Tax time means pulling together financial documents — and for many of us, perhaps, wishing our papers were in better order. Now new tax rules and the first phases of the Affordable Care Act may mean changes to what we can deduct and which receipts we’ll need to save. We look at what’s changed, and simple tips for keeping finances organized throughout the year.

Guests

  • Kacy Paide Professional office organizer; owner of The Inspired Office
  • Kevin McCormally Editorial Director, "Kiplinger's Personal Finance Magazine"

Transcript

  • 13:06:41

    MR. KOJO NNAMDIFrom WAMU 88.5 at American University in Washington welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. Many Americans recently filed their taxes for 2012 or will do so shortly and for some it was doubly painful.

  • 13:07:09

    MR. KOJO NNAMDINot just because the refund they hoped for might not materialize, but just the process of finding the documents needed can be a time-consuming hassle. Tax time can be painful for the less-than-organized. Those elusive receipts for expenses, those 1099s for miscellaneous income and where is that document the bank sent about interest paid on a loan?

  • 13:07:36

    MR. KOJO NNAMDIThe good news is you don't have to be obsessively organized to get your financial house in order. A few simple steps to put a good system in place can make tax time next year a lot smoother.

  • 13:07:50

    MR. KOJO NNAMDIJoining us to discuss this is Kevin McCormally. He is the editorial director of Kiplinger's Personal Finance Magazine. Kevin, good to see you again.

  • 13:07:58

    MR. KEVIN MCCORMALLYThank you, Kojo, happy to be here.

  • 13:08:00

    NNAMDIAlso in studio with us is Kacy Paide. She is a professional office organizer and owner of The Inspired Office. Kacy Paide, thank you for joining us.

  • 13:08:09

    MS. KACY PAIDEThank you, good to be here.

  • 13:08:09

    NNAMDIIf you have questions or comments, you can call us at 800-433-8850. You can send email to kojo@wamu.org. Send us a tweet @kojoshow or simply go to our website with your tax question or comment at kojoshow.org

  • 13:08:27

    NNAMDIKevin, plenty of people have already filed their taxes this year and they may want to put it all out of their minds until next year, but this is, in fact, the time to be thinking about taxes for next year.

  • 13:08:42

    MCCORMALLYOh, absolutely. And two things, Kojo, one is from an organizational point of view. I think if you remember all the pain you just suffered, you know what you're going to need next year so set up some sort of system to have it. And two, of course, is what you do during the rest of 2013, that's going to determine how much money you owe for this time next year with your tax returns.

  • 13:09:03

    MCCORMALLYSo this is the time to think about taxes. I don't want people to obsess about taxes, but they do need to think about taxes. You know, if they're looking for a job, they need to keep their receipts. If they move to take a new job, they need to keep the receipts.

  • 13:09:16

    MCCORMALLYIf they regularly do charitable work and have out-of-pocket expenses, they need to keep records of this. And I don't care if it's on paper or digitally, but just think about that.

  • 13:09:26

    MCCORMALLYAnd the big area, of course, comes to their investments. They have to keep track of their investments. If they buy something this year, stocks, bonds, mutual funds, it's up to them to keep track of how much they pay for it and that's going to determine how much tax they owe when they ultimately sell it.

  • 13:09:40

    NNAMDIAnd this is the time of year when people are going a lot like, oh, where did I put this and oh, if I could only find this. You say, remember the pain, the pain and get organized.

  • 13:09:53

    MCCORMALLYWell, absolutely, I mean, if you lost some 1099s and you had to go back to the person who paid you to ask for them, you know, that ought to tip you off that you need a file system for 2013. And, you know, it’s not hard to keep track of this paper if you put it in the same place, in the tax file.

  • 13:10:08

    NNAMDIKacy, what kinds of calls do you get at this time of the year? Are people still in a state of disorganization?

  • 13:10:14

    PAIDEAbsolutely, and it spans the entire spectrum. Sometimes I work with people where I walk into their office, home office, and I think I don't know how we're going to fill the time. They look -- they seem to be wonderfully organized, but behind the scenes, for whatever reason, they can't remember where they put anything.

  • 13:10:29

    PAIDEAnd then on the other end of the spectrum, we have, you know, the people with 20, 30 maybe only five or ten years of paper, but you can't see the floor. You can't see the desk and taxes are only one of many, many problems they have that stem from this office clutter. But the whole point is to get people to a place where they can find what they need when they need it and this time of year - it's absolutely the most important time of year to make that a priority.

  • 13:10:57

    NNAMDIAnd it's not just about making tax day a little easier. Kevin, you may actually save some money in the process.

  • 13:11:04

    MCCORMALLYOh, absolutely because it's those lost receipts that cost you money because you forget the deduction. You know, and you need to know a little bit about how the tax law works. You know, many years ago, the head of the IRS told me that he thought that millions of taxpayers overpaid their taxes every year because they didn't keep track of the basis of their mutual fund investments.

  • 13:11:23

    MCCORMALLYThese are people who, you know, you get a statement from your mutual fund every year that shows, you know, not only what the fund is worth, but how much in dividends you reinvested during the year. If you reinvested those in more shares, your tax basis, which is your investment of the fund, it's going to determine gain or loss when you sell, goes up.

  • 13:11:41

    MCCORMALLYAnd the head of the IRS said he knows a lot of people, they pay taxes on their dividends when they receive them like you have to because the mutual fund sends the IRS a 1099 so you have to report them. But you don't incorporate that into your basis. You're going to pay tax on those same dividends again when you sell the funds. So that's where the organization comes in. You have to keep track of this stuff.

  • 13:12:00

    NNAMDIIn case you're just joining us, Kevin McCormally is the editorial director of Kiplinger's Personal Finance Magazine. He joins us in studio along with Kacy Paide, professional office organizer and owner of The Inspired Office.

  • 13:12:11

    NNAMDIWe're taking your calls at 800-433-8850 or you can send us a tweet @kojoshow. Kacy, you say there's no one size fits all solution to organizing financial documents so where do you begin advising someone about how to organize their tax information?

  • 13:12:30

    PAIDESure. Well, it's very important to have a system that feels natural to you. So the way I organize my own personal papers and receipts may look very different than the way Kevin does or you do. So it's important to know how averse you are to a filing system. You have to be honest with yourself.

  • 13:12:50

    PAIDEIf you hate filing, if you hate manila files, you don't have to force yourself to use those. I've had many clients who say, Kacy, you know what? I'm a tosser. I'm a thrower. I just need a place to throw the junk when it comes into my office. I'm going to empty my wallet on the dining table no matter what you advise.

  • 13:13:07

    PAIDESo for folks like that, I don't really force them into a box. So I can have somebody -- for example, I keep my own receipts on my dining room credenza because that's where they enter my home, that's the landing pad. And I've had clients who, like I said, are averse to using anything resembling a file folder so for them we use more of a 3D system.

  • 13:13:28

    PAIDEIt's more important that the receipts land in one and only one place than they look like a perfect, pretty filing system. So there are lovely, you know, flat letterboxes that you can buy in any Staples or container store that I like.

  • 13:13:45

    PAIDEI've had clients repurpose really beautiful, antique boxes in their home that they use for receipts. Some people, believe it or not, can't even use a box if it has a lid so if they're truly a tosser, I say, you know what, get rid of the lid and just have this box with big letters, receipts waiting for you when you walk through the door.

  • 13:14:09

    PAIDEIt can be in your kitchen. It can be in your dining room. It can be on your desk and then, you know, for people who are a little more comfortable using filing, it's as simple as perhaps just having two folders in the very front of your filing system, perhaps one that just says Receipts 2013 or maybe one that says IRS Forms 2013 so that when something comes to you, be it through the mail or your briefcase, when you get home, there's no question as to where it goes.

  • 13:14:31

    PAIDEIt doesn't have to be complicated. You don't have to split hairs, just designate one and only one place for these things to land.

  • 13:14:39

    NNAMDIHow about if you do have a simple system where you just have two folders, one that says Deductible Receipts 2013 and another one that says Personal Receipts 2013? Does that help?

  • 13:14:53

    PAIDEAbsolutely. And if you have those two receipts, you are so ahead of many of the people I hear from this time of year.

  • 13:15:00

    MCCORMALLYMy (unintelligible) says make sure you err on the side of caution. If you're not sure if it's deductible or not, put it in the deductible folder until you find out.

  • 13:15:08

    NNAMDIOn to the telephones, we'll start with Ella who is calling from Brooklyn, N.Y. Ella, you're on the air. Go ahead, please.

  • 13:15:14

    ELLAHi, how are you?

  • 13:15:16

    NNAMDII'm doing well.

  • 13:15:18

    ELLAMy question is I'm married and we have a child who is in a commercial and she has an agency that she, I guess, works for. Now she got a W2 from the agency and she's only 14 months old. What do I do? Do I include her on my taxes? Do it separately? I'm not sure what to do in this case.

  • 13:15:43

    NNAMDIKevin?

  • 13:15:43

    MCCORMALLYShe's her own taxpayer. First of all, congratulations.

  • 13:15:46

    ELLAThank you.

  • 13:15:47

    MCCORMALLYThat sounds great. Yeah, you need to file a tax return for her and it should be simple. I mean, you can use a 1040 EZ form probably and, I mean, just fill it out in a few lines. It will be easy to do. The fact that you're in Brooklyn means, of course, she'll also get to pay both New York State and New York City taxes, congratulations on that, too.

  • 13:16:06

    ELLAYeah, thanks.

  • 13:16:06

    MCCORMALLYBut most importantly this gives me an opportunity to pitch one of the things that is my favorite of all tax advice, is you should open an IRA for your child with some of that money because if you invest -- I don't know how much she made, but the limit is $5,000 for 2012.

  • 13:16:22

    MCCORMALLYBut if you put $5,000 in an IRA for the child, now put it in a Roth IRA because she won't need the deduction. It's going to be worth a frigging fortune when she's 65 and needs it. The long-term tax compounding is fabulous and nothing is better than an infant actor to have security in retirement.

  • 13:16:42

    ELLAOkay, thanks.

  • 13:16:42

    NNAMDIThank you very much for your call. Good luck to you and to your child. Here now is Morainee in Washington, D.C. Morainee, you're on the air. Go ahead, please.

  • 13:16:54

    MORAINEEHi, my ex-husband had a fairly low income, however we did assign a custodian for my son's account since he was a year. He's 16 now, but since he was a year old. My ex-husband and I have deposited $25 each into his account. Do I need to file? What is the tax effect on that? We've never pulled any money out. It has earned interest over the years. What's the tax effect on that? Do I have to file that?

  • 13:17:28

    MORAINEEAnd would that be the same for my IRA when I get my paycheck? I deposit $100 per paycheck in the IRA, but I've never pulled out any of the dividends that I've earned. What's the tax effect on that?

  • 13:17:39

    MCCORMALLYLet's deal with the child first. A custodial account like that, any earnings in the account need to be reported by the child on a tax return for him or her if it's sufficient enough to trigger a requirement for a return, which is several hundred dollars because if a child is a dependent.

  • 13:17:58

    MCCORMALLYNow there's something called the kiddy tax, which means that if it's more than $1900 -- I think it's $1800 or $1900 for 2012, you'll actually have to pay tax on the child's income at your tax rate. I mean, the child will have to pay it. You don't have to pay it. But the child needs to file a return.

  • 13:18:11

    MCCORMALLYAs for your IRA, as long as you don't take any money out, there's no tax ramification. But you should be deducting those contributions unless it's a Roth IRA in which they're not deductible. But there's no consequence for earnings inside of that tax shelter.

  • 13:18:27

    MORAINEEOkay, thank you.

  • 13:18:28

    NNAMDIMorainee, does that answer your question? Thank you very much for your call. You too can call us at 800-433-8850. You can send email to kojo@wamu.org or send us a tweet @kojoshow. I wanted to get back to the business of organization for a second here, Kacy because you say that your receipts are always in one of four places, your wallet, 2013 Business Receipts to Scan File because you are a small business person, 2013 Scanned Business Receipts File and four, the trash. What do you throw into the trash?

  • 13:18:59

    PAIDEWell, I tend to throw almost any personal receipts into the trash and I know a lot of people are uncomfortable with that. I've worked with a lot of people who feel it's every bit as important to organize their personal receipts as their business or deductible receipts and that's perfectly okay as long as, again, you're able to find what you need when you need it.

  • 13:19:20

    PAIDEAnd on holding on to things for too long, you run the risk when keeping too many personal receipts of perhaps in 2018 finding a 2007 wadded, faded Starbucks receipt because you put that decision off for however many years.

  • 13:19:38

    NNAMDIYeah you get a receipt for virtually everything you purchase these days, especially if you happen to purchase it with a credit or debit card whether you're buying gas or buying. Do you keep all of those receipts, Kevin?

  • 13:19:49

    MCCORMALLYOh absolutely not. I'm with Kacy. I throw that stuff away. You know, at this time of the year, we get a lot of questions at Kiplinger about when can I throw away my tax stuff? And you know, the IRS has three years to audit you in most cases so that means a 2009 return filed in 2010, two weeks from now you can toss most of that supporting information for that tax return. Personally I always like to keep the returns myself just as sort of a personal history of my earnings. That paper -- either on paper or scan it. But as far as supporting documentation, you can toss it. And you probably should because otherwise it's just going to confuse you, I think.

  • 13:20:24

    NNAMDII usually hang on to mine for like ten years. Who knows why?

  • 13:20:27

    MCCORMALLYWell, they do have ten years if you commit fraud, Kojo. So you've got to be careful. There's no limit if fraud is involved.

  • 13:20:32

    NNAMDIPlease do not mention my intentions on this broadcast. We're going to take a short break but you can still call us at 800-433-8850. Tax time organizing is our topic. You can also send email to kojo@wamu.org. I'm Kojo Nnamdi.

  • 13:22:27

    NNAMDIIt's a conversation on tax time organizing with Kacy Paide. She's a professional officer organizer and owner of The Inspired Office. And Kevin McCormally is the editorial director of Kiplinger's personal finance magazine. And you can call us at 800-433-8850. Did you already file your taxes for 2012? What was your experience like? Do you have a good system for organizing tax documents and receipts and expenses? How do you do it? You can also send us a Tweet at kojoshow. Here is Rodney in Leesburg, Va. Rodney, you're on the air. Go ahead, please.

  • 13:23:04

    RODNEYHi, Kojo. Great show. Just a quick question on sales tax, on groceries and large-ticket items like automobiles. Amortization scares the heck out of a lot of us and also the gas tax. Is it worth it for us to save our gasoline receipts and all our grocery receipts and taking the tax somewhere on that crazy Schedule A, get a deduction for the tax that we pay?

  • 13:23:28

    PAIDEKacy Paide doesn't find that to be too valuable, is it?

  • 13:23:32

    PAIDEUm...

  • 13:23:34

    MCCORMALLYWell, the issue with sales taxes though -- remember in 1986 they pretty much eliminated the deduction for sales taxes. So we can throw away all the receipts. And a few years ago they brought the sales tax deduction back. But if you live in Virginia, unless you're spending an awful lot of money that's on purchase that are taxes, it's not a good idea because you have to choose between deducting sales taxes or deducting income taxes. And the vast majority of us in this metropolitan area pay a lot more income taxes. So you don't -- again, you just don't need those receipts.

  • 13:24:05

    RODNEYOkay, thank you.

  • 13:24:05

    NNAMDIWhat do you say to that? Rodney, thank you very much for your call. Kevin, you advise people to think about the tax ramifications of things that we do throughout the year. You mentioned mutual funds and stocks earlier. It's not just stocks we should think about. Whether our regular transactions have tax implications like if you donate throughout the year to a soup kitchen or a charity.

  • 13:24:26

    MCCORMALLYRight. Generally I know people who make casseroles for our church every month. And, you know, it's -- you might think it's nickel and dime stuff, you know, to note that that cost you 25, $30. But I always like to say, you know, that nickel and dime stuff gives you more money that you can give to the needy so it's worth it. There's so many things -- and again this is the time to think about it. You've looked through all the receipts to do your return or your tax preparer has asked you about receipts that you haven't been able to come up with.

  • 13:24:50

    MCCORMALLYI mean, that's the -- you know, don't obsess about taxes but you know that the government watches almost everything that has to do with money. And it's either deductible or it's not. And the more you can educate yourself as to what might save you money, the more money you're going to save.

  • 13:25:03

    NNAMDIAnd Kacy, we've been talking mostly here about paper receipts like Rodney was asking about. But a lot of people do a lot of their spending today in the virtual world. How should people keep track of digital receipts?

  • 13:25:16

    PAIDEVery good question and a very big question. So there are a lot of ways to answer that. Personally what I do is something that I've seen work well for many other business owners or just pretty much anybody. You don't necessarily have to be a business owner but electronic receipts of course come to all of us through our email. So a very simple email file I have just says receipts for bookkeeper.

  • 13:25:43

    PAIDEAnd as the receipt comes into my inbox I just drag it there. And ideally once a month I would save it as a PDF to Drop Box where my bookkeeper goes to pick it up. Honestly, truly I probably don't transfer that more than every two to three months, but I know they're there. And I know if I have ten minutes to set aside to manage the electronic receipts that have come to me I certainly can do that. Because not only do I have one place for my hard copy receipts but I have one place in the cloud for my electronic receipts.

  • 13:26:15

    NNAMDIKevin -- and you never actually print them out, do you?

  • 13:26:18

    PAIDENo. No, never.

  • 13:26:20

    NNAMDIKevin we're advising that people make sure to keep track of receipts that could mean a deduction. But on the other hand, the internet has also made some of that easier.

  • 13:26:28

    MCCORMALLYOh, it really has. You know, like my son was working on his taxes on Sunday and he needed an identification number for his daycare provider. And he didn't have it but within a second he has to Google and it came up and he had the number. And this is true -- I think if people are good with Google and other search engines and going to the internet, you can find so much information so quickly. And it's also going to help you with the tax rules.

  • 13:26:53

    MCCORMALLYI mean, the IRS website is fantastic. You know, Kiplinger's website is full of tax information about how to do things, and not just hours but other, you know, magazines -- business magazines. There's so much information out there to help people. But it's just the ability -- you know, in the old days if you'd lost a cancelled check you were up a creek. Now you can -- you probably have digital copies of it that come with your statement that you can save throughout the year, or you go to your bank website, online banking and find the receipts that you need to prove that you deserve a deduction. So it has really simplified our lives I think.

  • 13:27:26

    NNAMDIRodney, thank you for your call. Kacy, on the other hand if you do not have the receipt that you filed you may forget about the expense entirely.

  • 13:27:34

    PAIDEExactly. So receipts literally are worth money. And I think it's every bit as important to maintain order of the receipts that are $10 and less as it is to maintain order of the major deductions we have that are many, many thousands of dollars. Because it adds up and it just lends to a sense of peace of mind throughout the year knowing that you're in control of not just the large but the small expenses makes this time of year just a lot simpler.

  • 13:28:00

    NNAMDIHere's Ted in Washington, D.C. Ted, you're on the air. Go ahead, please.

  • 13:28:06

    TEDYeah, someone mentioned to me that if you have -- which I have -- long term health care insurance, the premiums I pay on that insurance, are they tax deductible?

  • 13:28:20

    MCCORMALLYThe rule on that is if you're self-employed they can be deducted on the face of the 1040. If you are an employee or if you're not self-employed, if you don't have your own business it's considered a medical expense. And medical expenses are only deductible to the extent that they exceed 7.5 percent of your adjusted gross income. That's the rule for 2012. It's now 10 percent for 2013.

  • 13:28:41

    MCCORMALLYBut it's also -- there's a limit on how much long term care insurance premiums can be deductible. And that depends on your age. And the IRS has a table that shows between certain age brackets you can only deduct up to so much. But if you can deduct medical expenses because you're over that 7.5 percent rule or you're self-employed, be sure to check out the IRS publication on medical expenses because it will have that table and tell you how much of your long term care premiums can be deducted.

  • 13:29:10

    TEDOh good. Okay. Well, thank you very much.

  • 13:29:11

    NNAMDIAnd Ted, thank you for your call. We move on now to Wendy in Bethesda Maryland. Wendy, your turn.

  • 13:29:20

    WENDYHello. I have a question about child support and the requirements for declaring that on your income taxes.

  • 13:29:29

    NNAMDIGo right ahead. What's the question.

  • 13:29:31

    WENDYI did TurboTax and I woke up this morning, you know, feeling gleeful that I finished my taxes. But then I realized, oh dear, I -- there was not a question that I remember about child support. And so I'm wondering if I filed incorrectly without having included.

  • 13:29:51

    MCCORMALLYI'm happy to be able to say that you did it perfectly. Child support is not taxable to the recipient, nor can it be deducted by the payer. Alimony is taxable. If you're receiving alimony, that should be reported as income, but child support is tax free to you so enjoy your refund.

  • 13:30:09

    NNAMDIDoes it make you feel better, Wendy? Wendy, are you there? Oh, I think Wendy is already celebrating already. On now to Vicky in McLean, Va. Vicky, you're on the air. Go ahead, please.

  • 13:30:24

    VICKYHi, Kojo. Thank you for taking my call.

  • 13:30:27

    NNAMDIYou're welcome.

  • 13:30:27

    VICKYMy question is, my father and I own a piece of rental property and we've had it for a fair bit of time. It's positive cash flow and he's been claiming everything for the last amount of time we've owned the property. The thing is is he gave me a large over $10,000 payout from the account that we both own together. Do I owe taxes on this?

  • 13:30:57

    MCCORMALLYWell, I don't know what kind of income it is. I can't help you. I mean, you're joint owners of this property. Somebody has to be paying -- if it's cash positive --

  • 13:31:07

    VICKYHe's -- yeah, he's filing the Schedule E on it.

  • 13:31:10

    MCCORMALLYAnd he's paying all the taxes and now he's giving you $10,000 as a gift, correct? I mean, if...

  • 13:31:17

    VICKYWell, I didn't want to phrase it as a gift because I'm part owner of the property, but yes, you could call it that if you want.

  • 13:31:23

    MCCORMALLYI mean, I think that you're fine then. It's the -- there's -- or if it's a payout -- I mean, if he's not deducting it as some sort of expense for services you performed than I think there's no tax ramification for you.

  • 13:31:37

    VICKYOkay.

  • 13:31:38

    NNAMDIVicky, thank you very much for your call. Which causes me to think, Kacy Paide, of people who actually run households with partners who may have different organizational skills, what do you recommend to people about setting up a system of record keeping for a family?

  • 13:31:56

    PAIDEAbsolutely. If the household is run by people of very different organization abilities, let's say, then it's important to at least agree on a single landing pod, for example. And I always refer to it as a landing pod because the first line of defense between you and tax season chaos is having, like I said before, one and only one place, be it a folder, a box, a tray for the receipts and documents that come in.

  • 13:32:25

    PAIDESo even if his side of the office is completely chaotic and her side is maybe completely chaotic in a completely different way, you have to draw a line in the sand somewhere. And you need a physical space that literally sets that line of sand where we say, you know what? All other things aside, we both agree that as you come home from work, as I come home from work, or maybe this only happens once every week or two, we both collectively dump all of our X, Y, Z, our statements, our receipts, our tax forms in one and only one place.

  • 13:33:01

    PAIDEAnd again, it doesn't have to be anything that invokes an argument. It shouldn't be that complicated. Just one landing pod that the entire household agrees upon.

  • 13:33:10

    NNAMDIWe got an email from Mike who says, "I was Kacy's very first client back in 2001. She patiently helped me clear years worth of clutter, which gave the physical and mental clarity that allowed me to return to college and finally get my degrees. Three big Kacy lessons. One, you can get organized and you don't have to do it all in one day. Two, in order to stay organized you need to deal with each piece of mail or paper as soon as you receive it. Open it, code it, file it, trash it. And three, miscellaneous files are worthless."

  • 13:33:43

    PAIDEI love that. I'm so touched. I remember Mike. I worked with him when I was probably 20 years old.

  • 13:33:47

    NNAMDIYes, and Mike says, "Thanks again, Kacy."

  • 13:33:50

    PAIDEThank you, Mike.

  • 13:33:51

    NNAMDISo you are not forgotten. Miscellaneous files are worthless?

  • 13:33:55

    PAIDEThey are. We all know what happens to miscellaneous files.

  • 13:33:57

    NNAMDIWe never remember what we put in them or we put nothing in them.

  • 13:33:58

    PAIDECome on. No, there as good as gone. And miscellaneous comes in many shapes and sizes. Sometimes you may just -- let's say you're cleaning off your desk today. You may write a note on that file that says April 2. And then you find the April 2 file five years from now. What does it mean to you? Nothing.

  • 13:34:18

    PAIDEFiles need to pass the test, I always say, of let's say five years from now hypothetically -- or not hypothetically, somebody's cleaning out your office. Maybe it's a child who just learned how to read. And they pull a folder from underneath the bookcase. Does the label and the label alone tell the entire story of the contents? When in doubt err on the side of too much information on a label. And as long as we're talking about all things financial and taxes, when in doubt absolutely put a date on the file.

  • 13:34:47

    PAIDESo it goes without saying that we're talking about all these tax folders, taxes 2013, IRS 2013, taxes -- you know, documents to scan 2013. 2013 is crucial because again, before you know it it's going to be 2018. And then your files are exploding. They have five years of documents that never were entered and you've lost all of that money in the meantime.

  • 13:35:07

    NNAMDIPut the year on it. Here's K.C. in Falls Church, Va. K.C., you're on the air. Go ahead, please.

  • 13:35:14

    K.C.Oh, good afternoon. Thank you for your time. I have two related questions. I have a family member who was unemployed for quite some time and developed a pretty substantial debt as a result of that. The family member's employed again and is filing taxes and I guess didn't really -- wasn't aware that they would have to pay taxes on the unemployment benefits.

  • 13:35:38

    K.C.So my first question is, is there some different way to accord or schedule to complete to present that unemployment income that would reduce the taxes at all? And number two, what is the way to be able to set up a payment plan for taxes as opposed to paying a lump sum payment that wouldn't be an impact on a credit rating?

  • 13:36:03

    NNAMDIKevin.

  • 13:36:04

    MCCORMALLYThe first question, the unemployment benefits are fully taxable. During the recession, there was a break for a partial exclusion for unemployment. But that expired a couple years ago. So they are fully taxable. It catches a lot of people by surprise. The IRS has received a 1099 from the government that paid them. So if you don't report all of them, you know, it's an immediate, you know, letter from the IRS saying why not. So it's got to be reported.

  • 13:36:30

    MCCORMALLYNow you can establish what they call an installment agreement with the IRS to pay over time. If the amount due is under like $25,000 it's automatically approved. I can't remember the form number but you need to go to Kiplinger.com or just Google installment agreement and you'll get the IRS information on how to set it up. It's based on your -- you choose how much you can pay each month if it's -- you can pay it off within five years or something. So it's pretty simple to set up. There is an interest rate on it but there's no penalty.

  • 13:37:00

    MCCORMALLYAlternatively you can file the return on time and not pay the amount due and you'll get a bill from the IRS. And at that point they'll present the opportunity to set up the installment agreement. So you can either ask for it ahead of time or wait for them to come back to you. It's usually a little less stressful to try to set it up ahead of time because nobody wants to get that letter from the IRS.

  • 13:37:20

    NNAMDIK.C. thank you very much for your call.

  • 13:37:22

    K.C.Thank you.

  • 13:37:23

    NNAMDIWe got -- well, allow me to go to Michael in Washington, D.C. Michael, before we hear what you have to say, listen to this email that we got from Natalie. "Last year I had a second job from which I earned a few thousand dollars. Unfortunately, the employer is dragging his feet on giving me a 1099. What is his obligation with respect to that, and how should I file my taxes if I never get the 1099?" Michael, now let's hear from you.

  • 13:37:52

    MICHAELWell, the same story. I working for over five years with this company. Of course, I left this year. Every time I was waiting for my 1099. I get it in the middle of March. Like right now, I don't even got it yet. And every time he's making excuse and I end up paying penalty because he doesn't give me enough time and early times so I can prepare how much I owe the IRS. And usually I prepare myself. So what is my option?

  • 13:38:26

    NNAMDIKevin.

  • 13:38:26

    MCCORMALLYYou're in a real tough box. A lot of people have this problem with limited partnerships, with something they call the K1. Because limited partners aren't -- those partnerships aren't required to send things out until the first of April. So it forces a lot of people delay. All you can really do I think is get an extension of time to file for your return until you get that form. And, you know, I would send the IRS an email or letter that -- and turn the employer in. Because, you know, they're obliged by law to give you that 1099 by the end of January. By the first of February you should have it.

  • 13:39:07

    MCCORMALLYIf you don't they should be penalized. And I think if I were you -- I mean, it's tough because you want these people to come back and continue to hire you. And then so you -- people -- independent contractors like you can really be in a box with employers that drag their feet. The IRS might help you out but again, you don't want this guy, you know, get in a lot of trouble because then he might not hire you again. You're in a position of begging and pleading. Sorry.

  • 13:39:29

    NNAMDIThe guy is in violation of the law on the one hand. On the other hand, if you turn him in you reduce or maybe completely subtract -- not subtract but completely dismiss your prospects for being able to be employed by this person again. That's between a rock and a hard place. Michael, good luck to you. On now to Daniel in Alexandria, Va. Hi, Daniel.

  • 13:39:53

    DANIELHi. Yeah, I have a loan that was forgiven for around $8500 and that was at the end of 2012. And I'm trying to figure out how to handle that.

  • 13:40:04

    MCCORMALLYWell, was it from a financial institution?

  • 13:40:08

    DANIELActually, no. It was from a company.

  • 13:40:10

    MCCORMALLYOkay. Well, I mean, when such -- forgiven debt is considered income to the person who is relieved of the debt, and you should receive a 1099 C -- C as in cancellation of debt, and that income is reportable, I believe, as other income on the face of the 1040. I've never had to do it myself, so I'm not sure, but yeah. I know it's taxable income. I would check the 1040 instructions. You can find them at irs.gov, and just type in cancellation of debt, and it will tell you where to report that income.

  • 13:40:42

    DANIELSounds great. Thank you very much.

  • 13:40:43

    MCCORMALLYOkay.

  • 13:40:43

    NNAMDIDaniel, thank you very much for your call. If you have called stay on the line. We're going to take a short break, but when we come back, we will get to your call. If you're still trying to get through to us and the lines are busy, send us an email to kojo@wamu.org. Did you ever miss a tax deduction because you did not have the receipts? 800-433-8850. You can also send us a tweet @kojoshow. I'm Kojo Nnamdi.

  • 13:42:46

    NNAMDIWelcome back. We're talking tax time organizing, and tax time tips with Kacy Paide. She's a professional office organizer, and owner of the Inspired Office. And Kevin McCormally. He is the editorial director of Kiplinger's Personal Finance magazine. Kevin, back to some of the things you should keep in mind when deciding which receipts to save. There are a number of deductions people tend to overlook. If you move for your job, for instance, what are the rules there?

  • 13:43:16

    MCCORMALLYThe key rule is that you have to move 50 miles away. Actually your commute has to be -- would have to be 50 miles longer if you didn't move. But if you are moving and taking a new job at least 50 miles away, the cost of moving yourself and your goods and your family are all deductible, including a mileage allotment if you drive your own car, but again, you just have to keep the receipts. If you're moving and your boss is going to pay for this, the boss is probably going to need to see the receipts so their reimbursement to you is going to be tax free.

  • 13:43:46

    MCCORMALLYBut again, this is -- you know, Kojo, we were talking about how organization can save you money, and part of it is receipts. And another thing that troubles me a lot is there are about 40 million Americans every year who pay somebody to do their returns who do not itemize deductions. So they have...

  • 13:44:03

    NNAMDINo need.

  • 13:44:03

    MCCORMALLY...really, really simple returns, and they're paying maybe a hundred, $300 dollars to somebody to do their return, and for those people I say, when you get the return back this year look at it and ask yourself how hard would this be to do. You've got the receipts that you needed, and use that as a program going forward to not only save money on taxes next year, but maybe you can do it yourself. You know, the IRS -- anybody who makes than $57,000, the IRS has free tax software on their site that they can use to prepare their return, and if you're not itemizing deductions, it ain't hard.

  • 13:44:37

    NNAMDIWe got a tweet from Jonathan who says, "What about Turbo Tax? Does that cover me, or should I still get an accountant?"

  • 13:44:44

    MCCORMALLYYou know, I use Turbo Tax now every year, and I think Kacy said she uses -- oh, no, I guess somebody called earlier and said they'd used Turbo Tax. I think tax software is phenomenal. You know, we've been working at Kiplinger for about 20 years with different firms that do it. We don't work with any of the firms now, but it amazes me. Again, I'll go back to my son's return that he was working on on Sunday.

  • 13:45:05

    MCCORMALLYHe had -- he put in the form to make his child care flexible spending account money tax free, and Turbo Tax said, well, yeah, you get that 2,000 tax free, but you actually paid more than $2,000 in child care expenses. Why don't you let us give you the child care credit for an extra thousand dollars, which it did, which saved him $250 in taxes. And his dad, the tax expert, didn't think about this one, but Turbo Tax immediately realized that there was an additional tax benefit that he could claim and he got it. So he was a happy camper.

  • 13:45:41

    NNAMDIYou probably will have a more difficult time these days organizing your receipts than you will actually filing your taxes. About how got into this Kacy, you're a DC kind of person, and after college you worked for a time with a USAID contractor, and you took on an archiving project with them, even though archiving was apparently not in your job description. That may have been the moment when it was clear what your professional future held for you. Can you talk about that?

  • 13:46:08

    PAIDEAbsolutely. I was probably -- oh, let's see, maybe 19 years old when I was working for this USAID contractor downtown, and I was taking on a lot of odd jobs around the office for their Africa-Asia region at the time, and somebody in the company came to me and said, you know what, Kacy, we know you love to organize, can we show you something downstairs.

  • 13:46:31

    PAIDESo they walked me downstairs, opened the door to this storage space that they had been renting and in front of me was probably -- I don't know how dozen, but dozens and dozens of boxes that they had just received from the field, and I think they were file boxes from closed out projects in Senegal and the Philippines and who knows where else. They were literally broken and the files were all mixed up and not labeled, and they said can you fix this? Nobody in the company wants to touch it.

  • 13:47:00

    PAIDEThey hired an intern for me. So there I was, just a teenager managing an intern, and we spent the entire summer just in our jeans and t-shirts turning these boxes of dilapidated smelly old, wet, damp files into this perfect cataloged file system, in, you know, the pretty metal filing cabinets with the perfect electronic file index, and that's when I realized, you know what, I think I'm a little bit different than everybody, because this is my idea of a good time.

  • 13:47:30

    NNAMDIThis is what she's been doing ever since, professionally. On now to Steve in Ashburn, Va. Steve, you're on the air. Go ahead, please.

  • 13:47:40

    STEVEHello. I have a question -- actually two questions. My wife will be qualified for taking early retirement on January 4, 2014, and so I'm wondering in 2013 is there anything other than making a maximum contribution to her IRA, is there anything we should be doing from a tax perspective to prepare for her retirement. And then also looking at -- since it will be January 4 of 2014 that she's qualified, are there reasons from a tax perspective that she should continue to work any time beyond that? Again, trying to understand any tax benefits that she might incur by working beyond the 4th of January.

  • 13:48:24

    NNAMDIKevin?

  • 13:48:25

    MCCORMALLYYou know, I don't think there are any tax advantages for whether she works till the 4th of January or the 4th of July, other than, you know, any continued tax deferred compensation that goes into a retirement plan. And as for her last year of work, I think you're right too. The only issue would really be if the family's income is going to decline substantially in 2014 because of her retirement, you might want to try to hold off some investment income and push it from 2013 into 2014.

  • 13:48:56

    MCCORMALLYYou know if there's a sale of stocks or mutual funds that you could push from December until January when the family will be a lower tax bracket, you know, that could be a benefit. That's the thing I think you need to think about, if there's any way you can hold down 2013 income when the family is in a higher tax bracket, pushing into 2014 when her retirement will reduce the family's income and perhaps the family's tax bracket.

  • 13:49:18

    NNAMDISteve, thank you very much for your call. Does that answer your question?

  • 13:49:21

    STEVEYes, it does. Thank you very much.

  • 13:49:23

    NNAMDIYou're welcome. Onto Pam in Tacoma Park, Md. Pam, your turn.

  • 13:49:29

    PAMHi Kacy, it's Pam Holland.

  • 13:49:30

    PAIDEHey Pam. Of course. How are you? Good.

  • 13:49:33

    PAMI have -- I had to get (unintelligible) ...

  • 13:49:37

    NNAMDIPam, you dropped out on is. You're going to have to call us back. I think you must have been on a cell phone because your call dropped right off. It's 800-433-8850. So call us right back while we talk with Donald in Silver Spring, Md. Donald, you're on the air. Go ahead, please.

  • 13:49:53

    DONALDHello, Kojo. Thank you for another timely and informative show. I have a question for the panel as a result of having already filed my taxes. I'm a Maryland resident. I have a full-time job in Maryland, but I also have a part-time job in Virginia, which I started last year. This is work for a non-profit organization. I was told by the business manager that I would not need to pay Virginia state income tax since I was a non-resident.

  • 13:50:29

    DONALDAnd so no state tax deductions were taken out of my paycheck. Now, a few weeks ago when I sat down with Turbo Tax to do my taxes, I was dutifully going through the questionnaire that comes with the program, and I got to a question that said did you earn income in another state? I checked yes, and then a list of states came up. Virginia was one of them that said I would need to pay non-resident income tax. So I went through and had to pay for an additional state tax return from Turbo Tax, and then pay the tax that was due on my Virginia income.

  • 13:51:22

    DONALDI shared this information with my supervisor who shared it with the business manager and he sent me the tax form for filing Virginia income taxes that said indeed I did not have to file Virginia non-resident income tax. So I'm wondering what do I need to do now in order to get that money refunded to me? The state of Virginia has already cashed my check.

  • 13:51:52

    NNAMDIKevin.

  • 13:51:52

    MCCORMALLYThey're good with that in Virginia. First of all, I take back everything I ever said nice about Turbo Tax because the advice you got was absolutely wrong. Your supervisor is correct. There's a special deal between the District, Maryland, and Virginia since the people in this area move between the states and so if you're a Maryland resident, you pay Maryland tax on the income you got in Virginia.

  • 13:52:13

    MCCORMALLYSo, you know, that -- you should not have paid that. You'll need to file an amended return with Virginia, and just send it in and show zero Virginia income and they should refund everything that you paid. I suggest that you contact Turbo Tax and ask them for a full refund for the Virginia state return because, I mean, I don't understand why it would have done this, but you're supervisor is correct. Maryland residents who make money in Virginia do not have to pay tax in Virginia.

  • 13:52:45

    NNAMDIOkay. Don...

  • 13:52:46

    DONALDVery good. Thank you.

  • 13:52:46

    NNAMDIThank you very much for your call, Donald. Move on now to Sandra in Fairfax, Va. Sandra, your turn.

  • 13:52:55

    SANDRAThank you so much. I own a pet care company, and all of my employees are 1099s, however my husband and I both receive a percentage of the fee, just like my employees do. So I'm not sure when I'm claiming my income, am I also a 1099 and my husband, as well as the company?

  • 13:53:17

    NNAMDIKevin?

  • 13:53:18

    MCCORMALLYYou know, I don't know how you're paying yourself. 1099s go to independent contractors. So you're treating the people who work for you as independent contractors, not as employees. And when you're taking the money out, I mean, I would assume you -- do you file a Schedule C business return?

  • 13:53:33

    SANDRAWe're about to file to the first year. All the money goes to our personal taxes.

  • 13:53:38

    MCCORMALLYYeah. I -- you know, it could be 1099. You know, I'm not certain the form of the business. I can't help you because I really don't have enough information. But if you're filing a Schedule C, you would not have hay 1099, you just would report the profit of the business after subtracting all of the wages that you pay your independent contractors would be the business profit, and a self-employed person it does come to you as the owner of the business. But -- so I don't think you would have a 1099.

  • 13:54:09

    SANDRAOkay. And for my husband?

  • 13:54:11

    MCCORMALLYThe same with both of you if you co-own the business.

  • 13:54:14

    SANDRAWell, he's not a co-owner of the business.

  • 13:54:17

    MCCORMALLYWell, how -- I...

  • 13:54:17

    SANDRAI am the sole -- I'm the sole owner of the company, but it's all going -- when we file our personal taxes, the accountants will simply just say this is the amount of money that was brought in, these are the expenses that we paid including our 1099, and our database shows what -- excuse me -- what our income was from the percentage that we talk. Does that make sense?

  • 13:54:44

    MCCORMALLYYou know, I -- I'm...

  • 13:54:44

    NNAMDIIt's a little complicated.

  • 13:54:45

    MCCORMALLYYeah. I'm a little complicated. I don't think I could help. I suggest you talk to you accountants and see. I'm sorry, I can't help you.

  • 13:54:51

    NNAMDIWhich -- Sandra, thank you for your call -- brings me to an email we got from Carol in Virginia. "I'm a sole member LLC and do my personal and business taxes with Turbo Tax. When and how would I know when it's time for professional help?" Do you use Turbo Tax?

  • 13:55:06

    PAIDEI used to. No longer.

  • 13:55:07

    NNAMDIOkay. How did you know when it was no longer time to use Turbo Tax?

  • 13:55:13

    PAIDEThat's -- when I just stopped trusting my own ability to see to it that I was getting back everything I needed.

  • 13:55:21

    NNAMDIHow do you know, Kevin?

  • 13:55:22

    MCCORMALLYI think that's the answer. When you don't know what you don't know. I mean, when you figure out that it's getting too complicated if you talk to somebody in a similar business who tells you that they're getting deductions that you're not. I think as soon as you feel at all uncomfortable with the software and don't think you're not confident in it, I think you do turn to a paid professional, and maybe you only do it once. You go to the professional, you have them show you what to do, then maybe you can pick it up the following year as a do-it-yourselfer, but yeah. I think as soon as you feel uncomfortable with the software, you should turn for more professional help.

  • 13:55:55

    NNAMDICouple of things people always want to know about, Kevin, medical expenses are tougher than ever to deduct. What was the rule for 2012, what about now?

  • 13:56:03

    MCCORMALLY2012 was seven-and-a-half percent of AGI, only expenses above that level are deductible. For this year, as part of the Affordable Care Act, it's 10 percent. You have to have...

  • 13:56:13

    NNAMDIOf your adjusted gross income.

  • 13:56:14

    MCCORMALLYOf your adjusted gross income. Only to the extent that it exceeds 10 percent. So if you've got 11 percent, it doesn't mean you get to deduct 11 percent. It means that you -- one percent.

  • 13:56:24

    NNAMDIHealth insurance premiums are eligible, but again, it must meet the higher standard next year? Health insurance premiums?

  • 13:56:32

    MCCORMALLYYes. I mean, they count them.

  • 13:56:35

    NNAMDIOkay. Then, homeowners have a lot of reasons to keep records. What should we be keeping track of?

  • 13:56:43

    MCCORMALLYParticularly improvements on the house because that increases your basis. Now, for most of us, life has been simplified because up to half a million dollars of profit on the sale of a home is tax free on a joint return, $250,000 on an individual return. And thanks to the housing bust, a lot of -- very few people have that kind of profitability. So it's kind of a tough call for homeowners. It used to be you wanted to keep track of every improvement to your home. A new water heater, a new roof, you know, putting in new windows, because each one of those would increase your basis and thus reduce the tax when you sold the home.

  • 13:57:19

    MCCORMALLYBut now that up to $500,000 is going to tax free, you know, a lot of people don't keep track of the smaller things.

  • 13:57:26

    NNAMDIAnd I'm afraid that's about all the time we have. Kevin McCormally is the editorial director of Kiplinger's Personal Finance magazine. Kevin, thank you so much for joining us.

  • 13:57:34

    MCCORMALLYThank you, Kojo.

  • 13:57:36

    NNAMDIAnd Kacy Paide is a professional office organizer, and owner of the Inspired Office. Kacy, thank you for joining us.

  • 13:57:42

    PAIDEThank you.

  • 13:57:43

    NNAMDI"The Kojo Nnamdi Show" is produced by Michael Martinez, Ingalisa Schrobsdorff, Tayla Burney, Kathy Goldgeier, Elizabeth Weinstein and Stephannie Stokes, with help from Camellia Assefi. Brendan Sweeney is the managing producer. Our engineer is Tobey Schreiner. Natalie Yuravliker is on the phones. Podcasts of all shows, audio archives, CDs, and free transcripts are available at our website kojoshow.org. If you like to share questions or comments with us, you can email kojo@wamu.org, join us on Facebook, or send a tweet @kojoshow. Thank you all for listening. I'm Kojo Nnamdi.

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