With tax season alive and kicking. The Sellers Group wanted to introduce a professional to speak on some of the challenges and misconceptions of tax season. We interviewed Cory W. Johnson. Cory is a CPA and practices in the DMV area. We had a great time talking with Cory and learning how common mistakes can alter your cash flow throughout the year. We got so much good information from Cory that we had to divide our conversation into two parts!
The CPA is a vital part of any affluent Young Professional’s Rolodex of advisers. If you’re in need of a Tax Professional in the DMV area, Cory is a fantastic resource! Please check out his Website and LinkedIn.
“My name is Cory W. Johnson, I’m from Baltimore, MD. I went to Temple University and obtained a BBA and began my career as an Accountant; this is also when I began to calculate & file tax returns. I’ve worked in private, public and government sectors doing industry accounting, auditing, and governmental accounting. In between the various jobs I held, I became a MD licensed Certified Public Accountant (CPA). I currently work as an Accountant with the Legislative Branch of the Federal Government doing Accounting & Financial Reporting for the Architect of the Capitol. My extracurricular career as a tax professional began when I was 16 and my mother, a former IRS Revenue Agent, taught me how to calculate my own tax return, for which I have been doing my own since then along with helping countless family, friends, and the public. I began to calculate tax returns for profit in January 2008 and I am currently in my 8th year do so. Over the years I have increased my knowledge, skills, and abilities along with my clientele and fees. Today, I have about 125 clients, personal & business, for whom I provide some type of service. My services include small business accounting, consulting, incorporation, and tax. I am lucky to say that I love what I do and the valuable knowledge I am able to provide to everyone I come into contact with.”
1) When should someone consider hiring a tax professional instead of doing their taxes on their own?
"Every taxpayer should always have a tax professional in their contacts to ask questions, but they should also consider going to a tax professional every year. The tax laws change in amount or they get more restricted every year, so it’s best to get your tax returns completed by a professional every year. A simple 1040EZ with just a W-2 looks easy to do, but can easily be done incorrectly OR the taxpayer might not understand that instead of getting a refund every year, they could get that $2,000 over the course of 12 months."
2) What are some tools that you would recommend for young professionals to explore for their tax needs?
"First thing I recommend to every person when it comes to dealing with their personal finances is a personal monthly budget spreadsheet. I know everyone doesn’t like numbers, but what’s the point of getting a paycheck if you don’t know how much you’re getting paid and how much is being deducted/withheld. In addition to a budget, I would recommend having a tax professional for which you can ask questions."
3) What are the top 3 mistakes/overlooked thing you see young professionals commit on their tax returns?
- "W-4 filled out via instructions, which are outdated, prior to starting the job. The W-4 determines how Federal taxes are calculated & withheld from your paycheck.
- Deductions/Credits not exercised to the fullest extent. Particularly the Student Loan Interest Deduction has an annual deduction of $2,500 dollar for dollar and it phases out once you make $65,000 and completely phases out at $80,000, speaking for a taxpayers filing as single.
- 401(k) not exercised to lower your taxable income and increase your tax refund and save for retirement."
4) What are proactive things that people receiving a W-2 can do to better prepare/maximize their refund?
"The taxpayer has two options when it comes to getting a refund: a) get a refund small/large OR b) seek a tax professional to help you tax plan so that large $3,000 refund you can see as money in your paycheck during the year. The hope/want that the IRS has is that every taxpayer will do tax planning so that they get all of their money during the year and get a small refund in April. Unfortunately, tax refunds have taken over people’s minds and their goal is to get a bigger refund each year, but why wait 12-16 months for a refund when you can see that money once it’s earned via a paycheck. That $3,000 tax refund that a taxpayer gets, the government has made lots of interest on, yet you as the taxpayers are not going to see it in your tax refund.
What I highly recommend is that taxpayers seek a tax professional to see how you can turn a one-time tax refund into a bi-weekly increase in your paycheck. This can be accomplished through tax planning and truly works when you don’t anticipate major changes during the year. It takes some time to calculate and explain but it also involves changing the W-4 allowance number."
5) What are proactive things that people receiving a 1099 can do to better prepare/maximize their refund? (Expenses, Owing, Receipts, etc.)
"The taxpayer has two options, a) if this is just a job and not something that will continue every year, still keep a spreadsheet of expenses and car mileage OR b) if this is a job that will continue every year and high income, still keep a spreadsheet of expenses and car mileage, but I would also consider establishing an LLC S-Corp to reduce your taxes owed."
6) What are proactive things that people can do to minimize the risk of being audited?
"Taxpayers should be cognizant about their tax related transactions throughout the year, such as how many W-2s/1099s to expect, 1098 forms to expect and any other tax docs. Some taxpayers forget that every tax document has some type of relationship to their tax return and should be given to their tax professional to determine its value towards their tax return."
7) As your assets continue to increase in value what are things you can do to prepare for the hike in taxes? How can I minimize the amount of taxes I pay each year?
"There are several ways to minimize the amount of taxes you pay each year.
- Retirement - the IRS allows taxpayers to contribute up to $18,000 to a 401(k), 403(b), and most 457 plans as pre-tax contributions which reduces your gross wages on your W-2 when your tax return is filed. The IRS is allowing you to save $18,000 tax free!
- Student Loan Interest Deduction - most young professionals went to college and have student loans. The IRS allows you to deduct up to $2,500 in actual student loan interest paid during the year.
- Traditional IRA - the IRS allows taxpayers to contribute up to $5,000 to a Traditional IRA and get a deduction for it. They also allow you to contribute it up and until the tax return filing deadline and take the deduction.
- Investing - investing in stocks & bonds in a strategic manner could help you reduce your taxable income if you sell the financial instrument at a loss."
8) If you just graduated and received your first job/enrolled in graduate school what action steps would you take to ensure you are prepared to file your taxes?
"First job - make sure you consult with a tax professional so you have an understanding of your paycheck and your tax return that will be based mostly from the paycheck.
Graduate school - if you’re in grad school, you more than likely won’t be working as much so there is very little to be worried about when it comes to your taxes."
Stay tuned for Part 2 of "CPA Talk"