"Do you love taxes?" is a question that most people would answer with a resounding "no."
However, Natalie Picha, the Chief Experience Officer, and Michelle Graham from Michelle Graham CPA LLC have some tips to make this tax season less stressful and scary. They understand that taxes are always challenging, especially when figuring out small business deductions. It can be a painful experience, but the value of having a good CPA cannot be overstated.
The best advice is to start early and seek expertise to ensure you get the most out of your tax return.
www.royalharborpartners.com
Experience the difference of working with a firm that empowers your life—a firm that focuses on what matters most—you.
Whether you are beginning your financial journey now or have already taken steps toward your ultimate life goals, we are here to guide you.
https://podcasts.apple.com/us/podcast/rhp-market-talk/id1538051530
"Do you love taxes?" is a question that most people would answer with a resounding "no."
However, Natalie Picha, the Chief Experience Officer, and Michelle Graham from Michelle Graham CPA LLC have some tips to make this tax season less stressful and scary. They understand that taxes are always challenging, especially when figuring out small business deductions. It can be a painful experience, but the value of having a good CPA cannot be overstated.
The best advice is to start early and seek expertise to ensure you get the most out of your tax return.
www.royalharborpartners.com
Experience the difference of working with a firm that empowers your life—a firm that focuses on what matters most—you.
Whether you are beginning your financial journey now or have already taken steps toward your ultimate life goals, we are here to guide you.
https://podcasts.apple.com/us/podcast/rhp-market-talk/id1538051530
Welcome to RHP Market Talk , episode number 37, produced by RHP Wealth Management, an Independent financial services and investment advisory firm based in Houston, Texas. I'm Natalie Picha, Chief Experience Officer, and I'm joined today by our friend Michelle Graham. Michelle, I'm so glad to have you.
Michelle Graham:Oh , thank you for getting me out of the office during this time of year. It's so nice to have a break from tax returns and put on real pants. So I appreciate it. Thank you.
Natalie Picha:So it is awesome to have you here. So Michelle works with our team and many of our clients. She is a CPA, Michelle Graham, CPA LLC, which was founded in 2015 with the vision of merging Michelle's training as a CPA with her passion as Chief Financial Officer, which she has been since 2011. And she offers a strategic and proactive approach to both individual and corporate financial welfare and taxation. And I have to just comment about this. She was an auditor for two Big Four accounting firms. A regional firm before transitioning to controller and CFO. And she realized that businesses struggled with producing an accurate depiction of their financial health and just didn't have the tools to fully realize their goals. And so what Michelle does and why we work so well with her is this combination of what RHP is as a Financial Advisory Firm, working with clients to reach their goals. Michelle has a similar vision for the people that she works with. So yes, I'm glad you're out of the office. Friday, March 15th, was a huge deadline for you.
Michelle Graham:It was, and it wasn't. But I'm glad that we can continue with the conversation and make sure that both of our clients are continuing to be proactive with both their tax strategies and their wealth management.
Natalie Picha:Yes. And so, when we decided to do this podcast. This is the first time we've ever done one on taxes. It's the first time we've ever had a CPA as a guest. So thank you again for being our guest. I want to just start out with someone who loves taxes. Like, I'm just wondering how many downloads this particular podcast is going to get. Like, oh, they're talking about taxes, right? Oh , yes. I don't know anyone who just loves taxes. Do you love taxes?
Michelle Graham:You know, I get fired up to the extent that it's my livelihood. So, 'tis the season, I suppose. For people in my industry, but I mean, it definitely becomes a grind. I think for me, though, what's fascinating and maybe an approach that people can take is tax time, which is an opportunity to take a very black-and-white look at your financial health. Everything is out there on paper. It's a summary of what happened in 2023. And we can deal with it. So, for me, I find it fascinating because it's an insight into people's lives and what they did Right, what they did wrong. Room for improvement. Opportunities. So , I really look at it as a way that is just another opportunity that I can try to educate my clients so that we can work on some new strategies for them. And also, I think people should approach it, that it's...it's something we have to deal with and it isn't all negative.
Natalie Picha:Okay. That's...woo, that's a...you just said a mouthful right there because I think that people don't think of their lives as very black and white, but it is this opportunity to kind of put it on paper and say, here are the decisions that we've made. What does that point to? When you think about...when you think about it not being negative, and I'm just going to take my own personal experience. I help my parents and my grandparents do this process. You know, every year we work with clients every year. I have clients that , on December 15th, they're like...are my documents ready? And I'm like, no, they're not ready. The year's not over. Right. And they want their taxes done by 1 15.
Michelle Graham:Yes. That's the bandaid client. They just want to rip it off. Like, let's get this over with. And sometimes they're hasty and doing so they're missing out on, you know ...opportunities or documents that haven't even come in yet—and creating a bit of a mess for themselves too, when they do that.
Natalie Picha:Right, right, right. Because we get corrections that come out all the way through May. Sometimes June. Right. Okay. So you said, I'm going back to your statement there about negative; it doesn't have to all be negative. And it is an opportunity to really see what happened. What can we fix? How can we take that negative away? Or what makes life easier, not just getting it done, like you said, the bandaid client getting it r ipped off January 15th. What are some things that you would just say for those that you see that kind of get through the season with less stress?
Michelle Graham:The people that don't have as much of a painful experience when it comes to taxes, are people that have kept their CPA engaged, their financial advisor, engaged. They're continuing, they're having a conversation throughout the year. So everyone has an idea or an understanding of what's going on. You're letting them know that, hey, interest rates have increased. We have an opportunity. Your interest earnings are going to be greater. The dividends that you're going to be receiving this year are going to be greater. Or, hey, we might need to get out of a certain position, and we might be recognizing some losses, some gains. We're all on the same page. Or I'm letting you know that, yes , hey , this person has a big runway. They've got some big carried-forward losses. Is there something that you need to do on your end? Can you pull some triggers? So when we have that conversation, we're able to put a plan into place, whether it be just a knowledge and understanding that you're going to have some additional taxes this year. Or, for some people that I've run across, they've gotten into a new business. But there's certain opportunities that they have that they can pull the trigger on in that tax year and go ahead and get that plan in place. So, if we're having t he conversation throughout the year, it isn't that big of a burden in the next year.
Natalie Picha:Right. So it's kind of being prepared and staying engaged all year long. Not waiting until January one and then saying, oh, now I've gotta do all of this work.
Michelle Graham:Yes. Yeah. You have to be proactive, and I feel so bad for the people that they know that they have created a mess or they know, not that necessarily that they've created a mess, but that they're going to have a big tax bill that they're going to have to deal with. Right. And there are things that we could have done before to really mitigate that. And I hate breaking the news to them that, Hey, if you told me this a few months ago, we could have done a few things. So I just think it's, even though they might not want to deal with those conversations or feel like they don't have all the information to have an intelligent conversation, I think that they should still reach out throughout the year. That's what we're here for. We're partners.
Natalie Picha:Right. So this is a great segue right into something that you and I have talked about on multiple occasions about having a good CPA. And we talked about why would you work with a financial advisor. Well, because it's expertise and it's a viewpoint that you don't have, right ? So why would you work with a really great CPA rather than someone just down the road? Right.
Michelle Graham:You know there's different levels of CPAs, just like there's different levels of doctors, lawyers, any kind of profession. So you want someone who has that expertise. And I think there's a misconception that someone who opens up a seasonal office and advertises and promotes, I'm going to get you all kinds of credit. I'm going to save you X number of dollars, and they don't even know you. That should be a red flag for you. So, I would steer away from someone...because, in our profession, we can't guarantee a certain outcome. You have the same restrictions as I do with your license. So, with a CPA, we have to have 40 years on average of continuing education. We have to have, you know, all kinds of requirements to pass the exam, to get our license. So, and also, that being said, t here's CPAs that focus on audit. Yes. As I did at t he beginning of my career. And they'll be the first to admit that they're not tax experts. They p ass that part of the exam. But that's not something that they're in day in and day out. And then, among tax experts, you have those that focus on large corporations, trust estates, individuals, and small businesses. So you have to find one that's a good fit for you. That's, it's really important. I mean, there's all kinds of levels of expertise. And yes, you're probably going to pay more for a q ualified professional. But I would be extremely nervous if I went into a place and they said, I'm going to trigger this credit for you and that t ruck credit for you. Because there are people that get their money upfront, they do that, a nd you get a big refund. But you're going to have to pay the piper at some point. If you get audited, they are long gone. So don't think that that's going to be an option for you to fall back on them.
Natalie Picha:Well, and I always tell people that if you're paying taxes, and again, a really well-done return, if you're paying taxes, it's because you made money. You made money. And so taxes are the result of income going up somewhere.
Michelle Graham:Yes. You should still be comfortable with it. With my clients, what we do is I help them understand what is different from last year. You weren't expecting this tax bill. What happened? Did your withholdings change? Did something happen with your W4? Do we need to work on that? Did your investments change? Did you have a child that you no longer get a full credit for? So all of these things are really important, but that good CPA is going to explain those differences to you. So, at least, even though you don't like paying taxes, you understand what happened.
Natalie Picha:So let's talk a little bit about that when you start thinking about what's changed last year, this year, next year. There's some pretty big changes that have come up just recently. I know you noted the 24-25 changes coming up with the Tax Relief for American Families and Workers Act o f 2024. That's a mouthful.
Michelle Graham:It is . Yeah. We need a good acronym for that because it hasn't passed. We don't have one. So yes. Yeah, that one. We are still waiting to see what's going to happen. So, it passed in the House of Representatives. It's still sitting in the Senate. It's being debated. There are some hangups in there. And the potential for, in addition to what's already in the bill, I know that some people are advocating trying to change that state and local tax cap. Right now, it's $10,000. I know us in Texas, and we would really like for that to be higher, our property taxes. You know, we could really take advantage of that. So, hopefully, that may pass, but there are some big provisions in there that apply to 2023. And I know that a lot of people, individuals are confused on whether or not they should file. Small businesses are hanging on to their returns, wondering if it's worth it to continue to wait to see how this plays out.
Natalie Picha:And where do you, where do you land on that?
Michelle Graham:You know? So, from everything that I've seen, they're still giving it a 50 to 80% chance that it's going to pass. I think, and everyone has also said that for individuals, they still should try to file. They shouldn't hold out on this idea that the refundable portion of child tax credits...that's the big area that people are looking at. So what it does is, currently right now, if your tax liability doesn't completely absorb all of the child tax credits that you might be entitled to. The maximum amount that is refundable is $1600 per child. This bill would increase it to $1800 for 2023 and then another a hundred dollars for the next several years. So, families that...mostly low-income families might be entitled to this additional money. They're telling them that they should still try to file. And the IRS had said that they will reconcile if this does pass in their system any additional money that they're entitled to and send them that refund. With a letter. Yeah. So they're telling those people to con try to still file, go ahead and file. Yeah. But for those that have small businesses, a lot of people are saying that it might be worth it for them to hold onto the return. So, for small businesses, bonus depreciation was a big deal back in 2017 when the tax bill changed, starting in 2018, businesses. Were entitled to a hundred percent bonus depreciation for qualifying assets that were put into place. So a lot of people were still writing off things like machinery and equipment and cars over 6,000 pounds. They were able to do so under Section 179. So a lot didn't change there. But where it did change were certain components of, like, for example, if you bought real estate, if you bought investment property and you did a cost segregation study. You were able to break out different components of like furniture and fixtures and leasehold improvements. And improvements of the land surrounding the property, you were able to accelerate the depreciation and take a hundred percent bonus depreciation on those particular components. So this was very advantageous for people. And they were able to realize some tax savings from that. Well, starting in 2023, bonus depreciation dropped from 100% to 80%. And then in 2024, it goes down to 60% . And then 40%. Yeah . Yes. So, but what this does is it retroactively brings it back to a hundred percent for 2023. Keeps it that way through at least 2025, possibly 2026. So those are the parts of the bill that are really being debated.
Natalie Picha:Wow, that's really interesting.
Michelle Graham:Yeah. But for a small business, that could be huge.
Natalie Picha:No, it can matter a lot. So a lot of our clients own their own businesses. Right? I mean, RHP, I'm a proud partner here. And the owner of a small business. Right. Very proud of that. I've, even through our journey, we've seen the strategies kind of change every year. Let's talk a little bit about what people might miss or maybe overshoot when it comes to small businesses and taxes.
Michelle Graham:You know, there's a fine line between taking all the deductions that you're entitled to and being a smart business owner.
Natalie Picha:Take it all! One of our values here is being very ethical and having that sense of, I'm honest. But I'm not going to pay more than I have to. I want all the best CPA tax advice that I can get so that I don't pay more than I have to.
Michelle Graham:Yes. Yeah. And the idea is that the business expense has to be ordinary and necessary for you to run your business. And I think that's where a lot of people step over that line. I think that small business owners, and for you, you've got a more sophisticated organization. You've always done everything by the book. But for a lot of people, especially when they start a small business, they don't make things easy on themselves. So when you form that small business, that entity, even if it's just a sole proprietorship. It has a DBA; it's not necessarily an LLC; it's always best to get that dedicated business account. Or credit card account. So at least when you're incurring those expenses, you're not having to backtrack a year and comb through your personal credit card to see every little Adobe subscription Or like little expense that you, every little business meal that you encountered. So I think that that's, you know, the, the first thing, t he second thing is, is also being aware of things like doing a SEP IRA contribution. A way for you to put money towards retirement that you're reducing the business's income. Other things a re stay away from, o r I don't want to say stay away from...but don't put so much credit into s oundbites that you might hear on social m edia or on YouTube. They're a great place to start. But I think a lot of small business owners get hung up on aggressive ways to write off taxes. A nd, you know, I've seen people come in and say, well, so a nd s o on YouTube s aid that, you know, I can just, I use all of my house for my business and I'm going to simply just write off my house. You can't do that. You can't do that. I mean, you have to have documentation of you every meal that you have. You need to, you do need to have a receipt for that i n the business that was discussed. So, ultimately, do you think that you might reduce your tax bill in one year because of all these expenses? Sure. Perhaps. But the likelihood that if you continue to do this, that you're going to g et caught is very high. And at that point then you're putting your livelihood in jeopardy as well.
Natalie Picha:Exactly. Exactly.
Michelle Graham:So I think that... And plus, if you're consistently showing losses, the IRS says, that's not a business, that's a hobby.
Natalie Picha:Right. Well, that kind of leads me to , there's a whole new, oh, I'm probably not going to remember the acronym correctly, but there's this new requirement that's coming up this next year that you have to go in and file that you are a real business,
Michelle Graham:The Beneficial Ownership Interest report. Which is completely outside of the IRS. This is a FinCEN requirement. Okay. A lot of this will apply to any existing LLC before 1 1 2024, which will happen until December 31st to get this filed. And it should be pretty straightforward. There are only a few exceptions in which you wouldn't have to do this, but Okay . That is very specific to just a couple of industries. Um, but it should only take about 20 minutes. A lot of people are charging people a lot of money to get this done for them . People are exploiting this as they are. But the penalties, if you fail to do this, are very hefty. They're very high , high. And this is out, like , again, this is outside of the IRS, so I wouldn't rely upon your CPA to do this for you. In fact, for a lot of us, our E and O insurance prohibits us from doing so. Okay. So, you definitely need to have this on your radar. I know that, gosh, we're always inundated with, in our daily lives, email reminders, and we think half of it is a scam as a business owner. You're like, oh...
Natalie Picha:Well, it's funny because when you mentioned earlier about the promises, I was thinking back to the 2020 pandemic days; I'm still getting all of those spam phone calls that say, take this tax credit, that tax credit, we're going to give you all of this money back. And I'm like, oh...
Michelle Graham:The Employee Retention Credit. Oh...
Natalie Picha:That one.
Michelle Graham:Yes. Well, so, and that's part of that new tax bill as well. That so originally, you could still be filing for those tax credits through April of 2025. But now they're saying, Hey, effective January 1st, 2024, no more new filings. There were companies that set themselves up to only try to solicit businesses.
Natalie Picha:Yeah. They're just...
Michelle Graham:And they would take their 20, 25%, and 30% off the top. And, they're gone. So those are all frozen. Those credits that weren't processed are frozen. That new bill put some really hefty penalties on those companies, or actually, the employers that fraudulently completed those returns to try to get those credits.
Natalie Picha:So, how long do you think we'll be unwinding that mess?
Michelle Graham:Oh, my goodness. Oh, years. Years. Yeah. And I feel bad because I think a lot of people were convinced that they would've been entitled to those credits but probably weren't. Right. But I mean, it's easy when someone's telling you that it's, as a business owner, it is so hard to sift through what's real and what's not. But the BOI , that's real. And you need to get that done.
Natalie Picha:Well, I think this comes back to your deep bench of experience from the corporate world as a CFO and now with how you're working with individuals and business owners. I truly believe, and I mean...we are financial advisors here, right? And we're in this every day, all day long. But taxes are not our specialty. Oh, my goodness. I would not want your job. That's what I'm going to ask you at the beginning. I'm like, do you just love taxes? And people, when they come in , and they start working with us, the same thing. They're like, oh , budgets? You want to talk about budgets? There's nothing fun about that. What I see is the opportunity to do good for people. And to help improve. But taxes as a whole are not something that gets me excited until we start talking about, wait, don't get taken advantage of. Have the right person watching this. You need a CFO. You need that expertise. You need that person; that's their only job, which is to look out for you. Really looking out for you is what they're doing.
Michelle Graham:Yeah. You know what? I learned a long time ago that we don't have the same mindset. We're in the numbers. We love the numbers. Yes . It gets us ; we understand it. But for most people, that's not their area of expertise. I couldn't do what they did. So, I can see how a lot of this is overwhelming. Why, why would they want to do budgets? Why would they want to have to even like, round up their tax documents? It's a lot. So that's why I think if you can entrust people, on your team to take care of that legwork for you. And to educate you or speak to you in terms that make sense to you. What do you really need to know? What do you need to be on the lookout for this next, you know, the next few years? What's an opportunity? You know, you tell them what an opportunity is for you or things that you need to change in your portfolio to get you there because we know where you need to be. And let's find some things in which you can really take control of your situation.
Natalie Picha:Right. And make a difference. Exactly. Ultimately, when I... It's fun; part of the fun part of our job is to sit down with someone we may have been working with maybe five or ten years. And if someone says, oh, I want you to make me a bunch of money this year, I'm going to say we're not a good fit. Because I am looking for consistency over long periods of time, and we're not just talking about what the markets are returning, although that's a part of what we do. We're also talking about what are we saving. What are we spending? What is the tax strategy? I always say nickels and dimes maybe don't matter that much right now. They do matter over ten years. And we can show you that trend line over all of this time. Of that levels of those levels of consistency. When you have that expertise, that's, you know, watching, and it's mind-blowing for them . Exactly. They're like, wow! Look at that line because it was all about the combination of strategies, consistency, and behavior. When it all works together, stress levels come down. They do.
Michelle Graham:Yeah. But when they walked in the door, you couldn't say, yeah, absolutely. I guarantee you...10 years here is where we're going to be because a lot of the legwork is on them. Yes. Absolutely. You know , I mean, there has to be some restraint and planning on their part. But, you know, if you were to go to any CPA and you were to say, well, I need you to save me at least enough in taxes to cover your invoice. They're going to heavy sigh because our job is to make sure it's done right. And be proactive where we can be. I want to make sure that you sleep at night and I sleep at night.
Natalie Picha:Oh, a hundred percent.
Michelle Graham:Yeah. And whatever burden, tax burden that we have, we can work together to try to do an installment plan or to figure out a better way. But I'm not going to compromise myself, and I'm not going to compromise with you.
Natalie Picha:Right. Exactly. Oh, I think that's just very well said. So, thank you so much for being so open. This is like I said, I started this going, okay, how do we make this conversation fun? And I hope that people will stop and listen because the advice is use your experts. Make sure you're partnering with the right kind of people to help you make the best of whatever your situation is, but staying ahead of it and staying engaged. Before we go, what is the one thing that you would possibly tell people about working with a CPA, and just the tax process as a whole?
Michelle Graham:You know, I would say with the tax process, start early. Don't wait until the end of the year, and you're gathering up your paperwork, say in March. I would say find someone at a minimum Q4 of 2024 if you want to work with someone in 2025. Even earlier is better, usually around the summer. I think it's like people have a little bit of downtime. They can really assess the situation. Start that conversation early and get to know that person. Allow them to get to know you. So they understand your inner workings. Your, your family. Some things that you have planned a nd are coming down the line. Because they might have some really good ideas on things that you can implement to save yourself a little bit of m oney, so, I say just start the conversation early. Be proactive. Be organized.
Natalie Picha:Yeah . Set aside that little bit of time upfront so that it's easier.
Michelle Graham:Yes. Yeah. Because as much as, as much as we try, I know that you , I can't speak for all of my colleagues, but I know that it can be, become a grind during tax season. And I think that I'm not going to have as much time to dedicate to get to knowing you. If so, as much as I would like to.
Natalie Picha:Yeah. So just... this is a personal story here as we were getting ready to record this podcast. Michelle let me know that she got a jury duty summons for April 16th, and we're sitting here just a few days after the March 15th deadline. Thank you so much for being generous with your time today. But I, you know, I just think I would have to say I'm not going to be there because I'm going to sleep on April 16th.
Michelle Graham:You know, that wasn't an option. When I went to...
Natalie Picha:I'm a CPA! I shouldn't have to come for jury duty.
Michelle Graham:I looked at all the different reasons, and I was like, I guess I'm committed to my civic duty right now. So I don't know what they're going to get i n, in that c ourtroom on April the 16th. I w ill try my very best. B ut I can make no promises.
Natalie Picha:I would love to be able to say that you deserve not to have to do jury duty on the 16th.
Michelle Graham:Yeah. If there is , maybe someone can hand me a sticker. When I walk in. Something.
Natalie Picha:I'm a CPA. Don't talk to me today.
Michelle Graham:You know , I'm going to order that T-shirt. Thank you .
Natalie Picha:You need to order that t -shirt . I think that's awesome. Thank you Michelle, so much for joining us today and just being so honest and open. I hope for our listeners that it'll make tax season a little less stressful. Maybe a little less scary. It's never an easy process. But I think, like you said when we started this conversation, it's also that chance to look at what are the opportunities, right? It's putting it all out there, and evaluating it and saying, okay, what can we do better this year? So, with that, I just want to say thank you to our listeners for subscribing to RHP Market Talk. Please look for us on LinkedIn and on Facebook for additional information and content. We ask you to follow us and give us a review for our podcast. That helps...that helps our podcast get out to other listeners. And then those of you that are in the Houston area and local. We're super excited to be having an upcoming event on Wednesday, March 27th, where we are hosting at the University of Houston Clear Lake an Investor Symposium with Mark Peterson, who is the director and market portfolio insights at BlackRock. And we are very excited. We've never hosted an event like this before. And this is going to be some thoughts on the markets and election years. And it's interesting because historically, people think that the markets do badly in election years, but actually, they do well. Because markets like the fact that nothing's getting done. We're a little bit distracted in a , uh, election year. So, if you are local, please join us on Wednesday, March 27th. You can find more information about that event on our Facebook page and our LinkedIn page. Again, thank you, Michelle, for joining me today.
Michelle Graham:You're welcome. Thank you. This has been really fun!
Natalie Picha:This is a great conversation. I can't wait for our listeners to get to hear this. Whether you're beginning your financial journey now or you've already taken steps t owards your ultimate life goals, we're here to guide you. Experience the difference of working with a firm that empowers your life. A firm that focuses on what matters most...you.
Disclaimer:Royal Harbor Partners is a registered investment adviser, and the opinions expressed by Royal Harbor Partners on this show are their own. Registration as an investment advisor does not imply a certain level of skill or training. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such. Any statements or opinions are subject to change without notice. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. The information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.