Tax Deductions, Credits, and Form 8826

Alan Fredendall // #LeadershipThursday // www.ptonice.com In today's episode of the PT on ICE Daily Show, ICE Chief Operating Officer Alan Fredendall discusses the various types of taxes encountered in personal & business finance, how tax liability is calculated, and how to use tax deductions/tax credits to reduce how much tax you pay.

Take a listen to the podcast episode or check out the full show notes on our blog at www.ptonice.com/blog.

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EPISODE TRANSCRIPTION

INTRODUCTION Hey everyone, this is Alan. Chief Operating Officer here at ICE. Before we get started with today’s episode, I want to talk to you about VersaLifts. Today’s episode is brought to you by VersaLifts. Best known for their heel lift shoe inserts, VersaLifts has been a leading innovator in bringing simple but highly effective rehab tools to the market. If you have clients with stiff ankles, Achilles tendinopathy, or basic skeletal structure limitations keeping them from squatting with proper form and good depth, a little heel lift can make a huge difference. VersaLifts heel lifts are available in three different sizes and all of them add an additional half inch of h drop to any training shoe, helping athletes squat deeper with better form. Visit www.vlifts.com/icephysio or click the link in today’s show notes to get your VersaLifts today.

ALAN FREDENDALL All right. Good morning, everybody. Welcome to the PT on ICE Daily Show. Hope your Thursday is off to a great start. My name is Al. I'm happy to be your host today. Currently have the pleasure of serving as our chief operating officer here at ICE and a faculty member in our fitness athlete and practice management divisions. It is Thursday. It is Leadership Thursday. That also means it is Gut Check Thursday. So today is Gut Check Thursday. A little bit kind of heavier and slower. We have a workout. 15 hang power cleans, 9 wall walks, 12 hang power cleans, 7 wall walks, 9 hang power cleans, 5 wall walks. The barbell weight for this week, 135 for gents, 95 for ladies. That should be a moderate weight barbell that maybe you even have to break up. Maybe you deadlift it up to the hip. Maybe you break those cleans into maybe 2 or 3 sets. and then you're really just kind of grinding through wall walks. It's going to be a very shoulder, upper body heavy workout designed for maybe the 10 to 15 minute time domain. Any modifications you need, suggestions on how to approach the workout, you can check out the post from last night on our Instagram page and see a bunch of different scaling and modification options. So that's Gut Check Thursday.

TAXES Today it is the middle of January, which means it is tax time. Hopefully you have already started to wrap up 2023 finances, personal and maybe also business if you happen to be a clinic owner. So I want to take some time and talk about different types of taxes, especially for those of you who are maybe dipping your toe in the water and thinking about What I might do if I were to open my own clinic, maybe you're somebody who is in the process of opening your own clinic Maybe you have a side hustle Treating folks from your CrossFit gym or your run club or whatever and a lot of this stuff is all brand new to you so we're going to break down the different types of taxes that you'll encounter and We'll talk about how tax actually works as far as how does the government decide what you owe them. And then most importantly to all of you, we're going to talk about different types of tax deductions and credits, the difference between a deduction and a credit, and a bunch of different things that you're probably not doing to reduce how much tax you owe the government, whether through your personal finances or through your business finances.

DIFFERENT TAXATION TYPES So let's start at the top and let's talk about all the different ways that we can be taxed in the United States of America. So very common that we all pay federal income tax. That's something you can't get away with unless you happen to make very little or no money. We also have payroll taxes. Inside of payroll taxes are two different taxes. That's our Medicare tax and our Social Security retirement tax. We talked about those two weeks ago when we talked about changes in Medicare for 2024. We talked about how we pay into the Medicare and Social Security system from our paycheck, and that is the payroll tax. If you're a W-2 employee, you pay half of those taxes. Your employer pays the other half. If you are self-employed or otherwise you work as a contractor, you the individual taxpayer, you pay all of those payroll taxes. Now some of these that I'm going to talk about may change based on where you live. So depending on the state that you live in, you may or may not pay state income tax. Depending on the state you live in, you may or may not pay state property tax if you happen to own a home. depending on the state you live in. You may or may not encounter sales tax. We're very familiar with sales tax. Anytime we buy something, we typically pay a tax. And then getting into kind of some more advanced taxes. If you do happen to own a company, you may or may not be paying corporate income tax. And hopefully if you're a larger company, you're not doing that. And if you have questions about how to avoid that, we have a whole course for you that I'll tell you about at the end of this episode. And then finally, if you do have any sort of investments in the stock market or retirement or whatever, if you receive any sort of money back from those investments, dividends or whatever, you will pay capital gains tax. So just about 15 different types of taxes that we encounter in our life that results in our paycheck being smaller than maybe we would like it to be. So that is types of taxes.

HOW ARE TAXES CALCULATED? Now, how does the tax burden that we owe get calculated? In the United States of America, specifically with federal income tax, we have a bracket system. A range of income, zero to $10,000. $10,001 to $19,999 and so on and so forth. You get the picture. As you move up those brackets, you can kind of think of it like ascending a staircase. As you move up that staircase, as you move into different income brackets, your amount of income that you are taxed on changes. So the percent of tax that you owe changes. Now that is essentially the name of the game when we're talking about how to pay less taxes over time both again for our personal finances but also for our business. Our goal as individuals and as business owners is to push ourselves back down those brackets reduce the percentage of tax that we pay, reduce the amount of what is called taxable income that's going to be calculated to determine how much tax we owe. How do we do that? We do that through a series of deductions and credits. Now, these are not the same thing.

TAX DEDUCTIONS VS. TAX CREDITS What is a tax deduction? A tax deduction may be commonly called a write-off or an expense. It is something that reduces your taxable income, which may potentially push you far enough down in that bracket system that you now enter a lower bracket for your taxable income and pay less of a percent of your income as tax. That is very different from a tax credit, which at the end of the day when you finish your taxes and you get told you owe X amount of dollars, A tax credit will reduce that amount owed one to one. So the key difference is tax deductions do not reduce your tax bill at the end of the day in a one to one fashion. They cumulatively push you back down those tax brackets. which hopefully results in you potentially paying less taxes. But that's not guaranteed. You can certainly have a lot of deductions, a lot of expenses, but maybe not enough to push you down a bracket, which means your tax bracket does not change, which means there's really a minimal impact on the tax you owe. Very different from a tax credit where you have a tax bill, you know how much you are owed, and the tax credit is going to reduce how much you owe in a one-to-one fashion. So now let's talk about what you probably all care about are what are all the different ways? What are all the different deductions and credits available? There are for most of us around 15 ish different deductions and credits. Some of them depend on if you have children or student loans or if you own a business. But let's rip through all of those and talk about them and see which ones may apply to you that maybe prior to this podcast, you didn't even know were a thing, which can maybe hopefully result in you paying some less taxes this year. So the first one is called the Child Tax Care Credit. Again, tax credit reduces your tax bill in a one-to-one fashion. This is about $2,000 per kid for the 2023 tax year. So if you don't have kids, you can't get this. The more kids, the more tax credit you get. There's also a Child Care Tax Credit, which is not as well known. This will allow you to get a credit for 35% of $3,000 of childcare cost incurred for one kid or 35% of $6,000 for two or more kids. So if you are sending your kids to daycare or you're otherwise paying out of pocket for childcare, you can reduce your tax bill by a little bit, 35% of whatever you spent up to three or $6,000 depending on how many kids you've had. If you are still in school or maybe you have college age kids, there are a couple different tax credits that are mainly going to apply to the person in school. So we have the American Opportunity and the Lifetime Learning Credit. Those are geared towards college students. If you're listening to this and you're not currently a college student, I would not recommend going back to college just to get these tax credits. That's definitely not going to work out. But if you are listening to this and you're a student or you know a student or you have a student in your family, then these may apply to them. This next one applies to almost all of us. You may not know that you can deduct, so again, not a tax credit, but you can deduct up to $2,500 a year of your student loan interest. So some of us may not have paid interest the past couple of years with the COVID forbearances for our student loans, but if you have been paying on your loans through the past couple of years, you have accrued interest and definitely at least this year going forward, with everybody's payments resuming, you will have interest and you can deduct up to $2,500 of that interest. So that is information available from whoever services your loans. They should send you an email or something in the mail telling you how much you paid in interest and you can deduct up to $2,500 of that. Adoption credit is another tax credit available. Again, probably not for most of us, but if you do happen to adopt a child, you should know there's a tax credit for that. You can get up to 60% of your gross income in deductions for donating to charity. So whenever you are donating to charity, you should keep those receipts. You should keep a record of that because that can be a very significant deduction for you on your taxes. Medical expenses saw a big change over the past couple years. You can only deduct medical expenses if that expense happens to be 7.5% or more of your gross income. So a medical expense that's probably going to be in the thousands or maybe tens of thousands of dollars. Again, probably not applicable to all of you, but possibly someone out there, this is relevant to you. You should know that you can deduct your property tax and any state sales tax that you may have paid. This obviously is going to require that you've kept a lot of receipts. And for many of you, this is going to be an automatic deduction that you take in lieu of needing to provide a receipt for literally everything you may have purchased in the past year. If you own a home or you're currently in the process of buying a home, you can deduct your mortgage interest. You can deduct any sort of contribution to a retirement account, IRA, 401k, HSA, whatever. And then these last two deductions and credits, I think are widely underutilized in general, but especially in the field of physical therapy. You should know that you can take a home office deduction if you do any portion of your work from home. This is very relevant to us. A lot of you are doing notes at home outside of clinic hours. Maybe you're not given time in the clinic. Maybe you choose to have a flexible schedule and instead of doing notes at the clinic, you peace out and go home and change into your PJs and you do your notes at home. Whatever you're rocking, if you're at home and you're doing work, you should not feel bad about taking that home office deduction, right? Especially in the era of so many people across the country working from home, you should not feel bad one bit about taking that home office deduction. And then the final tax credit I want to talk about is called Form 8826. We've talked about this specifically on the podcast. We've had some posts on our social media about this. This is a tax credit designed to improve access. through the Americans with Disabilities Act, the ADA Act, designing with the intent of improving access, essentially, to rehab and there is a limit on this credit every year and that limit is a $5,000 tax credit, which means if you have spent up to $10,000, half of $10,000 is $5,000, you can have a $5,000 tax credit. this year if you have justified spending that much money. So what qualifies? The tax credit is very vague. We love vague laws here at ICE. What does that mean? Things like high-low tables that I'm standing at right now. Maybe things for adaptive fitness. A wide base ski machine for wheelchair users. Maybe lap mats so that seated patients can perform dumbbell, kettlebell, barbell work in the clinic. Anything that you can justify as improving access. Maybe you got the push button door to your facility. Whatever. If you widen the door frame, you've made a bathroom ADA accessible. If you can reasonably justify that you have made your facility more accessible, you can grab that credit and that's a credit that you can use every year, year over year. So if you're out there, you're a clinic manager, you're a clinic owner, maybe you're thinking about becoming a clinic owner, start to think strategically about equipment purchases such that you can maximize that tax credit every year. So I'll leave you with this. We've talked about different types of taxes, how taxes are calculated, common tax deductions and credits.

WHEN IN DOUBT, HIRE IT OUT I'll leave you with this. If this stuff drives you crazy, if it makes you nervous, if you truly know in your heart of hearts that you're bad at it, when in doubt, hire it out, right? You can very easily get access to a high quality accountant who would love for sure to do your bookkeeping, but would love to help you with tax prep as well. I think often of accountants and lawyers is they are doing this stuff every day. To them, you coming in with whatever you have going on with your personal or business finances is as easy for them as when somebody comes in and they have low back pain, right? You will know what to do just like they know what to do. with your taxes or the law. So when in doubt, hire it out. Let the experts handle it. You can certainly do your own bookkeeping throughout the year. Keep track of your credit card statements or whatever and just hand it over for tax prep. There are also a lot of accounting firms that will do all of your bookkeeping for you. They'll go into your bank account or your credit card account every month, every quarter, once a year, whatever. pull out all of your expenses itemized for you and help you prep for taxes. I recommend, again, if you're not strong at this, if you don't want to become strong at this, if it makes you nervous, if you get worried about getting in trouble with the government, it's in your best interest to shed a couple hundred bucks and pay an expert to do it for you. So when in doubt, hire it out.

SUMMARY So if you'd like to learn more about opening your own practice, we'd love to have you in our Brick by Brick course. Our next cohort starts April 2nd. We talk all things incorporation, taxes, getting a tax ID, a type 2 NPI number. We talk about the differences between insurance and cash and hybrid. We talk about working with Medicare. We talk about budgeting. We talk about different types of EMRs, everything you need to go from maybe a pipe dream of opening your practice all the way to potentially launching your practice by the end of that eight week course. So the next cohort starts April 2nd. We'd love to have you. So taxes, complicated, but a lot of good information hopefully that maybe you didn't know about to save you some more money this upcoming tax season. So have fun with Gut Check Thursday. Have a fantastic Thursday. Have a wonderful weekend. We'll see you next week. Bye everybody.

OUTRO Hey, thanks for tuning in to the PT on Ice daily show. If you enjoyed this content, head on over to iTunes and leave us a review, and be sure to check us out on Facebook and Instagram at the Institute of Clinical Excellence. If you're interested in getting plugged into more ice content on a weekly basis while earning CEUs from home, check out our virtual ice online mentorship program at ptonice.com. While you're there, sign up for our Hump Day Hustling newsletter for a free email every Wednesday morning with our top five research articles and social media posts that we think are worth reading. Head over to ptonice.com and scroll to the bottom of the page to sign up.