Financially Inclined December 8th, 2023 Transcript

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Duke Moore: I feel like I’m the superhero for taxes. It’s honestly my purpose.

Yanely Espinal: I feel like I could picture you with a Superman cape that says “Duke Loves Taxes” on the back….

Duke: There we go.

Yanely: Reading the tax code.

Yanely Espinal: What’s up, everybody? I’m Yanely Espinal, and welcome to Financially Inclined From Marketplace. We’re sharing money lessons for living life your own way. Now we’re getting into a big topic this week: taxes. You’ve probably heard people mention the IRS, which stands for Internal Revenue Service. That’s the government department that collects our taxes. Meaning you got to pay them. And there’s many different kinds of taxes out there, like sales tax, property tax, capital gains tax. But today, we’re just focusing on income tax. Now we know tax professionals can usually seem stiff and serious, but not today’s guest, Duke Moore. He’s got energy for days. And as you’re about to find out he really knows taxes. His viral TikTok and Instagram brand is literally called “Duke Loves Taxes.”

Duke TikTok: I just found Warren Buffett’s first tax return, and this man has been writing stuff off since the dinosaur age. Well, technically, only since like 1944, but y’all get it. Let’s get into this return! My name is Duke, and I make tax very easy to understand. Give me a follow to stay educated.

Yanely: Duke started filing taxes himself way back in high school, and now he’s self-employed with a business that helps creative professionals figure out their taxes. So he’s a perfect person to break down tax basics for us. So let’s get into it.

Yanely: Can you tell us a little bit about income taxes, like, kind of define that for us, and why we have to pay that?

Duke: Yes, so when you have a job, you have something called income taxes. The purpose of these taxes are to fund things in our state that we typically don’t pay for directly. When the police and firefighters come, they don’t send us a bill. Like when you go to a library, you don’t pay anything, like you’re already funded it. And it’s contributed through everyone. So just think, you’re giving back. You’re funding, you’re helping what schools, you’re helping with hospitals.

Yanely: That is so important to understand. I’m gonna tell you the truth, I didn’t know that. And when I started working, maybe like, 14, 15 years old, I remember I had a part-time job, and by the end of the year, I saw some tax forms, but I was like, I only made like $1,800, like for the whole year. What would you say to somebody who feels like they didn’t really make much money anyway, so it’s not worth it to file their taxes?

Duke: When in doubt, just file. You could be having a W2 job and they’re still withholding taxes from your check, so you’re probably due some type of refund. And it could be a couple hundred bucks that you can use to go to the movies. You can use for gas and go get some Cane’s and Whataburger, do what you want. It’s your money. You just overpaid.

Yanely: That makes a lot of sense. Now, I’m not going to lie. You brought up some terminology, some tax vocab that, you know, for some people it might be new or even just a little confusing. So let’s take some of those and like break it down.

Duke: Let’s do it.

Yanely: I’m thinking like W4 and W2. Let’s start with those.

Duke: Okay, So when you’re first given a job, you get a W-4. So your employer is going to give it to you and then you fill it out and you give it back. So the purpose of a W4 is to let your employer know how much taxes you want withheld from each paycheck. Pretty straight forward, it’s your name, if you have any kids, dependents, sign, you are done. Then, at the end of the year you get a W2. They’re going to tally up all the money that you made, they’re going to tally up all the money that they withhold, and then they’re gonna summarize it. So very similar to you get a report card at the end of the year. It’s like a report card and they’re going to be like, “Hey, here’s your total salary, here’s your total withholdings.” And they’re going to be like, “Here you go.” So we have a W2. We take that to prepare our tax return, our personal tax return, which is called Form 1040. And it’s essentially just a copy and paste. You copy what your employer reported, and then you paste it on your tax return. Based off your income, you should owe this much in taxes. So I say it’s like, okay, it’s $12 in taxes that you owe, but your employer withheld $14. They accidentally withheld too much. You only are liable for 12, but your employer withheld 14. This is when you have a refund of $2. You accidentally withheld too much. Everyone who files a tax return gets an automatic write-off. Everyone. It’s called the standard deduction. Essentially, what standard deduction means is the portion of your income that’s not going to be subject to any sort of tax. Let’s say the standard deduction is $13,850, but you make $20,000. Of that $20,000, $13,850 is not subject to tax. So that’s essentially what a standard deduction is.

Yanely: Okay. So now let’s say it’s time to file the taxes. Where do I now go to file my taxes?

Duke: There’s a lot of like, good like online programs, especially if you’re just getting started. That’s what I would recommend. You can also prepare your taxes on your own. I don’t recommend manually doing it, like with a paper and pen, like print it out. Like, that’s crazy. But there are plenty of online softwares where you can do it, such as FreeTaxUSA.

Yanely: Lot of times you’ll get charged to file taxes when you do it online through software, something like that. But there’s other times where it’s like “file for free.” So can you talk about like, how do you know if you have to pay, or if you can actually file your taxes for free based on, you know, how much you make or what you do, and that kind of stuff?

Duke: Yeah. So TurboTax is really in very hot water for that. So saying “free, free, free.” And now they had this large settlement where they got to pay people back and they’re actually have to end that campaign, so they’re no longer allowed to say “free, free, free” because they were misleading. So I’ll tell you how it like how it actually is. So anyone who makes, I believe around $70,000 there, they have the ability to file their taxes for free. And this is why I would always recommend the FreeTaxUSA. I do brand deals with them because they are very transparent with their pricing. It’s truly free. So that’s how you kind of know.

Yanely: It can feel scary. So how do you know which choice is best for you? What are some criteria or some pros and cons to doing it online using some popular software or going with a professional?

Duke: If you’re the type person, like “I like too much going on, I’m going to have someone else do it” – that’s that’s one of the first things. The second thing is like, “can I afford it? What is my income? What is my expense?” If you are preparing your tax return on your own and like, it’s pretty straightforward, like the software is doing a very good job of guiding you, you’re fine. I would say if you’re filing online first, reach out to their support. Sometimes they have excellent support and they can help you out as well.

Yanely: Yeah, that makes a lot of sense. Now, there’s two things I want to talk about, in terms of like if you’re making under 10,000, if you’re making 3 or $4000 as a teenager, just because let’s say you work at a summer camp or you took a summer job. And so because of that, you might think it’s not a big deal to file. But now, based on what you said, that might change your mind. And they might say, “Oh, if I do file, maybe I will get some type of refund.” But then sometime there are families that would then say, “No, baby, I don’t want you to file because if you file, you’re going to hurt my taxes. You’re going to… I won’t be able to claim you as a dependent if you go ahead and file. So just don’t file. Let mom and dad do it.” What would you say if you heard about somebody going through that situation?

Duke: Hundred percent. So you… let your baby file they taxes! They can file their taxes. Let them file their taxes and get their little money. But the thing is, the here’s what happens. And this is… This is so important. If your child is filing their own taxes, that there’s only one box that they need to select and it’s forever missed: It’s called, “Can you be claimed as a dependent on someone else’s tax return?” And they need to mark that box “Yes.” If they do not, you can’t claim them. You can’t claim them. You try to file your tax return and it’s going to get rejected. Failure to select this box is what you are afraid of. Not being able to claim them. But if you will just make sure that they select this box that you can be claimed as a dependent, all your fear is gone. You can still claim them. They can file their taxes and they can still get their refund. If you really want to avoid it, just let your parents file their taxes first and then you file yours afterwards. But still make sure you claim that box.

Yanely: Okay, cool. So we’ve been talking about W2 a lot, W4, a lot of the types of papers that you get when you are working part-time or like full-time for an employer. But let’s be real, a lot more entrepreneurial youth exist today versus ten, 20 years ago. They might work for UberEats, they might do DoorDash, and they might make their own money just by doing this type of like gig economy type of work. So what would it look like for them since they’re not necessarily working for an employer full-time or part-time in that way?

Duke: Great question. So at the end of the year, they’re going to get a form called a 1099-NEC. NEC stands for “nonemployee compensation.” It means like you got paid from a business, not as an employee, not as a W-2 employee. Employees get W-2s. Contractors get 1099-NECs. The difference between a 1099-NEC and a W2 is, W-2 is going to withhold taxes for you. The thing with the 1099-NEC, no taxes are withheld. So a lot of people get hit with this big, big, big surprise tax bill. They’re like, “oh my gosh, I didn’t know!” So like, I know it maybe not be the best thing having money taken from your check as a W-2 employee, but the good thing about it is at the end of the year, it’s already been done for you. As a contractor, they don’t care! They’re like, “you got this on your own. You’re going to file and pay your own taxes.” So as that type of profession, typically you’re required to file something called quarterly taxes, which means like you got to make a quarterly payment every three months. But a good rule of thumb, if you decide to be a small business owner, which I’m going to encourage you. If you decide to venture out as an entrepreneur, I’m going to encourage. If you even want to be DoorDash, let’s do it. The thing is, when this money hits your bank account, just be prepared for taxes. Set at least 30% aside for taxes. That’s the golden rule when you get started. So if $1,000 hits your bank account, that’s set $300 aside, which is 30% for taxes, and then let’s live off the rest. But 30% is that golden rule to avoid that surprise at the end of the year.

Yanely: Oof! 

Duke: So the good news about being a 1099, which you get write-offs. So first we look at the total income that you have. Then we look at your write-off. What expenses did you incur to produce this type of income? Income minus your expenses to produce that income will leave you with your net income. That’s what we focus on. So let’s say we have $1,000 in income, $500 write-off. Now our net income was $500. Now we’re subject to it. We didn’t pay that throughout the year.

Yanely: On social media, I’ve seen a lot of funny stuff about write-offs. Like, “you can write this off. You write that off. When you have a small business, you write everything off!” And it’s like, Come on now. You can’t just write off everything. So can you tell us what exactly is.. Like what does write-off mean and what actually counts as a write-off? And what doesn’t

Duke: First off all, a write-off is not a dollar-to-dollar savings. So let’s say you spent $100 on something, it does not help you save $100 in taxes. Write-offs are more like a coupon code, right? You still have to purchase it, but you get savings. To figure out what your coupon code and your discount amount is for a thing that you purchased that is considered a write-off is that you look at your federal tax bracket, your tax rate. This is the easy way to do this. So if you’re in the 10% tax bracket, that means for every dollar that you spend, you’re going to save $0.10 or 10%. So if you spend $100, you’re going to see your true savings is $10. That’s the first myth that we have to debunk, is that it’s not a dollar-to-dollar. It’s more like a coupon code. Once we understand how they actually work, now what qualifies something as a write-of? So first, to have a write off, the IRS says that you must have a business. A business is any activity that you are engaged in to make a profit, and you perform this activity on a continuous and regular basis. So if I go home, I play my PlayStation, and now let’s say I’m playing video games online – boom, boom, boom – but let’s say I start streaming. The purpose of me streaming is for me to produce content. Now my hobby is no longer a hobby, it’s a business. As long as I’m actively engaging in it to make a profit. So you can always turn hobbies into businesses. That’s the easiest way to start a business: take your hobby and figure out how to monetize it. Now we have to see: okay, what exactly is a write-off? A write-off is anything that’s both ordinary and necessary that you purchase for your business. The thing that you purchase, does it help you make more money? At the end of the day, does it help you make more money in your business? Does it help you save time? But the definition is “ordinary and necessary.” And I would just hate to say that on the show and just leave that like that because it’s such a gray area. It’s like, is it both ordinary and necessary? It’s great. Does it help you make more money? Does it help you save time? And is it specifically related to the business or your activity? It’s very broad. There are different write-offs for different industries. Like, it would make sense for someone who is mowing lawns to buy a lawn mower. That’s a write-off. For example, if I’m streaming, if I’m playing my PlayStation, now I say I want to hop on Twitch and start making money. Oh, I may need a mouse pad. I may need a deck where I can switch screens. I may need to buy a camera. I may need to buy a cord. I don’t need a lawnmower! So that’s when it’s like, “Okay, bro, like, what’s up with the lawnmower, though? Like, how does that pertain to your industry?” So as long as it pertains to your industry and what you’re doing to help you make more money, that’s essentially what a write-off is.

Yanely: Got it. I mean, you can buy the lawnmower. You just can’t write it off.

Duke: You can’t write it off.

Yanely: Because you specifically work with so many creatives and influencers and different types of small business owners, I’m sure that, you know, the taxes kind of get a little bit complicated. Or would you suggest for somebody who’s maybe just getting started earning income and they know they’re going to get 1099 instead of the W-2?

Duke: Yeah. So if you’re just getting started, the most important thing you have to have bookkeeping. You have to be tracking your income and your expenses. So you want to be tracking the money that’s coming in and the money that’s coming out. The easiest way to do this is to get a separate bank account. Consider opening a business account, separate your finances, so even if you get a separate personal bank account, and then you have all your 1099 income coming to that bank account, and then you have all your expenses come out of that. You can have a journal entry, you can have an Excel spreadsheet, or just have a separate bank account.

Yanely: That makes a lot of sense. Like it’ll just make your life easier. And what would you say to a teenager who maybe for the first time ever got a W-2?

Duke: I will say I was scared, too. I’m not going to lie. I was there, too. Everyone who’s ever filed a return, we’ve all been where you’re at. Your parents have been where you’re at, your best friend, your uncle. Do some research, work with the tax professional, use a great software, but it’s going to get easier. I was nervous my first time too. Just do not fall behind. And understand that everyone has filed a tax return for the first time before and they’re okay. Look at them! They’re still there. They’re living, you know.

Yanely: Right. I’m alive. We all alive.

Duke: We done did it!~

Yanely: All right. You heard Duke. At some point, everyone’s had to file taxes for the first time. So don’t stress too much about being new to the world of taxes. You should keep in mind that each year, tax rules can change and new tax laws are passed all the time. For example, Duke mentioned the standard deduction is $13,850 for single-filers in 2023. But for the 2024 tax year, that will be different. So that’s why it’s so important to stay up to date with all this stuff. And even more important, that you feel confident about the parts of the process that tend to stay the same over time. One of my biggest takeaways from talking to Duke was that the biggest part of figuring out taxes and learning how to file them, it just comes down to knowing the vocab. So this week, take some time to review some key tax vocabulary that Duke shared with us. You know, stuff like W-4 and W-2 forms versus a 1099 form, and the standard deduction. That way it won’t be completely new to you when you file taxes for the first time. All right. You’ve got this. See you next time. 

Yanely Espinal: Financially Inclined is brought to you by Marketplace from American Public Media in collaboration with Next Gen Personal Finance. I’m your host Yanely Espinal. Our senior producers are Hayley Hershman and Zoë Saunders. Our video editor is Francesca Manto, and our graphics artist is Mallory Brangan. Our producers are Hannah Harris Green and Hayley Hershman. Gary O’Keefe is our sound engineer. Our intern is H Conley. Bridget Bodnar is the Director of Podcasts. Francesca Levy is the Executive Director. Neil Scarbrough is the VP and General Manager of Marketplace. Our theme music is by Wonderly.

Hannah Harris Green: Financially Inclined is funded in part by the Sy Syms Foundation, partnering with organizations and people working for a better and more just future since 1985. And special thanks to the Ranzetta Family Charitable Fund and Next Gen Personal Finance for continuing to support Marketplace in its work to make younger audiences smarter about the economy.