Leah is a 1099 girl. So for the people on the W side, can I change my W4 at work? Because I feel like, same thing, I always lose, and I'm like, how do I fix this?

[Russ Garofalo]

Yeah. And that's an important thing to recognize is what you fill out on your W4 to get a W2 is not legally binding. The goal of the W4 is just to get your W2 to turn out the way you want it. So for most of my clients, I tell them to choose single or married filing separately. That's usually one selection. And don't claim any of your kids if you have kids. For most of my clients, that's the one that makes sense because your spouse is not, not working. They're just going to come and throw more money on the pile. So we don't want to account for them being a tax benefit. We just are saying, hey, this money should pull out taxes for this money and assume no other benefits somewhere else. So even if you're going to file married filing jointly on your W4, you can still select single or married filing separately. And the goal is just to get it to come out the way you want it to at the end. But that whole system is pretty opaque because it just wasn't designed for the way we're using it. Like, you weren't supposed to have 10 W2 jobs.

[Leah Palmieri]

Yeah, it's like, do I put a zero? Do I put a one? And, like, how is this going to change my whole entire life right now with, like, one stupid number right where.

[Russ Garofalo]

You don't really understand what's going on and what it's going to mean later? And then it also changed in 2017 with the Trump tax changes.

[Matt Stillo]

I think this ends with me hiring you, Russ, to help me out. Because, like, now that you've said that, I like totally forgot because I basically, like, I've been working for this cover for five years and I did the W4 five years ago, and I don't even remember what I put. And it's probably affecting every single year that I'm filing taxes.

[Leah Palmieri]

Well, that brings us to a great point, Matt too, which is how do you find a good tax person? How do you know if this guy is going to be good or this lady is going to good or they're like not great or they're going to be a little bit shady or like, no, they're really on top of it and they know the loopholes. You know, I tend to go with if somebody that I know in my life recommends somebody, then at least I have somebody to blame so that I don't have to take full responsibility. But what are some of the things that you should look for in somebody that's going to prepare your taxes for you if you're going to go the professional route?

[Russ Garofalo]

My mentor Harvey said, take what you're entitled to, but don't be greedy. And I've kind of come to agree with that. I will also point out there's no accreditation necessary to do taxes. That's why the industry feels kind of shady. All you have to do is convince someone to trust you and then you have to go through the process of being allowed to e file taxes. Not a high bar on the other end of that. Just someone having letters after their name does not indicate they will be good at your taxes. So just because somebody's a cpa, I'm an enrolled agent, which is an IRS designation versus CPA is a third party organization. It doesn't mean I'm going to be good at your taxes. Brass Taxes is good at what we do. A lot of just like you wouldn't hire like a real estate lawyer if you were on trial for murder. It's like just being a lawyer does not mean they will be helpful.

[Leah Palmieri]

Right.

[Russ Garofalo]

And so I tell everybody, you need to work with someone who understands your industry and you feel comfortable talking to. I put the limit of feel comfortable talking to of you would ask them the same question four times. If you don't get it, you're like, sorry, still don't get it. Could we try it again? That level of comfort. And if you can do that, they've established themselves as a good repository and a good communicator, which is not inherent to people who choose this job. And they've also shown you that their not maximizing their profit by cutting your conversation short. Because the fastest way for me to make money is for you to drop off your papers and then come take your tax return when I'm done with it and pay me money.

[Matt Stillo]

I could talk to you all day, Russ, to emphasize your point. I can't believe that I haven't had these conversations with my guy. I don't know why I haven't done it. I should do it.

[Russ Garofalo]

What's fascinating, Matt, is that default interpretation is this is gonna suck. This process is gonna suck. I'm gonna feel terrible at the end of it. A little violated, a little like over shared. And my attitude is like, it doesn't need to be that bad. On the back of our business cards it says taxes shouldn't suck so much.

[Matt Stillo]

My favorite thing to say, which is so lame, is that knowledge is power, but it really is like, if you know this stuff, you really can change your life, even if it's in a small way to help yourself out down the road so you're not confused about it.

[Leah Palmieri]

And people feel dumb. They feel dumb like, they should know this, but it's like, why would we know this? This was actually not a class that I ever had anywhere. And so why would we know this? But like, the more you learn about it, the more also confident you will feel going into this and understanding it. And even if you're paying, if you sort of understand why you're paying, I think you feel slightly better about it rather than just, I don't even know why I'm doing this. And here's all this to the government.

[Russ Garofalo]

Yeah, I think that's a great point. There's a huge amount of shame around this and nobody talks about it. Yeah, it's much more taboo than talking about sex.

[Matt Stillo]

Yeah, in certain situations, absolutely.

[Leah Palmieri]

We talk about that.

[Russ Garofalo]

I mean, at least somewhat.

[Leah Palmieri]

Yeah.

[Russ Garofalo]

I went around a dinner table and said there was, I think, 12 or 13 people. And I was like, all right, tell your income or an awkward sex story. 11 awkward sex stories.

[Leah Palmieri]

Yeah. We'll be right back after a quick break.

[Disney Inner Child]

Hi, friend. It's your inner child calling. And they want churros, a new toy and a new adventure. Or maybe five with the bestest besties on earth. Find your moment at Walt Disney World Resort.

[Matt Stillo]

Hi, I'm Matt.

[Leah Palmieri]

And I'm Leah and we're from the Grown Up Stuff podcast.

[Matt Stillo]

And just in time for tax season, on this week's episode, we're chatting with CPA Lisa Green Lewis about how small businesses can tackle their taxes using TurboTax.

[Leah Palmieri]

Business A Forbes study mentioned that a whopping 93% of small businesses overpay their taxes and 17% of Gen Zers believed that you could write off any expense as a business expense.

[Matt Stillo]

So can't blame them.

[Leah Palmieri]

It's really important to do your taxes right.

[Matt Stillo]

Listen to grown up stuff on the iHeartRadio app, Apple Podcasts, or wherever you get your favorite podcasts. Grow up stuff.

[Russ Garofalo]

At Ameca Insurance, we know it's more than just a car. It's the two door coupe that was there for your first drive.

[Matt Stillo]

The hatchback that took you cross country and back.

[Russ Garofalo]

And the minivan that tackles the weekly carpool for the cars you couldn't live without.

[Matt Stillo]

Trust Amica Auto Insurance Amathy is our best policy and we're back with more grown up stuff. How to Adult I actually have a few terms that I would love for you to define for us. So I'm just going to rattle these off and I'd love for you to give me like, you know, the bullet point on them just for people to understand a little bit of the terminology we're talking about. Right. So withholding.

[Russ Garofalo]

Withholding is money that they take from you before you get your money. So that was designed to passively take taxes from you so you don't spend what you're not entitled to. And so when you get a tax refund, this is a good reminder you're getting your own money back that they took from you previously. Most of the time, not all the time, but most of the time it's just you getting your money back. But that was previous you and now present you is like this is awesome. Just got $3,000. Not remembering that they took that incrementally from you.

[Matt Stillo]

You did the were paid for it and that is your money. And that actually gets back to W4. Right. Because your withholding is determined.

[Russ Garofalo]

Correct.

[Matt Stillo]

By what you claim or what.

[Russ Garofalo]

Right. What you put on the W4 determines what you're withholding per paycheck.

[Matt Stillo]

Yeah.

[Russ Garofalo]

And throughout the course of the year. So the issue is if you get that wrong by 50 bucks and then you get paid 26 times, now you owe $1,300. So it's the repetitive incremental change where it's like that's how you end up with a $5,000 refund or owing $5,000. It's not a huge shift one way or the other. It's like, oh, $111 26 times is a lot of money in the end of the year. So it's not something you necessarily notice.

[Matt Stillo]

The next one is deductions.

[Russ Garofalo]

Deductions, usually the way people use it is things the government has said. If you have these things, you can lower the amount of income you pay tax on. So you can lower your taxable income with deductions. So common deductions are student loan interest, if you put money in a traditional ira, and then the standard deduction is also a deduction. And that is the first, right now, $14,000 that you don't have to pay tax on. These are all things that lower your taxable income that you pay taxes on.

[Matt Stillo]

So If I earn $50,000 and I put 1,000 of it in a retirement account, my taxable income is now $49,000.

[Russ Garofalo]

Correct.

[Matt Stillo]

Cool. So the next one is dependents. And I'm kind of curious because I think that they're children. And if they are children, then do pets count?

[Russ Garofalo]

Pets are not given the regard that we hold for them in the US Tax system, rude. Dependents are people that you take care of. It could be your parents, even if they don't live with you. It's basically you pay for more than 50% of their lives.

[Matt Stillo]

Interesting. I've never heard that definition before.

[Russ Garofalo]

So usually kids, your girlfriend or boyfriend could potentially be your dependent.

[Leah Palmieri]

Oh, damn. Choose wisely.

[Russ Garofalo]

Some upside to the downside.

[Leah Palmieri]

Yeah.

[Matt Stillo]

Okay, interesting. And then what about credits?

[Russ Garofalo]

So deductions are like a discount. Like we'll give you 25% off. Credits are like, we'll give you a refund of the money you spent. So a deduction is money you don't have to pay tax on. And a credit is dollar for dollar giving back of your tax. The major credits are the earned income credit, the child tax credit. The savers credit is a good one that people don't know about. If your income is below a certain threshold and you save for retirement, the government will give you a credit to encourage that behavior. So that's a dollar for dollar payback or reduction of taxes. So if you owe $2,000 in taxes and you have $1,000 tax credit, now you owe $1,000 in taxes.

[Matt Stillo]

Good to know. And then there's three more here, and then we'll move on. Adjusted gross income.

[Russ Garofalo]

Adjusted gross income, or AGI, if you want. The verbiage is a set series of things. They say don't include these or include these in your income. And how much income do you have? So gross income is before they take anything Out. This is your adjusted gross income. So they've taken some things out but left some things in. So often when you're applying for an apartment or a house, they'll ask for your adjusted gross income.

[Matt Stillo]

Got it. And then we'll pair these together. Tax refund and tax liability.

[Russ Garofalo]

So tax refund is when all that money filters together. When we take your W2, your gig economy, whatever was left over from your self employed business, you made this much, you spent this much. This is the profit or loss left over. We got your dividends, your interest, your brokerage, your stocks, sales losses and gains. The end result is this much money. Based on that much money, you owe this much tax. How much did you pay so far, if anything, from your withholdings or your estimated taxes and then what's left over? So if you overpaid or there's credits to help buoy up the amount that you did pay, then you get a refund. If you didn't pay enough, then you owe and you have a tax liability.

[Matt Stillo]

Wonderful. Thank you so much.

[Leah Palmieri]

So, Russ, I mean, let's just get to the question that I'm sure is the first thing that people ask you, but we need to know.

[Russ Garofalo]

I'm single.

[Leah Palmieri]

Great. Then I'm done. Okay. The second question they ask is, how do I just get a bunch of money back? So where do you even start with that?

[Russ Garofalo]

Yeah, I've had people, when they find out I'm doing taxes, like unprompted, I don't ask them. They're like, I have a guy in Long island who gets me $6,000 back and I'm always like, cool, yeah, like maybe, maybe cool. Maybe you should be getting $8,000 back. Or maybe he's just like making some crap up that you'd have to live with.

[Matt Stillo]

Yeah, maybe in a couple of years from now, you're going to get a letter from the IRS saying, actually, you owe us all of that.

[Russ Garofalo]

And suddenly 6,000 bucks doesn't seem worth a felon suddenly. That's the tricky part, is some of these credits are really great and they're actually giving you money that you didn't already have taken from yourself. But for most people, if you get a big refund, you're usually just getting your own money back. So from a financial perspective, people are like, you should never do that. You never want a refund. You always want to owe them a little. Get a free loan from the irs. But I think in the actual experience of being a human, we do like getting refunds. So don't discredit that. But there's not a magical way or, like, a simple way without a good amount of tax planning to really get your taxes down to a level of like, Trump paid $750 in taxes.

[Leah Palmieri]

Right.

[Russ Garofalo]

And I totally understand the like, how can I pay less? Is a valid question. But part of our goal, since we don't have skin in the game with the results that are happening, is we want to take care of present you, who wants to pay no taxes, but also future you that would have to deal with these things and may not want to deal with these. So we try and be the arbiter between those two versions of yourself that are going to exist. And yeah, I think it falls in the, like, take what you're entitled to, but don't be greedy and kind of draw that line where it's like, this is allowed, this is aggressive, this is illegal.

[Leah Palmieri]

Yeah. Okay. Not to be greedy, but also, when will I get it? Like, how long typically does it take for it to show up? And if you were to advise somebody what they should do with that money, is it run to the mall or is it maybe do something a little bit smarter with it?

[Matt Stillo]

Yeah.

[Russ Garofalo]

I mean, refunds come much faster now. If you give. People are wary of giving the IRS their bank info or anything, you're really underestimating the power of the federal government. You'll get your refund within usually one to three weeks. And sometimes it's just a few days. The way people treat that money really varies widely. Some people, especially for the earned income credit, are counting on that money as part of their yearly budget. So it either can get people out of debt or it can just become that thing that gets them through the next six months.

[Leah Palmieri]

Like maybe tickets to the Cowboy Carter tour because they need to see Beyonce.

[Russ Garofalo]

That's totally valid. Yeah.

[Leah Palmieri]

Okay, great. Just wanted to make sure. Yeah.

[Russ Garofalo]

It's also a passive way of saving.

[Leah Palmieri]

Yeah.

[Russ Garofalo]

Like, if you had the wherewithal to make estimated taxes, since you're freelancing.

[Leah Palmieri]

Yeah.

[Russ Garofalo]

And knowing you're like, I'd rather get this money out of my face, which I strongly recommend. Either put it in a separate bank account that you don't see at the atm, or go ahead and send it to the government and just settle up at the end of the year. But you have to make choices like that based on, like, will you be cash poor all year?

[Leah Palmieri]

Or will I go to Beyonce? Yeah.

[Russ Garofalo]

Yeah, but you're just saving for things. It could be really valuable to be like, I just have $2,000. I know what I want to do with this.

[Leah Palmieri]

Yeah. Okay. Flip side of this too is what if I do have to pay money? You know, And I'm going to believe you when you tell me that the IRS is actually really nice, but when I have to pay it by. And also, like, where is that money even going? What are they doing with it? Yeah.

[Russ Garofalo]

That money, when you're doing your taxes, is due April 15, whatever that bill is.

[Leah Palmieri]

Okay.

[Russ Garofalo]

You can get an extension of time to file, but the money's still due April 15th.

[Leah Palmieri]

Okay.

[Russ Garofalo]

If you're not able to pay that money, this is where the government is much more kind than any other person you have a debt with that said, the states are not as kind as the federal government.

[Leah Palmieri]

Okay.

[Russ Garofalo]

So if you can only afford to pay one, pay your state first. The states by law have to have balanced budgets so they can't run a deficit every year. Whereas the federal government does run a deficit every year. And when they need more money, they print more money, but states can't do that. So you pay more interest on your taxes to the state than you will to the federal government. But if you owe money to either, they have things like payment plans and the interest is not exorbitant. It's not like credit cards where it's like suddenly 29% every year. Like, they don't want to bury you, they just want to bleed you.

[Leah Palmieri]

Okay. Slowly. Yeah. Okay.

[Russ Garofalo]

As long as you're not ignoring them for months at a time. Yeah, they're fine. They don't want to come chase you if you do ignore them. The power they have is really outside of our normal way of thinking. Like if you ignore them forever, they are the foundation that makes your bank account secure. That's the federal government. So if you don't pay them, they will just go find your bank account and take their money. And then that's when you realize, like, the security you feel is a function of what they provide.

[Leah Palmieri]

Yeah. And I know we talked a little bit about making sure we fill out our W4s correctly. Is there anything else to think about or be doing throughout the year to prevent having to owe money? If you just are like, I don't want to have to do that.

[Russ Garofalo]

Yeah. A big part of not owing money is figuring out for self employed people how to track your expenses. And you talked about this, Leah. At the end of the year, you don't want to be sitting with a digital or physical pile of receipts. That's mentally exhausting and you just won't do it. So when people track receipts they realize they spend a lot more money than they expected. So I tell anybody there's no perfect system. We have a couple on our website that you can download for free. You need to have a system that you use at least monthly or more often that will capture a three dollar receipt. And the reason that's important is because you'll spend $3 hundreds of times during the year. You're going to remember the MacBook Pro you bought. You're not going to remember that you took this person for coffee and got website advice. But all those expenses over the course of the year lower your profit and you only pay tax on the profit. So that's why expenses are important. That's the whole game is I tell people, track your expenses and know roughly how much you're going to owe and have that amount of money. Beyond that, you don't really have to understand income tax brackets or why bonds go up when stocks go down or whatever. Like you can go back to your life.

[Leah Palmieri]

Thank you.

[Russ Garofalo]

Yeah.

[Matt Stillo]

And you'd mentioned about freelancers keeping track of their expenses so that they know how much tax to expect to pay. Just as a rule of thumb, like what is a good percentage of each paycheck or invoice or whatever for freelancers to save so that they're prepared come tax day.

[Russ Garofalo]

Yeah, this depends largely based on where you're living because your state and local taxes and also the amount you're making. Generally, I would say there's two main ways of thinking about it. You can take a percentage of every check that you're paid, or you can have an estimate of your profit and take a percentage of that. So if you're taking a percentage of every check you get, I would start at 25%. So if you're paid 10,000 bucks, take 2,500, put it in a high yield savings account and get it out of your face. Because that's not your money. You're just holding it for the government. Or if you have an estimate of your income and expenses, you can look at your profit and take 30% of that number and stick it in a high yield savings account, get it out of your face, or pay it to the government for estimated taxes. But the most important thing is just to have that amount of money. I really saw how quickly those numbers can get so large that unless you're prepared for them, you do not have that amount of money sitting around ready to go. They just get far too large too quickly.

[Matt Stillo]

That's great advice. And putting it in a high yield savings account where you're going to get at least 5% back, you know, depending on the high yield. Saving count that you choose is just great advice because then you're earning some interest on it and you'll definitely be able to pay it off. That's lovely. Okay, so I want to talk about the A word audit and how we can avoid it. How do we get the government off our backs?

[Russ Garofalo]

This comes up often. An audit is just a scary word for show us how you got these numbers. And just as a reminder for everybody, when you sign a tax return, it says, under penalty of perjury. I swear, everything in here is true to the best. So just because you're working with a tax person or you're using software, that liability is yours. So you should understand what your tax person is putting down. I have clients who came to us because they realized their tax person was putting a kid on their return. And they suddenly realized because it showed up in a different place because they changed the forms. And she's like, I don't have any kids. Oh, he was just doing it to get her money back to make her happy. But it's her liability.

[Leah Palmieri]

Yikes.

[Matt Stillo]

Oh, my God.

[Leah Palmieri]

That's a big yikes.

[Russ Garofalo]

The tax preparer would get in trouble for something like that. But, like, it's still you. It's like in the moment, you're like, I have a guy in Long island who gets me 6,000 bucks back. I'm always like, great, maybe, but he's.

[Matt Stillo]

Telling the government you've got three kids.

[Russ Garofalo]

Yeah, it's like you can put whatever on there. It doesn't mean it's a good choice or something you want to live with. And I will say, if you get a letter and the return address is the Internal Revenue Service, it's scary. That doesn't mean you're getting audited. Like, we have these visions of Wesley Snipes and like, they have high profile cases because they help everybody else be compliant. But an audit is just a scary word for show us how you got these numbers. And so when we work with clients, we try and help them get a reasonable level of how much of a pain in the butt would this be if you had to show where these numbers came from? For example, a credit card statement is not sufficient to show where you got these numbers. It can't just say Amazon. That is not clear that what you bought was a business thing. It's like they're allowed to assign you a research paper if you're self employed and say, show me how you got all these Numbers. If you just get a letter and the IRS is like, Matt, you didn't include this 1099 div. And you're like, oh, yeah. They're like, we think you owe us $39.07. You're like, yeah, okay. Like, that's not an audit. That's just the stupid system of you writing down everything and send it to us and us looking at everything we already have for you. Didn't match. But yeah, the audit that people are scared of is like, they're going to come to your house and be like, how'd you pay for this couch? That's a mighty big TV for your income that you, you know, like that. That is not really what happens. It's just something to know as a possibility. But there's a very low percentage of when that actually happens.

[Matt Stillo]

Something really funny that my tax preparer said to me, though, when I was worried about this is he goes, to be honest, you don't make enough money for them to care about you. I was like, okay, cool. That hurt my feelings a little bit. But that's good to know.

[Leah Palmieri]

I also just think of the Real Housewives too. When Heather Gay from Salt Lake City was saying receipts, proof, screenshots, she had it right. I mean, you just need to make sure that things are documented and that you can point to them and be able to show the government, like, hey, look, no, this was what I was paying for this, and this is what it did for my business, and that's why I needed it.

[Russ Garofalo]

Yeah. And I always tell people, like, don't prepare for an audit, but know that it might happen because, like, it's not worth you spending that three weeks preemptively. But yeah, it's helpful to have a system of organization where if you need to unwind that number that you put in supplies, what's in there, Right. How am I going to figure that out? That process should be reasonable and it's something that you get better at as you do it.

[Leah Palmieri]

Russ, I can see our tiny little brains absorbing all of this information that you have presented to us today. And we thank you already for making us slightly smarter. When it comes to taxes, is there anything that we did not cover that you think that people should know about preparing or doing or just even thinking about their taxes?

[Russ Garofalo]

For people who are self employed, gig economy contractors, freelancers, the thing that surprises and makes that number get big fast is self employment tax. So self employment tax is just another word for Social Security and Medicare, the employer side and the employee side. So when you have a W2 job, your employer pays half of your Social Security and Medicare and you pay half of your Social Security and Medicare. And that's one of the main reasons people don't want you to be an employee is because you cost more. But self employment tax is not a progressive tax. So what we describe with the buckets moving up the more you earn, the more you pay is a progressive tax. So self employment tax is a flat tax. You're going to pay 15%. So for example, if you earned a profit of $10,000 as a freelancer, you don't owe any income tax because that's all in the 0% tax bucket. But you owe about $1,500 in self employment tax.

[Leah Palmieri]

They'll get you one way or another.

[Russ Garofalo]

That's ultimately money we're paying to ourselves later. So that's what goes in our Social Security bucket. If there's Social Security.

[Leah Palmieri]

Yeah, sure. Believe it when I see it.

[Matt Stillo]

Well Russ, thank you so much for coming on the show today. I knew that it was going to be really, really insightful, but I'm like blown away with how much information you just dropped on us. So thank you so much for all of that valuable information and let people know where they can go find you if they want to.

[Russ Garofalo]

Yeah, you can find [e-mail] if you have any questions feel free to throw them at infobrasstaxes.com I would check out our podcast. I think the way to lower the anxiety and shame and increase the understanding in education is just to hear about a lot more people and the way they deal with finance and the way they think about finance because a lot of us just think money is the way it is and we don't realize that that feeling can change and that the anxiety we feel about this is not just the way money is, it's the way we're interacting with it. I'd encourage people don't go for perfect with any of this stuff. With understanding money, finances, taxes don't go for perfect. Focus on better. It's iterative. Like people work with us and within a couple years you see some changes start to take hold. But in a couple years they've only done it twice. It's not going to be fast changes, but incrementally it starts to like have a lower volume in our lives. The stress of about this stuff. But it takes learning about it and it's not rocket science. You just need somebody who cares to explain it. And yeah, our FAQ on brasstaxes.com is completely geared around people who want to understand this stuff and especially freelancers and creatives to just get answers that you otherwise can't find anywhere because nobody really cares to provide it or is not good at communicating.

[Leah Palmieri]

Yeah, I'll just say can confirm. So, Russ, thank you so much. It was great to have you here today. Good luck on the rest of tax season for you and. And hopefully there's a nice margarita waiting for you after April 15th.

[Russ Garofalo]

Yeah, thank you so much for having me. I really appreciate you guys doing this stuff.

[Leah Palmieri]

Our thanks to Russ for not only all of that incredible information, but also for changing Matt's life.

[Matt Stillo]

I think we'll see, but I think it is going to. I've already emailed Russ. I'm like, you're my guy. The old guy's out.

[Leah Palmieri]

What do you mean going to? I was watching, watching you absorb all of this information and I was like, he's a changed man.

[Matt Stillo]

Like the W4 thing specifically that he talked about. I haven't even thought about my W4 in years and the fact that it's probably what's been messing me up all this time.

[Leah Palmieri]

Yeah, it's changed your life and it's changed the life of the HR department at your job because you're like, hey, can I get a look at that form again? And they're like, who is this guy?

[Matt Stillo]

And I'm going to send this to every iHeart employee and be like, hey, change your W4. Do it now. So it might have changed it everyone's life at this company at least, and hopefully the life of our listeners.

[Leah Palmieri]

Yep, just starting a revolution one tax form at a time. But we hope everyone learned a little or a lot of something from Russ. And you can check out brasstaxes.com for any other help and questions. So happy tax season to everyone.

[Matt Stillo]

Oh, but tax season isn't over just yet, Leah. We learned so much from Russ about doing our taxes ourselves, but I feel like we've only scratched the surface. So. So we'll actually be back later this week with another episode. We'll be joined by a TurboTax business expert who will break down even more of what we need to know when it comes to filing taxes for your small business. So if you've got a startup or a side hustle or another fun small business, this is the one for you.

[Leah Palmieri]

Spoiler alert. But that's me, so I am going to need that one. Until then, good luck being a grown up.

[Matt Stillo]

This is a production of ruby studio from iHeartMedia. Our executive producers are Leah Palmieri and Matt Stillo.

[Leah Palmieri]

This episode was edited and engineered by Sierra Spreen.

[Matt Stillo]

We want to thank our teammates at Ruby Studio including Sarah Yu, Ethan Fixell, Rachel Swan Krasnoff, Amber Smith, Deborah Garrett and Andy Kelly.

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