Color of Money Live: Taxpayers talk about a disappointing tax season

Apr 18, 2019

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Okay, I'll admit it's hard to stop watching and reading about the Mueller Report. But let's pause to talk about personal finance.

So, let's get started. 

What would be interesting to analyze is what various people earned, deducted and paid in taxes in years before the big changes, and what they earned, deducted and paid in taxes for 2018. I never let myself get a big refund, except when I couldn't help it (had a big tax credit in 2017 late in the year), so don't get people letting the government use their money all year. It's not a gift, it was yours all along! But, getting a couple of $$ along the way, then having to pay tax at the end is not good either. We can't all afford to buy members of congress to write tax laws to suit us...

Read Michelle's column: Tax Day is over — and Trump’s tax bill is even less popular after people see their returns

I agree. It's not about the refund but your total tax bill in the end. Still, it's been a rough year for a lot of people because the overhaul of the tax code introduced a lot of confusion. 

Hi Michelle, My in-laws are in their mid 60’s and have mortgage debt, two car loans, and credit card debt. They spend money on vacations and expensive dinners and they both still work full time to finance this lifestyle. What happens when people die with consumer debt? Obviously the house and cars can be sold to hopefully pay off the debt, but what about credit cards? Is my spouse going to be responsible for this somehow?

Read Michelle's column: How to manage our obligation to parents who may be financially irresponsible

Unless your spouse co-signed for any of the debt, he or she is not personally liable to pay it off after your in-laws pass away. It is the estate that is responsible for debts if there is any money left. 

I would however try to have an honest conversation with the in-laws that you guys are concerned and want to help should they need or want help to manage their money better. 

But all you can do is ask. Grown people will do what grown people will do, which is to often make a mess of their financial lives. 

Submitting early -- am a longtime fan looking forward to your feedback Got word from the dealership that my 2010 car with only 93k miles needs a new hybrid battery. ?!? Total cost is about $7k. If it were half that amount, I could've pooled resources to cover about $3k. For $7k, I'd have to pull funds from other sources [eliminate the amount I contribute to a private Roth IRA]. I really don't want a car payment -- could manage one, but other priorities [house projects] would suffer and be delayed. At crossroads for now. Sincerely appreciative for any insight, advice, and wisdom. Thanks

I don't know a lot about the repair costs for a hybrid. I would however, get a second opinion about needing the battery. A quick search found that a replacement can cost between $1,000 to about $6,000 depending on the make, model and year of the car. And that does not include the cost of service.

I also understand that Hybrids have lower repair issues so once you get a battery and eliminate the greatest cost of repairs you may go many years without any issues. That's certainly worth keeping the car.

 Could you get a similar make, model and year for $7,000? I would probably keep the car and replace the battery if its been a good ride, pretty trouble free and getting great gas milage.

We pay a lot in taxes. Our only deductions are charities and a mortgage close to being paid off. Our income really didn't change significantly. Our tax bill increased by $2500.

Another testimony about the tax season 2019. 

 

sorry you are getting slammed w comments. One thing for folks to ask themselves........do you spend more money if you use a cc v. cash or a debit card? If you do, (which is what merchants are counting on), then you may have spent more than you get back.

It's part of what I do for a living. I write opinion pieces and that invites others to write an opinion about my views.

But you make a great point because studies do show that when you use credit you tend to spend more than when you use cash. Doesn't necessarily mean you go into debit because many people pay off their credit card every month. Still, you may still be spending more than you intend -- even if you can afford it -- when you use a credit card. 

Without that much changes in our circumstances from 2017 like a $1,500 raise, we paid $2,500 MORE in taxes for 2018. So much for more money in our pockets for the tax cut. Our payroll check was slightly bigger and now it shows that we got NOTHING except a larger tax bill at the end of the day on April 15. So at the end of the day, we got a tax INCREASE. I don't know about other folks but I know a bait and switch con when I see it.

Wait. You did say you got more in your paycheck. You may have in fact seen higher taxes but not as much as you may think when you compare it to the increase in your pay because less was withheld. 

I added up my retirement accounts yesterday and I have my last year's income already saved. By the end of this year I'll have my current salary (got a big raise since last year) in my retirement savings. I plan to continue aggressively contributing (22% of every paycheck plus once yearly to max my IRA) but considering I had no retirement savings 3 years ago, I'm pretty impressed at how it's adding up.

Read Michelle's column: Most investors aren’t on ‘FIRE’ about this early retirement movement

I'm pretty impressed too!

Michelle, can you take one more IRS/tax law question? My child turned 17 in 2018, so she no longer counted as a child. She was a "dependent" but that break isn't as large as the "child" one is. How bizarre!! I'm paying more for her as a junior and senior in high school (years of turning 17 and 18) than the prior two years. Why would the IRS not count them as children through their senior year of high school? Thanks!

For the why you have to talk to Congress, who listen to lobbyist backed by people who have more money than you and me. 

Supposedly the higher standard deduction was going to help you feel better about the elimination of personal exemptions. 

Do you feel better? 

We get mixed messages on savings. We all should save, for emergencies, for retirement, school, whatever. Save, Invest, Prepare. But pay taxes on those earnings all the years in between. I wonder what the net result is in saving, interest/earnings, and having paid taxes for potentially decades. What do we really end up with?

Well, tax revenue -- when not wasted by the government -- provide a lot of what we need -roads, health insurance for the needed, the elderly, etc. I believe most people don't have a problem paying their fair share. They would just like a simple way to figure that out. 

I just learned that my parents, retired and in their mid-70s, have about $50,000 in credit card debt and no savings. Their monthly expenses are covered, but that's about it. My father has dementia and my mother has been too ashamed to talk with her kids about this until creditor calls overwhelmed her. I found your article from last August about Baby Boomers declaring bankruptcy in greater numbers, and heard you on 1A. It seems like that's the way to go here, as my sibling and I aren't in a place financially to dig them out. Do you have any resources you could point us to as we try to navigate this situation? This is really hard and painful for all of us. Many thanks.

So sorry about the situation with your parents. Bankruptcy can certainly be an option. Here's the thing to file your mom at least would have to see a credit counselor anyway. So go to debtadvice.org and help her find a nonprofit credit counseling agency that can help take a look at her finances. If bankruptcy is necessary you'll need to find an attorney. Ask around for recommendations or call a few local attorneys to get some quotes. Be sure to interview a few lawyers to see who will work. 

Are we getting bogged down in vocabulary with this discussion? Credit cards have clear advantages in consumer protection over debit and most people know that. While some people may have issues that make debit a more APPROPRIATE choice for them, does that make debit an advantage in their case? I have doubts. In this day of hacking and exploits I would never shop online with debit. I would never pay bills with debit that might store the number on their systems. i would hesitate to shop with debit after the TJ Max hack. This would indicate that maybe the issue is Credit vs Cash for those folks. And yes there are some protections for Debit users but in my experience the money can be tied up by banks for thirty to sixty days while they resolve your dispute. For those living paycheck to paycheck that can be catastrophic.

So rather than put people with a credit card, the advice would be to use a debit card not connected to your main household account. But that's a different discussion about how to use a debit card safely. That is not what's happening in the criticism that no one should ever use a debit card. 

What some are saying is everyone should use credit. Period. And that is not true. There are people who cannot be trusted at this point in their financial development to use credit. 

I'm 55, single, no kids, and work for local government. I've rented all of my adult life. My retirement goal used to be to own a paid-off condo by the time I retired. Unfortunately, too much life happened, which kept pushing that purchase down the road. Now I'm wondering which would be better: 1. Pay a mortgage in my retirement, which would have a known fixed payment amount each month but tie me down to that property, or 2. Continue to rent, which would have a payment that would go up each year as the rent is raised, but leave me more flexible in terms of leaving if my situation changed. Do you have any thoughts on this?

This is a great question and I'd like the community here to help answer.

As to what I think, it depends. Personally, I do not plan to take a mortgage into retirement. But that doesn't mean I won't have housing costs. There is property tax, insurance and upkeep. All of which, depending on where you live, can be like a rent payment. It is in my high cost area.

Unless you are living with someone in retirement who isn't going to charge you (adult child, sibling, etc.) you will have housing costs in retirement. So do what will be manageable for you?

 If you want the flexibility to move, especially if rent is increasing too much, keep renting. If you want to stabilize the monthly housing payment AND you have the money for the upkeep, taxes, etc for home than buy. But I wouldn't buy if it locked me into a 30-year mortgage.  

In the past I never understood how people could watch these sappy religious shows like Touched By an Angel all these years. But the news the last 2 years has been so awful that I started watching God Friended Me and it was just an amazingly satisfying escape from the constant crap of the present day. I'm so glad it has been renewed.

I love that show too. And I've never seen such shows as "sappy." They give hope and boy do we all need more of that. 

Besides, why do people trash these shows but think nothing of watching all the police dramas and crime shows with people getting murdered, raped and brutalized all for entertainment. Give me sappy any day -- all day.

I know a lot of people will argue that they don't spend more using a credit card vs a debit card, but I know that I think harder about a purchase if I'm using cash or debit rather than credit. It feels more immediate. I'm smart about money and good about saving, but I still fall into the mental trap of 'I don't have to pay this off for 30 days, so I can afford it now' or 'but I'll get points if I use the card'. Yes, the credit card points did allow me to fly free to a friend's wedding I otherwise probably would have skipped, and it meant a lot to him that I made the trip. But that savings was probably outweighed by a few impulse purchases I made because I was using a credit card instead of debit.

Read Michelle's column: Yes, a debit card does have some advantages

Exactly! 

I used the tax calculator on the IRS site to adjust my withholding. I ended up owing about $425. I have worked since I was 14 and am now 55. I have never owed the IRS. Went back through and determined I should have left my withholding the same. Also, TurboTax free isn't free if you have student loan interest to deduct. Can you tuck away this idea for next year: How online tax services really work. They make you change in the middle of the process and you can't use the coupon code. Shameful!

Read Michelle's column: It’s not fun to do a ‘paycheck checkup’ — but do it anyway

That is a good idea for a column next year. There is a lot of up charging in DIY tax preparation. 

A middle step, particularly for someone who needs to rebuild his credit, would be a secured credit card with a low limit linked to a savings deposit. People aren't going to get into deep trouble with a credit card that has a $400 limit and cash in the bank, but they still get the consumer protections of a credit card and their timely payments boost their credit score.

AGAIN....there are some folks who are not ready to use a credit card -- secure or otherwise. Why is this so hard to understand? 

Would you tell someone with a broken foot to go head and walk on it before it's healed? 

 No. You help them get to the point where they can walk. For many they can't handle credit until they fix some things. Some never can be trusted with credit. They just can't. That is the reality of helping people. You can't make them to the right or wise thing until they are ready and healed. 


In comparing this year's tax calculatiions to the tax I'd have owed if I applied last year's tax law to my 2018 income, I owed about $600 more this year. The main reason is the loss of the investment advisor fee miscellaneous deduction. I hope that Congress will fix this.

But did you take into consideration more money you may have received in your paycheck? 

Was so happy to hear you on a recent episode of NPR Life Kit! It's funny to hear the voice of a person you've just read for quite a while. :)

Thank you. Of course, I hate my voice. But I love doing that podcast. 

loved you doing your thing on CNN and that they loved you doing your thing on CNN, one question about DC since you been here a while, under FERS, we take a 5% penalty for every year we are under 62 but it's our money, why?

I'm not sure I know the answer to your question. Anyone? 

But thanks for watching me on CNN. And it's true, I do love Tax Time. All my numbers in one place to review and make changes that hopefully put our household in a better position financially. 

I always buy gas with a credit card (I get cash back) and I get a text message every time a charge is made on any of my credit cards. I let my son use my Discover card to buy gas on a trip to New York last weekend. He bought gas in New Jersey and I got a text message of a $125 charge! I called Discover and the woman said some gas stations put a hold of $125 or even $200 for a gas purchase (probably truck stops do this). The correct charge showed up 48 hours later. I nearly had a heart attack on Saturday, but I learned something new.

This is true. 

How are you supposed to use a tax withholding calculator when there is no such thing as an "exemption" anymore?

The withholding calculator helps you determine how many "allowances" to take on the W-4 you give to your employer. Your employer uses your W-4 to determine how much money to send to IRS. Allowances are in part determined by what deductions you might take on your tax return.  An exemption is taken on your tax return. And you are right they gone. But an exemption is different than an allowance.  

We really do get it. Some people can't use credit cards responsibly. Some people can't drink alcohol. Some people can't be trusted with other people's cash. BUT for someone who is responsible with credit and can choose between credit and debit, is there ever a good reason to give up all the protections associated with credit cards?

AGAIN, we ARE talking about why for those "some people" debit is better. I am NOT talking about people who can use credit wisely. 

This all started with people believing there is no good reason to use a debit card. Responding to that "never" theory. 

I would love to own, mostly because I would love to have a bigger place, but can't see the point of renting one. I don't need it. I would just like it. I recently saw a well priced 2 bedroom in my neighborhood (I rent a one bedroom in a building with fewer amenities). Just the taxes and the fee would be nearly the same as the rent on my current apartment. And that includes nothing for a mortgage at all, and no "opportunity cost" for the loss of the capital for the down payment. So, not happening any time soon. Also, rent only goes up every year if you live in an area with high demand or you just say "yes" to whatever increase the land lord proposes each year. Negotiate with the landlord if you are willing to move. Landlords LOVE older government workers with stable incomes. Research on what they are offering new tenants is super easy to find on Craig's List.

Thanks for your input. 

Paycheck didn't affect the total income received or taxes owed. Like I said, I applied the 2017 and 2018 law to the same set on numbers -- 2018 income, to see what the tax difference was.

Thanks for the clarification. 

I second that request for a future column. I've used TaxAct for 8 years. In 2017, I paid $29.95 to file a federal and state return (and that was with their "30% repeat customer" discount); this year - $88.96! I'll be looking for another software program in 2019 for sure.

Putting on my list. If I forget, remind me next year.

My personal thought is yes, while a credit card doesn't directly take it out of your bank account, you then have whatever amount you just spent hanging over your head into the next billing cycle that you have to factor in anyway along with the bills you put on auto pay. Why have the stress and added variables?!

Good question.

Retired since 2013. Have not itemized since then. I live mostly on my social security plus a few thousand from retirement account. Income consists of social security, some interest, and required minimum distributions (about 50% of which is saved in small brokerage account). 2017 is first year where I had to take RMD. For 2017, my tax amount was 3.58% of AGI. for 2018, it is 3.94%. A small difference in whole dollars but a 10% increase. We knew that the tax changes were not good for seniors.

Been hearing from a lot of seniors or are hot mad that their taxes went up under the changes. 

If the concern the previous poster was writing in about "having paid taxes for potentially decades" on savings was about the taxes on the savings themselves, I think it might be useful to clarify you are only taxed on the GAINS, not the savings (which you paid income tax on when you earned it and then don't pay again). Using tools like 529s, 410Ks, IRAs and Roth IRAs can help you either defer paying taxes on the initial income, defer paying taxes on the gains, or not pay taxes on the gains at all. So don't use the fact that you will pay taxes as a reason not to save!

Very good point. Thanks for the assist.

If the submitter could get a similar make/model/mileage for $7000, who's to say it wouldn't need a battery next month? Probably better the devil you know (with a fresh new battery, after a second or third opinion).

Agreed!

First of all, that isn't the IRS. It is the way the tax law was written. It is Congress. I think that the original idea was that the expanded child tax credit was related vaguely to "taking care of a child while the parent works." Now, it isn't restricted to day care or after care programs, but the money is meant to help with that. Of course, people don't really pay for after school care for 15 year olds, but that is where the cut off was put. I assure you, Congress probably did it because it would "cost too much" to make it go up to 18 or even for all dependents. But, please, don't confuse a statute with something the IRS "decided." It just doesn't work that way.

You are right. IRS applies the tax code, changed, fixed, updated by Congress and signed into law by the president. 

We're not, because we're a little younger than the OP's parents and only have one car loan. Sometimes life interferes with plans and you adjust on the fly. The market tanked just when our kids were going to college, but we let them go to the schools of their choice. Should we have reigned them in? Probably. Then our incomes took a hit for several years. We probably could have done some things differently, but kept our heads above water. Finally, our income has recovered and we have been able to put away money for retirement. It won't be 100% as planned, but hopefully will be comfortable. Are we allowing ourselves to spend some money on what we couldn't really afford five years ago? Yes. If we died tomorrow, would there be money to cover the debt? Also yes.

Thank you for your perspective. 

We don't know the model and make of the writer's car, but I own two hybrids (Toyotas - 2004 and 2012) and both were covered by a 10 yr/150,000 warranty on the hybrid battery. Make absolutely sure that the battery is not covered. (Unfortunately in our case, the older car's battery gave out after the 10 yr mark, but even then, the cost to replace was about $3K.)

Good advice. Thanks.

The owner should contact the manufacturer's regional office and also consumer protection agencies. Unless the batteries typically die after that time and mileage, this one may be defective, and there may be some compensation or adjustment available, even when the overall warranty has expired. And as you noted, the dealer's prices are the highest. An aftermarket battery -- or even a used battery in good condition -- might be available for much less.

Thanks for the tip.

After your and Eric's advice, I sat down with the 2019 tax tables and realized that we were vastly under withholding for this year. And that is including both my spouse and I taking zero allowances! Turning in new W-4s that reflect an extra $700 a month in withholding was....terrifying. What if we hadn't caught that?

But you did! And thank goodness. A good testimony on why others need to check their withholdings too while they have time to make adjustments. 

Argghhh. As a lawyer this question drives me nuts. People do think this. It is very common. And in a way, it makes sense. If your parents die simultaneously and they have assets you can inherit those. Why not the debts? But you can't. However, the credit card companies are VERY clever about trying to make you think that you should pay off a parent's debt. They will contact you. They will have a heart rending script about what a good person your dad or mom was. About how they would rest easier if their debts were paid. The will try to get you to sign something. Or agree to it on the phone (they are recording). Refuse to talk to them. Just don't do it. Your responsibility to your parent's creditors ends as soon as all their assets are used to pay those debts. The rest is what the creditors get (and expect) when they allow elderly people to have large outstanding balances. It is a loss. They made a lot more off your parents who were paying interest to them all those years. Let them deal with the natural consequence of lending to people who carry big balances to the end. Also, (this is sort of my mantra, but about emotional things, not financial ones), "You can't fix your parents."

Thank you. Thank you. Thank you for your expert reminder of the myth that adult children are responsible for their parent/parents debts once pass away.  

Not all Republicans were on board with the president's tax plan but not enough stood up to him and decided to reward their corporate interests instead of looking out for the best interests of their constituents. The rich get richer and the rest of us pay.

Vote.

We do NOT use our credit cards at the pump since the purported "cash back" or "points" or "rewards" do not compensate for the substantially higher price per gallon. Yes, it means going to the cashier to hand over $40. Sometimes a second trip for the change. Still worth it for the better price.

Good point. 

I filled out my withholding so long ago I have forgotten how it works. What should I be doing to my form so that they withhold more?

Got to irs.gov and search for "Withholding Calculator." The questions will walk you through changing your withholdings. 

Let's take a minute this weekend to be present in the moment with our friends and loved ones, whether you celebrate Easter, Passover, or no holidays at all. The insanity will stay on hold for us until Monday.

A nice way to end the chat. Thank you!

Thank you for joining me today. I very much appreciate your time. I'm sorry if I didn't get to your question or comment. But I read everything you send. And often your leftover questions addressed in one of my columns.

Take care and see you back next week. 

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Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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