All right, Sharon. Ready for another thrilling case study. I know you love these. Oh my god. I know this is a necessary evil and for those of you that are watching this, I'll try and help make this a little bit better, but this is painful stuff. Painful stuff. But I know it's necessary. It's like, you know, death and taxes. Two guarantees. So here we go. Well, phrase it another way. Talking about your money and how to save it. Okay, I like that. I like that. I do like that. That's helpful. Maybe that'll help keep me awake. Well, we're gonna go through some definite case studies today. Some of this is gonna be a little, probably not as thrilling for some of our folks like Sharon, but I like it. And, you know, I'll try to make it as interesting as I possibly can. So first and foremost, just let me let you know that nothing we are talking about today, as always through every one of these modules, we are not giving accounting, tax advice, any kind of advice. You need to talk to your own professional and discuss your individual situation. It's one thing that I always try to get across in these modules is the fact that everyone's situation is different and you need to make sure you're working with someone that understands your situation. Okay? Got it. All right. Here's our first case study, Sharon. Mark and Martha. Okay. That's already thrilling to me. You know, Mark and Martha, the M's, right? All right. Good stuff. So we're gonna look at a couple of scenarios for Mark and Martha. One, Mark and Martha both working a W-2 position. Martha's gonna be making, you know, her W-2 CRNA income and Mark is gonna be making his RN income. And then the second scenario, Martha's gonna decide that she wants to stay home a little bit more. She's gonna have more flexibility doing 1099. She doesn't really want to work full-time, but they need to make the same amount of money. So she's gonna switch and she's gonna make $220,000, the same she was making before, full-time as a W-2 CRNA, but she's gonna make that part-time as a 1099. And then Mark's gonna continue his position as an RN. And the last scenario, Martha and Mark's kids are gonna get older and she decides she wants to go back and work more full-time-ish as a 1099 CRNA. And she's gonna make $350,000 and he's gonna make $80,000 as an RN. In every one of these scenarios, Sharon, we're actually gonna delve into their tax return. Yes! We're gonna have the 1040 up. We're gonna go through it. We're gonna say, here are things you can do. And we're gonna look at the bottom line of their taxes. I mean, if that doesn't get people going, I don't know what would. It's like a lap Koli, you know what I mean? We've got to teach you how to have fun, Jeremy. All right, let's get off. Let's get started. I explained this a minute ago, but Mark and Martha, she's the CRNA. She makes $220,000, W-2. Mark is a full-time RN. He makes $80,000 a year. And they have two children, Meredith and Mike. We're gonna call them the M family, Sharon. I agree. M&M, get it? I got it. I'm trying to make this fun, right? I got it. All right, so let's take a look. And you can see on the right-hand side, we actually have their tax return up. Okay. So remember, this first scenario, it's a whole W-2. Mm-hmm. And Sharon, as you've heard me talk about before, since 2018 and the Tax Cut and Jobs Act that was enacted, there's not a lot of tax planning you can do when you're W-2. There's really not. Right. If you're listening to this and you're W-2 and you're wondering why you're paying so much in taxes and why your accountant, your CPA, whoever's helping you, they're not saving you anything because you'd probably be better off to buy TurboTax and do it yourself. But $220,000 for Martha. They have two dependents. She's maxing out her 401k and putting in $20,500. They don't feel like they can do his at this point. So they're not doing his. They're just doing hers. And they're gonna get the standard deduction. And what that means is they are not able to itemize. Since the Tax Cut and Jobs Act, over 90% of people can't itemize. So you get the standard deduction. So let's kind of walk down this tax return over here. So I'm gonna try, can you see my cursor? I do. Okay. So we look at their W-2, Box 1, and it tells us that their taxable income there was $279,500. That's $300,000. That's what she put in her 401k. Okay. They have none of this. So we bring that down and then we come down here and that's their total income, $279,000. They have the standard deduction. We take away $25,900. And that leaves their taxable income, the last line on the 1040, on the front, number 15, baby. $253,600 is their taxable income. Sharon, it doesn't get more exciting than that, does it? You know, I can hardly contain myself. All right. So now if we look at that and we delve down to the bottom line and it shows us that their tax is $48,535. Because they have two children, they get $4,000 in child tax credit. Right. And we know it only costs $4,000 to raise a child. Yeah. So that lowers their tax to $44,535. And then they had some other tax here. It is probably additional Medicare tax here of $266. So the total tax is $44,801. Okay. All right. So that's scenario number one, all W-2. Sharon, can you handle moving on from here? Please do. Okay. So this also tells us the next page is we always want to know what their marginal tax bracket is versus their effective. Why don't you explain that just a little bit more? Because I think it's a little confusing for those of us simpletons who don't enjoy this. So marginal brackets, remember that in the U.S. our brackets are set up that if you make this amount, it's taxed at zero. This amount is taxed at 10. So that's marginal. So, you know, marginal means that you're in that bracket for every dollar that you make moving forward up until you reach the next bracket. So for them, if you look down here at the bottom, they're in the 24% marginal bracket. That means if they added another dollar of income, it would be taxed at 24%. Okay. But because along the way, some of their income was taxed at 10 and 15 and so forth, their effective tax is 19.14%. Okay. So basically, if you did the math, their tax of 44,801 is 19% of 300k. Is that what that means? Interesting. Yeah, it's very good. It's actually based on their taxable income. Okay. So it's less the 401k. So it's 200 and whatever that amount was minus 22,000. So 288,000, give or take. And the standard exemption. Okay. Okay. Yep. So... Now I got it. So yes, you got it. And I mean, that's pretty simplistic for a tax return. You know, here in just the last few minutes, we broke that down. Everyone should look at their tax return and be able to understand this. But, you know, for most people, they don't pay attention and they have no idea. No, they don't. We're not naming any names. We will keep everyone innocent. That's why Pierce does it. All right. So that's our first scenario. Now, let's move on to this next scenario. Like I said, you know, Martha, she has two young children. She decides that, you know what, I want to be home a little bit more with the kids. And instead of working full time, I'm going to work three days a week, part time, and I'm still going to earn the same amount, $220,000. So we decide that we're going to have her taxed as an S corporation. Okay. And a lot of people have heard throughout this, throughout all the modules, the reasoning behind that. We're going to pay her a salary of $80,000. And then her business, after all her business expenses, is going to make a profit of $45,000. In her business expenses, she purchased an automobile for her business. She had other expenses. She got qualified business income as an expense. You remember that module that we talked about qualified business income? They went and did that. And then they did her 401k contributions. They put in the $20,500 and they decided that they would put in an additional $20,000 as an employee match. So where did that $20,000 come from, Sharon? It is 25% of her $80,000 salary. So now let's look at this. So remember, we just went through all this on the left hand side and let's kind of break it down. So her salary was $80,000, less what she put in her 401k, plus what Mark made. So that means their total W-2 boxes were $139,500. Okay. The other income was $45,000. Remember that's from her S-Corporation that flows through right here on line eight, $45,000. $45,000. So their total income was $184,500. Make sense? Got it. Okay. Then they got the standard deduction again. So $25,900. They also got the qualified business income. Remember that 20% of what you make as a profit and be taxed at zero. So in this case, they got $9,000 of QBI. Um, so their taxable income was $149,600. Make sense? Yes. Okay. Now here's the sizzle. I'm waiting. So we've got their tax. If you looked at that, it was $24,146. Remember they have children. So on line 19 up here, they got the child tax credit for $4,000. So their total tax then was $20,146. So basically made the same amount of money, but instead of $44,801, they paid $20,146. Hence being able to put that additional $20,000 in the retirement plan. Because it basically worked out to them being about the exact same scenario. Yeah. So if you go down their effective tax bracket and their marginal, remember we defined that. So their effective tax bracket went down from 24 to 22. And their marginal went down, I think it was 19 to 16. I said that backwards. Marginal was 22, effective was 16. Right. Just by changing her income from being W-2 to being 1099 and taking some business deductions, utilizing some things that she was able to do. We were able to save her pretty good amount in taxes. $20,000. Yes. Give or take. And she was able to stick that into her retirement plan. Okay. So now let's look at this scenario, Shane. Martha's kids get a little older and she decides, you know what? I'm going to go back to work full time. She now bumps up to $350,000. We decide we're going to pay her a salary of $130,000. Her business makes $112,500 in profit. We use the exact same business expenses, automobile, accounting, all these things. And they qualified for QBI. And in her solo 401k, remember she deferred $20,500. But because her salary is more now, 25% of $130,000 is $32,500. So she puts that into her retirement. So again, same thing over here. So now let's look at this tax return, Shane. Are you getting thrilled by this yet? I mean, you've got your glasses on, you're leaning in. I mean. That's because I've got to see this little writing. I'm sensing that you're getting joy out of this. Oh, absolutely. All right. So remember W-2, $189,500. That's her salary plus marks less what we deferred into the 401k. Okay. All right. Remember, the other income comes in down here. That is what the S corporation made. Remember, corporations don't pay tax, it flows through to your personal tax return. Yes. So their total income is the total of those two numbers 302,000. Okay. For the standard deduction here, same 25, nine qualified business income, because they made more money in the business, they get more $22,500 of that is now taxed at zero UBI UBI. If you don't know what that is, you can look back at the module. So now we get to the bottom line. $253,600 is their taxable income. Makes sense. Yes. Got it. So their total tax up here would have been 48 535 less the child tax credit brings them to 44 801. Okay. All right. So now their marginal tax rate, 24, their effective tax rate, 19. So let's combine everything. So in this scenario, Sharon, they made $300,000 W2. Both were W2. They paid 44 801 in tax, their marginal bracket, 24, their effective bracket, 19.14. Here, she went part-time. They made the same 300,000. Their total tax was 20,146 compared to 44 Their marginal bracket, 22 compared to 24, their effective 19 versus 16. So a difference of about $24,000 in taxes. Now we went from making 300,000 to 430. Martha working full-time 1099 and Martha still working W2. Their tax 44, 585, 535. Isn't that interesting? Yes, less than $130,000 more, Sharon. Mm-hmm. I see that. And their brackets was 24 and their effective was the exact same. While they were bringing in more money. Bringing in more money, saving more for retirement. Sharon, isn't this what everybody wants to do? Make more money and pay less taxes? Well, this is a lot of people's why. Well, this is a lot of people's part of why. I believe that why has to be functional. This is financial and rational. There is a reason, you know, money in itself does not do anything for you. It's what you do with that money. You know, I want to give more to my church. I want to help my kids go to college. I want to be able to retire and travel the world with my spouse. I want to buy Sharon a new convertible car because she's always wanted one. And I've always wanted to see her hair messed up in a convertible. Keep waiting. Now, if you bought me the convertible, maybe. But, you know, again, you know, a lot of CRNAs, this is not your thing. And, you know, most people have never seen it broken down like this. That is true. What it really is, and it goes back to what I said earlier, in scenario number one, you're a W-2 employee. There's not much any accountant is probably going to be able to do. Two and three, you're now a business owner, and there are things you can do as a business owner that can effectively lower your taxes legally. Okay. I don't look good in stripes. You don't look good in stripes or orange, you know. But these are things that I think people want to know about, but it's so confusing out there to get your hands wrapped around it. And hopefully we're bringing it together a little bit today. Works for me. Right. So now we're going to drop back and we're going to have another case study here with Michael. And Michael's a new grad, Sharon. He came to us. Notice the M. It's a good name. Yeah. How funny is that? You know, all M's. So money, money, money starts with an M. That's right. I didn't even think about that one. He came in and he's looking at opportunities. He was looking at an opportunity that was W-2 that was going to pay him 220 versus an opportunity of 350 doing 1099. And he wanted to know and understand the differences because he had just graduated. He has $200,000 in student loan debt. His objective is to get that paid off as soon as he possibly can. But he didn't understand the 1099 side. He didn't understand the business side. And we wanted to be able to break it down for him and paint a picture. So we're going to paint that picture for you today and show you what that looks like. He is single. He has no dependents and he wants to get that debt paid off ASAP. We see this all the time. Young grads, new grads, people that have been out 10 years, still have debt. I want to get it paid off ASAP. All right. Back to our 1040, Sharon. Put your glasses on so you can get up close because I know you're into this now. I am. Can't wait. He makes $220,000 W-2. Okay. Single guy. So here you see his 220. He doesn't feel like he can put anything in his retirement plan, Sharon, because he wants to put it all on his debt. Sure. I can see that. Yeah. He gets the standard deduction down here because he can't itemize. And remember, he's single, so it's only $12,950. So his taxable income is $207,050. Okay. Let's look at the second page. So the second page, 46,488 is what the tax is. We just look down the bracket and see what it is. He probably owed, look, it says another 180 on line 23. That's probably additional Medicare tax or something. So his total tax, $46,668. His marginal bracket, he's in 32% bracket. Remember that means for every dollar he adds over that up until the next bracket is taxed at 32. And his effective bracket is 2245. Okay. So being single hurt him, all W-2 hurt him, not having deductions out there to itemize hurt him. And he's paying a lot in taxes that way. But a lot of people are in this exact same boat. You need to understand it. Okay. So now let's compare. Now, instead of making 220 as a W-2, he's going to make 350 working full-time as a 1099. And we're going to pay him $100,000 salary. At the end of the day, he's going to have $175,000 in business profit. That is from the S-corp after everything's done and said, he's going to buy himself an automobile for work. And we're going to take a deduction for that. He's got additional expenses. And by the way, that automobile, he didn't pay for it. He financed it. So even though he financed it, we were still able to take a deduction for it. And he's going to qualify for QBI. And now because he's making 350 instead of 220, he said, you know what, Jeremy, I believe what you've been preaching to me now, that I need to get started as soon as I possibly can save it for retirement. And I need to pay myself first. And I feel like now making 350, I can do that. Okay. Now let's take a look. Remember I said we paid him $100,000 salary. Yes. Less the 20,500 he put in his 401k. So line one, $79,500. Got it. Remember down here on line eight, other income, that's the S-Corp, $175,000. So his total income comes in at $254,500. Got it. Less the standard $12,950. Because he's not married. Not married. Look at the QBI. Yeah, but somebody making that kind of money, he won't be single long. Look at the QBI share, $35,000 of QBI. Right. 20% of the... $175,000. $175,000. So you got $35,000. So he was able to take off of that income, $254,000, he took $47,000 off. So now his taxable income is $206,550. Okay. Here comes the sizzle. Here we come. Now he owed $46,328 in taxes. And he made $350K and put in his $401K. He put in his $401K. He bought an automobile through the company. Oh, that's right. He sure did. Good for him. The $25,000 additional expenses, he went to the A&A meeting, Sharon. He was able to write that all. Good for him. He should get all of them. He went to the NCAA meeting and he was able to write that off, Sharon. He had other business expenses in there. He had to buy himself a new computer because he needed to check his assignments in the morning. Sharon, he also had a home office because every morning before he gets up, not before he gets up, but when he gets up, he's drinking his coffee. He goes in his office and he checks his assignment. Yes. He was able to take advantage of a lot of things. Now, his marginal bracket is $32K. His effective is $22K. What was it before, Sharon? Well, it looks like it was the same, but for $220,000 versus $350,000. Right. So here, $220,000 versus $350,000. And actually less tax, a few hundred dollars. $340,000 and less taxes. Bracket is the same. His effective bracket is actually a little lower. He needs to get a wife. Well, now think about this because remember his goal, Sharon. Yes. Was to pay off his debt. Was to pay off his debt. So if we say the taxes are the same, he made $130,000 more, right? We put $20,500 in his retirement plan, right? Right. So that leaves him about $100,000 now to pay off his student loans. It's about a $100,000 difference between here and here. So effectively, he could pay them off in a couple of years doing this. Bingo. That's nice. Yeah, that's nice. So we looked at this and said, what's the most effective way for you to pay off your student loans? What's the most effective way for you to stay in a lower tax bracket? And in this case, in this scenario, everybody's scenario and case is going to be different. But we were able to get him $130,000 more. He was able to get an automobile that he so desperately needed to go back and forth to his local assignments. He was able to take some business expenses that he was going to go to anyway, Sharon. He was going to go to the A&A meeting. But in the W-2 scenario, it was a non-deductible expense. He was going to go to the NCAA meeting, but in the W-2, it was non-deductible. We made those deductible. He was able to get himself a new computer, do a lot of things, taking home office expense. And by the time we get it all done and said he made $130,000 more, we put $25,000 in business expenses. That takes us down to $105,000. Okay. And then we put $20,000 in his 401k. That takes us down to, what, $85,000. He's got $85,000 difference here to plot down those student loans. And over here, he wasn't living as a pauper, Sharon, making $220,000. He still has a lifestyle. He still was able to make really good money. And effectively for him, we're going to pay off those student loans in two years. In two years, Michael's going to be debt-free. He's going to be making $350,000 plus a year. And his effective tax bracket is going to be the same as though it was when he was making $220,000. Wow. It's a good deal. He won't be single for long. Again, I know this stuff is not easy to follow sometimes, but the summary kind of tells the story. That is true. That's the most important slide here. Yeah. And for people out there doing 1099 or transitioning or looking at it, I think these things matter. And if your goals and objectives, depending on what they are, what's your why, what's that emotional reason, not just to make more money, it's to make more money to do what? To do X. These things can really help you in making your decision. All right. I'm sure we'll have more tax stuff along the way. Oh, God, please. But everybody likes paying less tax and making more money. So, Jeremy, thank you.

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