1. What do you recommend as a “first step” when first tackling tax season? For both individuals with and without an accountant.
Take a deep breath. A lot of people panic at the thought of doing their taxes. But stress and fear are likely to lead to errors.
Next, get started as soon as possible. Don’t forget that you may need to file state tax returns in every state in which you worked this past year as well as your home state. State tax requirements vary, so the sooner you get a handle on this, the better.
2. How should nurses decide when to take a standardized vs itemized deduction? What sort of items could nurses deduct?
The best way to make this decision is to do the math. If a nurse can claim itemized deductions greater than their standard deduction, it makes sense to itemize.
Traveling nurses who are W-2 employees have many deduction possibilities, including:
Travel between your home and the work destination
Business use of a rental car or your personal vehicle at the work destination
Meals
Housing
Dry cleaning and laundry
A few things to keep in mind when it comes to deductions:
You can’t deduct expenses for which your employer reimburses you. A lot of travel nurses receive stipends that are nontaxed and meant to cover costs such as travel, meals and housing. When that is the case, the nurse can’t also deduct these purchases because they have already received the tax benefit of the stipend not being taxed.
In order to receive the tax benefit on travel stipends or tax deductions on expenses, a nurse has to have what the IRS calls a “tax home” that is different than their work location. It’s best to work with a tax advisor on this. Generally speaking, you need to visit your primary residence once every 12 months and pay expenses to maintain that residence, and you can’t travel to work at the same location for more than a year.
As always, expenses must be reasonable, necessary and documented.
3. If a nurse was lured in by a sign-on bonus this year, what should they expect this tax season? How can nurses know when a sign-on bonus is worth it?
Don’t let fear of taxes prevent you from accepting a job with a sign-on bonus.
From a tax standpoint, a sign-on bonus works like any other bonus an employee receives. The IRS considers bonuses supplemental income, which is subject to a higher withholding rate than regular income. A nurse who received a sign-on bonus likely saw a flat 22% of the bonus withheld from the paycheck in which the bonus was issued.
How this all shakes out come tax time depends on your total income, withholdings, deductions and any tax credits. Although the withholding rate is higher, a bonus is just part of your income and taxed as such. If you’ve overpaid taxes throughout the year, you’ll receive a tax refund. If you haven’t had enough withheld from your paychecks to cover the total due, you’ll owe.
A good tax advisor can help you plan ahead so you aren’t surprised come tax time. A great tax advisor will help you create a tax strategy to ensure you keep as much of your hard-earned money as possible.
4. Deciding to establish a relationship with an accountant is a personal decision, but what types of people typically would benefit the most from seeking help from an accountant? Anyone who wants to make more money and pay less taxes benefits from working with a high-quality CPA. You aren’t looking for someone to merely complete your tax return; a great CPA will be an advisor who helps you create a roadmap for building wealth.
5. Anything else you would add from personal experience or knowledge about W2 or travel nurses?
As soon as you have finished taking care of this year’s taxes, start planning for next year and beyond. That way, you can have a proactive tax strategy in connection with your financial and personal goals.
Here are a few steps to help you get started:
Clean up your bookkeeping and documentation. Keeping track of your expenses throughout the year is the best way to ensure you don’t miss deductions. Having everything organized, along with the proper receipts and documentation, also will reduce your stress come tax time.
Consider ways you can become someone the tax law favors. Being a W-2 employee, even as a traveling nurse, comes with limited tax benefits. The government offers even more incentives when you invest in things that help the government achieve its priorities, such as business and real estate. If you are interested in growing your wealth, spending time reading and learning about these investments is a great place to start.
Work with a pro. A CPA who uses a proven strategy for permanent tax reduction will help you and your family reach your financial dream faster than you thought possible.
Want to work with a CPA who can help you reduce your taxes and increase your wealth? Book a call with the team at TFW Advisors® today!