b&b 217: Tax Planning as an Act of Social Justice

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Pam and Dyalekt tackle taxes with Marci Blackman and Diana Greiner of Treehouse Taxes in Brooklyn, New York. The crew breaks the process down for every type of earner and explains why doing your taxes is an act of social justice in this annual tax episode.

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Pam: Hello everybody, we have a full studio today. We have Marci Blackman and Diana Greiner of treehouse taxes based in Brooklyn New York, thank you all so much for joining us.

Pam: So it’s our annual tax episode. As you guys know, being a freelancer, being a creative freelancer, being a person of color, being a creative freelancer of color, actually, these accountants cover all of that.

Dyalekt: If you are any one of those things, let alone multiples of those things, you know how difficult it is to get ahold of your taxes.

Pam: Yes! Sometimes to the point where you’re like, maybe I just won’t do them this year and we’ll probably talk.

Pam: One of the reasons why I’m super excited to have Marci and Diana on the show is because I had a conversation with them a year ago and one of the things that I remember distinctly Marci saying was that doing your taxes is an act of social justice.

Dyalekt: Having control over your finances is an act of social justice. It’s a thing where we feel like, ‘oh if we’re outside of the system then we can have control over ourselves’, but that’s not how things work anymore. It’s not the 1950s where you can go into the woods and be off the grid. Everywhere is the grid.

Pam: Knowing and understanding the system will allow you to not just participate it but to flourish in it and also to make the system work better for you and your community.

Pam: I want to know more about why accounting for both of you, why did you choose this profession and what really excites you about it?

Marci: I don’t know that I chose sort, it’s more like IT chose. Full disclosure, my tax returns for example look a lot like my clients. I am a novelist. I’m published. I worked freelance and done a bunch of stuff my whole life and you know, accounting and bookkeeping and all that stuff is stuff that I started doing to make a living and buy myself time to write and I was really good at it, so I kind of went down that road. And then I realized oh, I actually need to know this stuff for my writing business. I’ve been doing everything wrong. I haven’t been taking expenses. I haven’t been doing these things. I became really sort of a nerd in geek about it. So that that is in what happened for me, it was sort of like this kind of, you know, circuitous route to it and then realizing that I liked it and I liked nerding out on all the laws and tax rules and things like that and learning how the really rich people do things and going, hmmm wait, we can do that too. Because those laws are laws. So, they don’t just apply to them, we just don’t know about them. So, we can actually learn about them and then we can pass those on to our people, right? And now we all know those laws and we can all use those same rules and stuff that weren’t necessarily made with us in mind, but we can actually take advantage of them.

Diana: Similarly, just sort of stumbled into it because of needing to understand my own situation. I have worn a lot of different hats over the years. I was a performing artist for many years, and I was a Massage Therapist where I had my own business doing that. I ran an arts organization, doing the books for the arts organizations. So, it’s just been all these different areas. Marci actually dragged me kicking and screaming into the tax preparation world. She kept saying hey, you know, I think you’d be really good at this and I would say, no, thanks. I really am not interested in taxes. And ultimately, I found that I did enjoy it and it fills a lot of different things for me because you know when people come to do their taxes, no matter how much money they made or how little money they made, people come in with anxiety and, believe it or not, a lot of shame. They feel like I should know this already but nobody teaches us.  So there’s this sort of caretaker that part of me that gets to step in and help people, calm people down. There’s an educator in me who gets to help explain things to people. Help them just develop their understanding of their own situation. Make their careers and professions as artists and whatever they’re doing,  make smart decisions based on information. Then there’s also a performer side it turns out because I have to make explaining self-employment tax for the thousandth time seem fresh.

Diana: So it’s turned out to be sort of a performance, or maybe it is better to say it as an improv in that you don’t know what’s coming, what the person is going to say, and as soon as I get caught flat-footed thinking I know what the person is going to say they say something else and I have to be ready to respond to that and respond to that query or respond to that anxiety. It’s turns out to be way more engaging than I thought it would be.

Marci: The whole country files its tax return, in this two-and-a-half-month period. And so,it is like this big ramp up. The government ramps up, they shut down their systems that are open year-round like a good six to eight weeks before so they can get ready for the new season. It’s like the show, and the clients come in and they are a part of it and it’s sort of like our way of dealing with it and one of the reasons why Diana is really good at it is because D is a performer naturally.

Pam: It’s so interesting because I feel the same way about financial planning and personal finance in general, there’s nothing dry about it. There’s so much emotion, there’s so much embarrassment and shame around everything that has to do with personal finance, taxes included, and I think really being able to be with the client requires you to not just be a performer but to also be able to know how to empathize, know how to change what they need to say to a client to make them understand and to make them feel comfortable. The fact that you think about that as part of your tax work is something that you don’t find in many accountants, so that is amazing.

Pam: I’m curious too because I just have so many clients and so many friends who have terrible, literal horror stories about working with accounts, so I’m curious what are the first things that someone should ask when they start looking for an accountant and when they start interviewing accountants.

Marci: Well, I think that that it really depends on what it is you’re needing. Are you needing somebody to help you prepare your taxes, are you needing somebody to help you set up your books so that you understand the finances of what you’re doing? Are you needing somebody to help you decide what sort of business entity? Do you need help figuring out how to do 1099s? Identifying what it is you need is key. There are people in all levels of experience that can help people. Sometimes when people talk about an accountant, they are thinking at the high-level Accountant with a capital A, who many of the people we know and are talking about probably wouldn’t be able to afford their services. And those type of accountants aren’t interested in dealing people like us.

Diana: So, I think a lot of times people will go to somebody who their parents have gone to, or an employer has used, or somebody who they think knows it all, but there are other options out there. I think that being if you get the sense that that person is not respecting you as a person, or as a performer, as an artist, if they try to tell you that what you’re doing is just a hobby or, you know all the things that feel disrespectful. Do not waste your time. There are people out there who can help you and respect the work that you’re doing. There are a lot of people who go in and are treated horribly and disrespected and nobody needs that.

Marci: The other thing to think about is you know, as much as we talk about it as being a form of social justice, as much as we talk about it as is being this performance and about being there to educate and empower our clients, that’s not really the way most folks in this business do things. We should be real about that. Most people do this because you know, they want to make some money and they don’t want to work year-round. So let’s just put it out there freelance taxes, whether you’re an artist or you have a small business or whatever is, are not the easiest taxes to do. You know, they’re not overly complicated. It’s basically business expenses or business tax returns depending on what kind of entity you have. But, often a particularly in a place like New York ,where people are on the hustle and they’re trying to make it and they got two or three businesses and they got two or three, that they’re doing and the big, big capital A folks don’t really want to deal with it because they can’t charge them $2,500 for their tax return because they don’t have that kind of money. But they still need to have help doing their taxes. So the one of the things I would add to everything that Diana said about things to look for is and just emphasize yeah, you know, you need to take yourself seriously as a business person, or an artist or whatever your gig is. When you are looking for someone you want to make sure that they recognize that you know, if you’re an actor and you’ve been on a hundred auditions this year and you haven’t you haven’t gotten a gig but you take acting classes and you pay for headshots and you take voice lessons and you do all the things to be ready to jump into that role when luck strikes, you are in the business of acting. You get to take those expenses as business expenses, because you are pursuing a career in acting. It is not a hobby.

Marci: And so, when you talk to somebody if they’re just immediately like ‘how much money did you make?’ and you know, if it’s under $100,000 then they’re like, ‘yeah, you can’t take any of those expenses’, they’re not the person for you. Yeah, I would say keep looking.

Diana: Absolutely and when people come in especially when they’re in for the first time, they will come in and speak sort of in hush tones with their shoulders up saying ‘I just I need to figure out if that are any write offs I can do’ and it’s almost like they’re trying to get away with something. Okay, let’s talk about this like first of all sit up shoulders back take a deep breath you are in business for yourself. That’s the way the IRS sees you and a business has business expenses. So, we’re not talking about write offs, we’re not talking about deductions. I encourage my clients to think about it as business expenses and to really consider everything that they do that can further this business of theirs, whether it is as an actor or a musician or you know, as a doula or as when we have people in so many different realms that’s one of the fun parts of what we do is we’ll get to hear how people make their money and how many hustles they have going through at the same time, but that business expense piece is really important and during the course of their tax appointment we see people like sort of brighten and sit taller and they’re like yeah, I’m a goddamn artist.

Pam: Business expense makes it feel like oh I am someone who is running a business and I think that is the biggest mental shift for a lot of artists and creatives is your work feels like you and it feels like it’s such a part of you that it’s hard to think about it as something that also can feed you literally and physically right and can actually make you money. So to think about it as a business and to call these tax deductions, business expenses just mentally shifts people’s mindsets I think.

Marci: It’s really true, you know, and one of the things we tell our clients and we have to remind even our returning clients but definitely our new clients, is we want you to go out and pursue your gigs and enjoy your life. We want you to shift your mindset just five degrees every single time you reach for your wallet or you go to hit pay online and just ask yourself want to take five seconds and ask one question can this be a business expense?

Pam: So I want to dive into the weeds. We talked about business expenses deductions right off whatever y’all are calling it now out there. We want to start calling them business expenses. I love that so much but what can a freelancer write off of they’re probably not thinking about?

Diana: Well, whatever you ask a tax preparer, the answer is going to start with, it depends.

Marci: It really depends on what your gig is and the narrative that you’re writing. My write-offs or business expenses for a consultant might not be the same business expenses for a dancer, you know, so those are the kinds of things where we start.

Marci: Like if you have an exclusive space at home that you work in that you work from doesn’t have to be a separate room with a door but it needs to be a designated workspace that you that lives 24/7 as that workspace. Then you could deduct a home office, right, because you’re running your business from your home and that section of your business you’re using for business. If you’re a writer it could be a desk and your desk area and your bookshelves and that kind of thing. If you’re a musician and you have a room or space where you have like your kit setup and you have your keyboard set up or your studio in a corner of your living room and it lives that way 24/7 so that piece of space that your business is occupying becomes a business expense for you.

Diana: Real quick about the home office, we encourage our clients once they have you know their home office to take a photograph and then just keep that digital file in your tax file because if you move and then next year, you’re audited you have no proof that it was actually set up as a home office but they like photographs you can pull out a photograph and say see this was you know, five by eight feet this was my home office.

Marci: The thing about the home office deduction that we also get this question a lot is Well I only worked there you know I didn’t work there very much, you know, but it’s not a deduction of time spent in the home office so much yeah.

Diana: It depends sometimes they’ll say it’s supposed to be the primary place of work but if it’s that you do different kinds of work in the two different spaces, then there could be the argument that there is no place to do the other work in the recording studio, you need to have the other space to the clerical or whatever other kind of work, so it has to be in a separate space.  

Diana: What Marci pointed out said a few different times of the exclusive use, it’s set up 24 hours a day as that space, so if it’s a space that actually is your dining room table even if you spend 40 hours a week as the dining room table it doesn’t count because it is actually your dining room table. So it has to be set up exclusively. That’s the key.

Dyalekt: Artists, as much creative energy as we have it’s finite and it runs out please don’t waste your time creating a narrative about your art. Put all your energy into your art and then let the narrative flow from that.

Diana: That’s so well said I’m so glad you said it like that because you know people come in and they are so focused on the one day when we’re doing their taxes and whether or not and they’re like damn it, I should’ve spent more money and it’s like no, if you didn’t need it, you didn’t buy it.  But we do encourage people like if you need the new thing buy the thing but don’t buy stuff simply to have a “write off”.

Diana: This is a little bit of a reality check, it’s gonna take about $1000 of expenses to move the tax liability by about $300.

Diana: When you’re a freelancer and you’re getting paid with 1099 and you’re getting paid with checks and cash and some people send you a 1099, some people don’t. You are responsible for declaring your income from all sources worldwide. Some people are like oh but you know, I did this consulting job for somebody in London, but you’re a US taxpayer, you’re still supposed to claim that income. So if you are freelance and you’re going to be filing what’s called a schedule C. You have all of your income then you have all of your business expenses, what’s left after you subtract the business expenses is your profit and it’s the profit that’s used to determine your taxes. The first tax that’s calculated is the self-employment tax, which is actually a bit of a misnomer because it’s really social security and Medicare.

Diana: The social security and Medicare those are the social programs that you’re paying into they’re, contributions toward your future self, that’s what it will allow you to claim Social Security Medicare later If you don’t pay into it, if you never pay any social self-employment tax, you won’t qualify. I think it’s ten quarters of paying into Social Security to be eligible for Social Security.

Marci: If you’ve ever had a W-2 job or one in which you have an employer who takes out taxes or you have one in addition to your freelance income you are actually paying that tax from your paychecks, you just don’t notice it because you just don’t see it and your employer covers half of what your total contribution to your future self would be. So when you are freelancing, or when you have freelance income and freelance profit of $400 or more, then you have to start paying the entire contribution of Social Security and Medicare on whatever your profit is.

Diana: It’s not as cut and dry as that because you know, our tax code is not straightforward it’s a little convoluted because you actually then you get to deduct the employer portion of that self-employment tax from gross income so that your income tax are reduced.

Marci: So when Diana says, gross incomes she’s not meaning your profit necessarily on your freelance income because you might have other income on your tax return. You might have other income that increases what we call your adjusted gross income right and so that’s where that deduction comes in. It reduces your income your taxable income not your profit, so it doesn’t cut your self-employment tax. So you’re paying when you’re freelancer to types of taxes on your return.

Diana: Which you are as a W2 employee as well, you just don’t know see it. So there could be W2 income, the profit from your independent contractor income, interest dividends, unemployment, all of the different incomes are added together for your gross income. Then you have the deductions so those things are then deducted from that gross income and that’s what gives you your AGI the adjusted gross income. But you then you either have itemized or standard deduction and this is the other piece where freelancers get confused.

Marci: You are two different people filing that return if you’re freelancer, even if you don’t have a W2 gig and all you have is all freelance income you’re still two people filing a tax return. On one side you are business Pam and on the other side you are personal Pam and when personal Pam goes to work you’re three people. So when personal Pam goes to work she works for an employer and she has taxes withheld from her paycheck. Personal Pam whether she whether or not she works at all gets to take the standard deduction, that’s for everyone. Then business Pamela takes business expenses, so you get to do both; it’s not one or the other.

Pam: I feel like there’s a lot of empowering stuff here when it comes to taxes and taxes are things that people literally shrink. I want to end with one final question, how can we make tax time as easy as possible for both ourselves and for you as the accountant?

Diana: Whether you come to us or you go to somebody else all of us have a system. We have a system and we ask you to participate and to collaborate with us using our system. You understand what you created on your spreadsheet and we ask you to use our system and then we’re going to work with you and we’re going to help you get the best tax picture possible. t’s not a arrive and dump, we are not interested in doing. We want to have relationships with our clients, we want to collaborate with you and help you help yourself and you help us help you.

Diana: When you sign up for an appointment with us, we have a series of communications that we have with you to walk you through it. There’s your intake form, we’re going to need this at least 48 hours before your appointment because if we get all of your information ahead of time, we prepare your return and then by the time you come in for your appointment, we’re going to review your return with you, we’re going to answer any questions you may have and assuming we got all the information we need from you ahead of time, we’re going to be able to complete the whole process at the end of your appointment. You’re going to sign your return and we’ll e-file and then it’s done.

Marci: That’s how we work alright, there aren’t a lot of folks who worked that way. We get people a lot who say, you know, well my old accountant just let me send things to them in the mail, and they switched, they left that accountant for some reason. So our whole goal is to help you get the best result possible that you can for this year and then also we use that appointment time to talk about the year ahead and what it looks like for you and how you can improve the picture for next year.

Diana: Do not round up to the nearest hundred dollars, oh fifty dollars don’t just tell us oh it was two hundred this five hundred that fifty dollars that because that tells us if you pulled it out of your other end. We will round to the nearest dollar, but we find that people either way overestimate or they way under estimate.

Diana: Something that a lot of people do that is a personal pet peeve of mine, is that they use Excel or Google sheets as an electronic piece of paper. Which just means they’re just writing shit on there and if they’re not using any formulas, they don’t understand what a formula is. So learning how to use those things and let them be tools.

Pam: Ultimately what it sounds like, especially if you’re starting a new relationship with an accountant, they’re most likely gonna have a system. Honestly, it sounds like if they don’t have a system you might have a messy time with them because that is my experience with past accountants who didn’t have a system and if they’re let if you’re old account for instance let you send whatever my guess is maybe you got audited, maybe you got a tax bill expectedly, maybe they didn’t calculate your refund correctly whatever it is. So, when an accountant does have a system it’s a good sign. It means that they are actually looking through and having a process for how they take care of hundreds and sometimes even thousands of different tax returns. The first time you go to an accountant is gonna be the hardest time. I think that’s important to know too, is when you switch accounts it’s gonna be annoying you’re gonna have to give them all of that information again. I want you to keep that in mind too because really you’re switching accountants you know like Marci and I said for a reason right, it wasn’t working before.

Pam: I think that’s what’s really awesome about a good accountant. They are going to take care of your past and what happened last year, but they’re really gonna work with you and collaborate with you to have a really good tax future.

Pam: Where can we find y’all for tax season because it is here.

Marc: www.treehousetaxes.xyz. If you have questions you can reach out to info@treehousetaxes.xyz,  otherwise if you want to schedule an appointment with either one of us, we should say that we work as a team just like we’re sitting here as a team. Even if you sign up with Diana or you sign up with me, you’re gonna get us both. So you’re getting two great minds on every return, which is, you know, the best for you. If you’re ready to make an appointment you can just go to our website and click on the Make an Appointment button on any page.

Marci: I have two novels published and you can find them pretty much anywhere Amazon, any bookstore, they’re pretty much there. And I do have a website, it’s MarciBlackmon.com. It’s a little outdated but it’s got all the pertinent information that you need. I also veered a little bit left of my fiction writing for one non-fiction book, which is bicycle guide to New York City, Bike NYC the Cyclist Guide to New York City.

Dyalekt: We will check y’all next time. Brunch and Budget. Thanks y’all, peace