THE Cambridge Connection - Episode 63

Are you going to put that in everyone’s stocking? Yeah. Yeah. There you go. All right.

Giants game and tailgating chat

Actually, that’s a great idea. Last week, the Giants played the Commanders and as you know, my son’s a Commanders fan and he texted me right before the game saying, hey dad, I think the teams are pretty matched evenly. And what did they do? They tied. Yeah.

They were pretty matched. Yeah. I’m actually going to the game tomorrow. Yeah. We’ve got the Eagles tomorrow.

So, you know, I’m going to go tailgate a little bit in the morning and just hope for the best. I hope you have fun. Why, thank you. I will. I’m sure I will.

And as a result of spending, what’s the cost of a beer at a Giant game now? Maybe about $34. No, I can’t. 34 times two times 12. Yeah.

No, we actually, we do the tailgating before, so we’re pretty good about bringing things. And typically at the NFL games, they stop serving beer around halftime anyway. So you know what? One or two while I’m there, but other than that, yeah, it’s easier to drive. There’s too many people.

Introducing CPA guest on taxes

I agree with that wholeheartedly. Yeah. All right. So we’re coming towards the end of the year. And if you’re going to spend a little extra money, what better than learning how to potentially save on taxes, right?

It’s not too late. It’s not too late. We have a special guest, Tom Foley II, CPA. As our special guest, we’re going to talk all things taxes. But first, we’re going to take a quick break.

This is Gordon Oliver with The Cambridge Connection. We’ll be right back. Are you having trouble paying down credit card debt? Cambridge has been helping people safely pay down their debts for more than 25 years without settlements or bankruptcy. Call us at 1-800-CAMBRIDGE.

Welcome back, everyone, to The Cambridge Connection. I’m your host, Gordon Oliver, here with my co-pilot, Tina Marie. And it is an honor and privilege to introduce my friend, a true professional and great man, Tom Foley II, to talk today about some taxes. Tom, how are you? Thank you very much for the invitation.

And I’m so glad I met the requirements because to have tax tips from Tom, my name happens to be Tom. I happen to be an accountant. I’ve been preparing taxes for quite a few years. So I’m glad I’m here to meet those requirements. CPA, correct?

Yes. Yes, CPA. My practice is in South Hadley and been practicing CPA for quite a few years. Awesome. This is information that everybody needs on some basic things, basic tips.

Inflation Reduction Act and IRS enforcement

And like budgeting, spending plans, people don’t really like to talk taxes. And sometimes it’s too late, sometimes it isn’t. So we’re going to get into some tips because we’re not in the new year yet. There may be some things that can be done for the year end. So it’s my understanding that in August of 2022, Congress passed the Inflation Reduction Act, which centered around climate, health, and a tax package.

6 billion in funds to the IRS over the next 10 years with more than half of that money going to enforcement. 6 billion. That is correct. That was the foundation of that part of the package. Isn’t it alarming?

Doesn’t that feel alarming that they’re hiring people to just be enforcers? What people don’t seem to understand or remember perhaps is over the last 10 years or so, the IRS predominantly have folks that are either near retirement or in retirement that works for them. So over the years, people have been retiring and leaving and they haven’t been filling those spots. And so that’s part of the reason why there’s such backlog. I don’t know if anybody calls the IRS for any particular reason, but you could be on the phone for hours.

Wasn’t there a time where tax returns were taking a year to evaluate because they scanned them, but there weren’t people going to the facility because of COVID, so they were having a backlog of review? Yes. So they’re catching up on that and now they’re looking at enforcement on these issues? Yes. Yeah.

Okay. Now the remainder of the funding is earmarked for operations, taxpayer services, and technology. Can you elaborate a little bit on that? Yes. So that’s really what I was leading into about calling the IRS and how long it takes.

That is what that’s going to be done to fulfill those deficits that they have, no pun intended in terms of what we’re talking about, but that’s been a problem and Congress has certainly heard about it. I mean, there’s offices, there’s an office in the Springfield that, to be quite frank with you, I don’t even know what their hours are anymore, but they’re not open full time. They can’t keep up. They can’t keep up and all of that. Again, we see residuals of COVID.

A lot of this has to do with that. Of course. So number three, the audit rate for Americans making $5 million or more has dropped to about 2% in 2019 compared to 16% in 2010. Yes. That’s a good statistic, but also proving, for instance, when I talked to clients, I I say to them, well, your chances of being audited are pretty small in today’s world.

Ten years ago I wasn’t saying that, but this is a little bit of what’s happened over the last ten years. But I mean, that’s what, $5 million or more that they’re making? Do you think there’s a lot to find in that area of income? Well, they’re suspicious of something that I’m not sure about, but first of all, I’m not in that price category. You need a lot of sponsors for this show if you’re going to even consider getting anywhere near that.

Okay, well, keep that in mind. That’s not where you want to be. Okay. All right. I’ll just, I’ll do $2 million instead, I think, all right?

PPP loan forgiveness and fraud concerns

Okay. So the big thing I always hear about now is clients, folks with the PPP loan program. That’s been an object. Oh my God, I’ve heard this too. That’s been an object of the IRS’s attention or Congress’s attention too, because all that money that went out, and the perception is that some of it, I don’t know the percentage, has gone to waste.

Well, people who identified themselves as owning a company that actually didn’t. I mean, I’ve heard of people that they applied saying they had a landscaping company, and they were the owners, and it had one employee, which was them, and they got $20,000. How was it that easy to do? Well, the application process was, for someone like myself would have the data and things like that available to them, it was fairly easy. And then some folks like the one you’re referring to, perhaps, I may have heard from someone like myself or other friends of theirs, hey, this is easy, this is what you do.

And they get online, and they do it, and they get the application done. So they didn’t need an EIT number? Nope, not necessarily. This is where myth meets reality. And then you have the banks processing the funds.

And I’m sure they had incentive to process those funds. So the banks get paid a fee to process or handle the collection side of this whole process. Now remember, this is during COVID. So everyone had lack of employees there to do the work. So Congress is pushing, oh, we got to get this out there, we got to get this going.

So the doors were wide open and let everything flow through. So those PPP loans that have been forgiven, that may have been fraudulent, can they go back and audit those? Yes. And that’s what they’re talking about. Oh, boy.

Yikes. We’re looking at probably three years of people. We’re going to hear about people, oh, I got audited. This was an amazing time period, because you’ve got people and businesses being offered such a thing. They’re being consulted by multiple factions, tax accountant, bank, attorney, et cetera.

And this is kind of the frightening part about government, where they do it, and then maybe they didn’t have their act together on the process, and now they’re going to come back as a result of it to try to come see if there was foul play, right? That’s right. That’s the tough part, when the rules are quick and they put this in place so fast, that there was probably a lot of advice that was given that probably wasn’t the right advice, and now business owners that have taken it are going to have to just hold on for dear life. And if they get audited, hopefully they did the right thing. Right, right.

And some of those that are handling it themselves are, I believe, going to have a problem. For instance, the clients that I worked with, I was sure that the data they needed to have to be forgiven, they have. It was accurate data, yeah. It’s others that may not have. And they were doing the same thing with the granting the forgiveness of the loans.

They got hundreds of millions of them that they came in at the same time, and they just said, well, there you go, there you go. This is kind of like grants. There’s fraud on grants all the time. You have things that you have to do to be eligible for grants, and then if you don’t do them, they can come back to haunt you, so you’ve got to be careful. What kind of penalties would be involved?

Do you have an idea? Is it jail time? Are these people- It could be depending on the level. The major one would be the payback. Payback, correct.

Yeah, with interest, I’m assuming. Yeah, you know, that’ll do to these companies, especially in this economy. All right, so I think what we’re going to do is we’re going to take a quick break, and then we’ll get into suggestions for tax savings in 2022. That’d be great. This is Gordon Oliver with The Cambridge Connection.

We’ll be right back. If you’ve lost income during the pandemic and have fallen behind on your rent or mortgage payments, Cambridge Credit Counseling can help. Talk to one of our HUD-certified counselors at 1-800-CAMBRIDGE. Welcome back, everyone, to The Cambridge Connection. I’m your host, Gordon Oliver, here with my co-pilot, Tina Marie, and Thomas Foley, the second CPA with Global Headquarters in South Adelaide.

Is that correct? That’s right. Worldwide headquarters. Worldwide. Okay.

I’m considering hiring you, because after that discussion, I’m thinking about laminating a ton of get-out-of-jail-free cards and then selling them, because it sounds like there’s some people that are going to need them. Yes. Yep. Maybe we should get an attorney on the next show. Right.

Year end tax saving suggestions

All right. I’ll sleep tonight, at least. Yes, me too. All right. So, we’re going to get into some suggestions for tax savings in 2022.

This is one-upping David Letterman. We’re doing 11 tips here, not 10. Yep. Okay. So, number one, maximize retirement plan contributions and contributions to other retirement plans.

Yes. So, whatever you might be, whether you have your own plan, like an IRA, or if you’re self-employed, a SEP plan, or an IRA, this is a great time of year. Because what you may put in, let’s say, for a 401k plan, that becomes not taxable. So, you’ve put money away that you’re not going to get taxed on. Secondly, this is the time of year, and you should get to your employer really quick.

Maybe there’s a bonus coming out for a Christmas bonus for folks. Well, you could have that designated to go into your 401k in total. Sure. You’ll get a lot more, I hope you don’t mind the expression, legs out of that, than you would just to put the money in your pocket. Great.

So, increase your contributions to your health savings account. Tell us a little bit about that one. Okay. So, there’s really two avenues here. Health savings account, often referred to as HSAs, and the flexible spending accounts.

Those are monies that can be deducted on your return, but the purposes are for health, for family. So, the withdrawals from those accounts can be done that way. So, this is another great avenue to get some money put away, to save a little bit of money on your taxes by making contributions to either of those plans. And I would assume those with high prescription costs, or even, I believe there’s even child care that you can put money away for, as far as that is concerned. Okay.

There’s quite a few things in this that I don’t think we have enough time today to discuss. Sure. But those plans typically have lists of things that qualify, so you know what you’re getting into. And I would hope employees would actually really look into this, because there might even be some options like this with your employer that you may not even be aware of. So these are definitely questions you want to ask your HR manager.

And they usually have a financial expert tied to the plan to help coach you. All right. So number three, set up or establish a kid’s college fund. Yes. Now, I’ve done this through experience over the years.

But in life, you know, you get married, you begin to have a family, and your children become a concern. And then you know, well, okay, my children now are six, seven years old, and another 10 years from now, they’re going to graduate from college, and I got to worry about college. This is a great way to start getting that done and going on a regular basis. Let me tell you something. I spent a lot of time creating student loan counseling, and the horror show stories of people in student loan debt just continue.

And we see it in the news. It’s a huge problem. They’re trying to come up with all the answers for it. They haven’t reformed the cost of college. So you’ve got to have that plan, because the kids can only get funded so much.

And either you’re going to co-sign loans, or you’re going to take out parent plus loans that are at 7%, 8%, 9%, 12% interest, which is just extraordinary in cost. So a huge tip right there. All right, and number four, increase your business expenses, such as purchasing any needed fixed asset, to utilizing the Section 179 deduction. What is that? Oh, boy.

179 deduction. What is that? What’s that? That’s 10 more than 169. Okay.

Yes, it is. So this has been around quite a long time, well, close to 30 years as a deduction. It has grown substantially. But the 179 deduction is if you meet the requirements. So let’s say you have a manufacturing business, and you have a piece of equipment that you either did buy or you need to buy.

And let’s say that piece of equipment costs $300,000. You can write that whole piece of equipment off in the current year, the year that you purchased it, and get that, it comes right off your bottom line. Even if you haven’t paid for it? Even if you haven’t paid for it. So you can finance these pieces of equipment.

So let’s say that $300,000, you put 50 down and finance 250. You still get the $300,000. Oh, wow. Wow. Yep.

And then you get the interest payments on the loan that you financed it with as the years go by. Now, before we go on, and that’s the kind of planning that you help business owners and entrepreneurs and people do throughout the year, right? It’s not just that tax time when you’re ready to file the documents, you’ll give this kind of advice. Right. So you’ve got to plan.

You have to know that that’s an option. Well, the key with this deduction is the piece has to be in operable shape. So it has to be ready to be switched on. It works. It can’t be- So not just ordered.

Deductions credits and estate planning tips

It’s got to be up and running. Okay. Right. All right. Number five, make more charitable contributions.

It was just giving Tuesday. Yes. Right? Recently. And that’s where there were companies that would help double up contributions and stuff.

So even though that’s passed, it’s still something before the end of the year to do. Yes. So this has been one that’s been for many, many years as a suggestion. You may get some legs out of this one too at this point of the year. Before the year’s end.

Before the year’s end. Yeah. That makes sense. All right. Number six, play the standard deduction game.

Look into itemizing your deductions versus taking the standard deductions, especially with interest rates rising and real estate taxes increasing over the last year. Boy, have they ever increased over the last year. So this came in with the Trump administration where the standard deduction has risen dramatically. And that’s good for the average person. But it also made it a little bit impossible to reach that level.

Let’s say you’re a single person and you didn’t have itemized deductions that equaled $12,000. Now you may, because your home with a 7% interest rate on it and the real estate tax you paid for that home you just bought, all those are going to add to your itemized deductions and now you may exceed that $12,000 of your standard deduction. So this is the first time probably in a few years I would have made this suggestion, is to look at that again this year. We have to deal with the times we’re in, right? Yes.

All right. Number seven, plan and make any estimated tax payments. Yes, you may be self-employed and have to pay estimated tax payments. Well, some folks let them slide, let them wait. Well, you’re going to get penalized because you didn’t make them each quarter over the year and that’s interest and a little bit of penalty gets mixed in there.

So to save the money, and also you don’t want to be sitting here in April and say, oh my word, I owe $5,000. No, definitely not. So make those estimated tax payments. All right. Number eight, look at the tax effect for any required minimum distributions, which includes looking at the timing of those distributions.

Yes. So let’s say now you hit the requirement age that you have to start taking out minimum distributions. That does not mean that that month you have to run out and take your distribution. So if you became of age for this, let’s say it was November last month, well, you have six months to do this by. So at this point of the year, why take in money that you don’t have to take until I take impact taxable money now, wait, delay that until like January or February.

Then you can later in that year make other plans depending on where things are at. It makes total sense. All right. Number nine, review and rebalance any portfolios, especially any stock investments and try to harvest gains and losses in any taxable investment accounts. Yes.

One that’s took me this year with the stock market the way it is. So the rebalancing part may be looking at, well, I got some gains over here. Let me take some losses over here and offset them to come up, break out to zero. Or you may look at some of your investments and say, well, I’m going to take this. Unfortunately, I got to take this one on the chin, but it’s going to be a loss.

Well, you can deduct a loss up to $3,000 and any loss in excess of $3 gets carried forward into the future. So you may not ever lose it, but grab the opportunity now when you have it. Okay. Number 10, utilize any tax credits that you may qualify for. How do you know what you qualify for?

Well, most cases, though not all, of course, someone may tell you, hey, this is going to qualify you for a tax credit. Some people actually go out and take a look for credits availability. Recently, it’s solar energy, automobiles, electric vehicles. The government wants people to be going green and having electric cars. So there’s credits on cars.

In fact, I know of a friend, client of mine, that he, a beautiful car, not very expensive necessarily, but he got $10,000 as a credit. Now a credit is exactly what you want. It doesn’t matter what tax rates you’re in, tax bracket you’re in. How about new windows and siding? Yes.

They’re not as broad-based as it used to be like five or six years ago, but they do qualify. Ask you the home improvement specialist you may be using. It was what you would qualify for, because some qualify, some don’t. I don’t know about that. I would feel like some sales guys will over make that seem like they’re getting all kinds of money back.

So you got to be careful there too. But one-upping David Letterman, rounding this up because we’re running out of time. Number 11, start thinking about estate taxes. Yes. It doesn’t matter what age you are, there’s something into the future.

Contacting the guest and closing thoughts

You don’t want to be behind this. You want to be in front of it. It could be five years from now, it could be 25 years from now, but this is a good time to start talking about this and making plans for this into the future. You’re an amazing man, wealth of knowledge, true professional. Before we let you go, how do people find you, Tom?

Oh, sure. Again, my worldwide headquarters is in South Alley, Massachusetts, but my phone number is area code 413-529-0030. This is a podcast after the show airs. So if anybody contacts you, can you point them in the right direction if they’re from somewhere else? Oh, yes.

Yep. I can handle all states in the nation. It’s time to close the show, my friends, Tina Marie. When I think about taxes, I just... Head is spinning.

You know, and we’re in the financial business, but the taxes are just one that, you know, there’s just so many rules, there’s so many regulations. Right. And it’s the law. Yeah. And it’s the law.

Look, we talked in the first conversation, right? Yes. Yes. I hate to know that people, when they start to see these headlines, that they’re hiring IRS stormtroopers to come review everything that’s gone on in the past couple of years. It’s kind of troubling, but, you know, it is what it is.

You got to pay your taxes, right? Yes, you do have to pay your taxes. Again, it’s the law. And the important... Yeah, it’s the law.

And don’t, like, if you want to know basics, maybe you want to go with taxes for dummies, but in reality, the decisions you make, you need to talk to a professional like Tom. There’s all kinds of things that change, like the mileage credit changed from 58 cents to 62 or something like that. Who knows what to do with that? So as things go on during the year, you’ve got to plan as well. It’s just like spending plans and budgets.

You’ve got to know if things are changing, you’ve got to be able to talk to somebody who knows what they’re talking about. Right. Well, and it’s your money. It’s your money. It’s your money.

And you don’t want to be wasting it, but taxes, you’re either going to pay them or they’re going to come get them from you. Right? So you’ve got to know what you’re doing. Or they’re going to come get you. Worst thing you want is when you get your taxes done in March, April, learning that you have to pay all kinds of money because you ignored things or made mistakes or bad decisions.

So we know this is a somber time of year for many people, and I wanted to bring a quote in to just give some people to think about while you’re crying about taxes and spending plans. Looking at your credit card statements. Looking at credit card statements, especially in an economy like this. Yes. I hope you learn how to let go of the comparison you hold so closely to your chest.

I hope you strive to dismantle the distractions. I hope you strive to see beyond what is manicured and what is filtered in this life. You are a real human being who is living and breathing in this world, who is healing through and moving through seasons of beauty and seasons of change and seasons of evolution and every single day. Your experience in this world will never be perfect, will never be faultless, but it will be real. It will be honest.

I hope you learn how to embrace that. That’s from Bianca Sparacino from A Gentle Reminder. Unfortunately, we are done with another show. It goes so fast with our experts, with the amazing people we bring on, Tina. It’s just lickety split.

We got to get to that hour now. We’re going to have to start strategizing how to make this an hour show. Because there’s so many other questions I had for Tom personally. I hear you. So join us on Saturdays at 930 AM.

Special thanks to our producers, Leah and Lisa. com, click on podcasts. And once again, we want you to be part of the conversation. org or feel free to call.