Color of Money Live with guest Melody Thornton, CPA (Feb 6)

Feb 06, 2020

Welcome to a weekly discussion about your money hosted by Michelle Singletary, nationally syndicated personal finance columnist for The Washington Post.

Note: Michelle's Jan. 30 is canceled. Please tune back in this week. Michelle will be joined by Melody Thornton, a certified public accountant who can answer your questions on tax season.

Did you know: "Knowledge isn't power. The right knowledge is power." So, stay informed.

Read & share Michelle Singletary’s Color of Money Column on Wednesdays and Sundays.

Follow Michelle Singletary on Twitter (@SingletaryM) and Facebook.

Thank you so much for joining me today. I have a guest today, Melody Thornton, a CPA. She's here to answer your tax questions so send them her way.  

And as always, I love to get Thursday Testimonies. Tell me some good things about your financial situation. 

Let's get started. 

Hi all, My child is 18 and a full-time college student. We (her parents) pay tuition, room, board. The college sent a receipt of qualified expenses but in her name. She had a part-time job in 2019. I don't know how to do the taxes now. Is she a dependent? Does she file her own tax return (to get a refund)? Please help. She/hers from Virginia

Kids through age 24, who are full time students, whose parents provide more than one-half their support are still dependents of their parents. Although the college receipt is in her name, the parents can claim the expenses for deduction or credit.

The bank I've used for many years, Suntrust, is merging with BB&T to become Truist (a ridiculous name, but nobody asked me). What kinds of problems have come up during other bank mergers? Should I worry?

The merger between the two banks is now complete so you may see some changes in rates, hours, website options, etc.  You may see a lot of changes or not much at all other than a name change. (And I agree with about the new name!).

Just be sure to read any notices you get in the mail or via email. Also, be very careful about any unsolicited emails or letters you get from scammers who may try to take advantage of people's anxiety about the merger. 

Here's a good article from you should read: Your bank is getting acquired: Should you stay or should you go?



I am an accountant, but not a tax accountant. I have prepared and filed my own taxes for years, and I am wondering if it is now necessary to pay for tax prep, or for tax prep software. In addition to a salary I also have a small amount of self employment income and a small partnership gain/loss. I included schedules C, SE, and E last year in my filing package. Because I am over the threshold for free filing I have no option but to complete the forms on paper and mail the to the IRS, as far as I know. What are the risks that I face, assuming that I can read instructions and add numbers? Do I, in fact, have a fool for a client?

The tax laws since 1986 have been written and passed with the understanding that computers would be used. When you get beyond W-2 income, there are complexities that require the use of tax software. At the very least, if you are a CPA, you should take a tax course each year to make sure you know the laws. I recommend using tax software or paying a professional.

I agree with Melody. If you are unsure you are capturing all the tax breaks you are entitled to or just want a second opinion at least for this year, get some help. Even doctors go to doctors to seek treatment. 

The NY Times ran a column a few days ago making the point that for many people, traditional financial advice is obsolete. "Make a budget and stick to it," "pay off your credit cards every month," "max out your 401k," "build a stuff happens fund," etc., might be good for someone who has a secure corporate or government job with great benefits, like so many people in the D.C. area (including you). But many of us across the country work in what has come to be called the "gig economy." People drive for Uber or Lyft, they stack part-time retail and service jobs where hours and shifts change every week, they depend on tips, they get paid a flat fee for a job that might last a few days, they're temps, they work for commissions, they have no 401K and maybe no health insurance, and they can never be sure how much money they'll have at the end of that DAY, let alone that month or that year. You probably encounter this among some of the people you counsel. Do you have any thoughts on how to make long-term plans in a short-term economy?

Being part of the GIG economy makes it more important to do all of those things. If at all possible, live on the amount of income that you earn in the lean months and save the rest, so that you can begin to prepare for the future.

I get VERY annoyed when I hear or read people saying sound, basic advice doesn't apply to poor folks and people with irregular or low income. How can it not? 

You have to budget even when your income doesn't meet all your needs. And yes, it's impossible for many people to "max" out retirement when the IRS limit for a 401 (k) is $19,500 for 2020. But this doesn't meant you can't or shouldn't still be concerned about retirement. And if you're income is low, definitely try NOT to live on credit. That's a hole you can dig so deep that it will take you out. 

If your income isn't enough than you have to unfortunately do thinks differently. You may need to have a roommate or several roommates. You may not be able to have your own apt. or home without again a roommate. You may hove to move to a lower cost area. 

My point is financial advice isn't useless for people living on the edge. We talk about the ideal and then help people figure out how to manage with what they have where they are. At least that's what I do. 

Hi. My spouse and I live in one state and we telework with different companies that are in states that do not have reciprocating withholding agreements with our home state. What is the sequence of state tax filing? Work state(s) first then home state?

Taxpayers are taxed on all of their income (worldwide) in their home state, no matter where it is earned. Generally, they are allowed a credit against home state taxes for taxes paid in another state because the income is being double taxed. In a few specific circumstances, taxpayers are determined to have no home state and then there is no credit, but its unusual.

a neighbor posted a comment on our neighborhood list_serv from the homeless organization he works for & I found some of the statistics interesting & the one that really struck me was a majority of americans are 3 bad months away from homelessness and another one that resonates as someone who lives in an expensive area & I don't remember the exact statistic but many homeless people actually have jobs. they just can't afford to live where they work.

You are right. This is a good topic for a column. Adding it to my list. But I have found in my community work that there are many, many people with good jobs who are just a few months for total financial disaster. 

But you know what? I also find there are a lot of people who have the room to take someone in or even a family to help them get on their financial feet. And they won't even consider it. 

My husband and I have opened our home to people many times over the years. My sister and her two kids lived with us for three years after her husband abandoned her. A relative in lots of debt moved in and took 18 months to get herself straight. She had a good job but debt ate so much of her pay she literally couldn't afford an apartment. We did not charge her any rent. We didn't charge her for food. We wanted her to use all her income to dig out of debt. Once she did that she was ready to get her own place again. 

I'm just saying that many people out there could help because we know the states and federal gov't isn't the only solution to homelessness. And of course, we all should be joining the fight to encourage a minimum wage that people can actually live on. 

We are a married couple approaching retirement, and we want to double-check our plans for the future by consulting with a fee-only financial advisor. We contacted a reputable planner in our community, but his only service is to create a comprehensive, 50+ page "Plan" for which we have to pay $5,000 upfront. He won't provide any advice on an hourly basis without doing the "Plan" first. Is this common? How can we get answers to specific questions without a large, upfront fee?

The only way to get the best answers for your situation is for the expert to review your entire situation. You have certain questions, but if this isn't your expertise, then you may be missing crucial questions. Maybe there is someone who will do a comprehensive review for less, but I would say it is good to get the comprehensive review.

I'm seen good financial plans for about $1,500. And you certainly can find a planner who charges an hourly rate. 

Read these articles:

10 important steps to take before hiring a financial adviser

What You Need to Know About Fee-Only Financial Advisors

How to Choose a Financial Advisor

My daughter received her 1098-T tuition form for her college expenses from last year. The 1098-T form is in the student's name and shows the student's Social Security number, instead of the tax information for the parents. This seems odd, because the student herself paid very little of those costs to the college. We (the parents) want to claim last year's college expenses on our taxes if we are eligible. Why does the 1098-T use the student's SSN instead of the parents' SSN, and how does this affect the parents' ability to claim any expenses?

Children, ages 19 - 24, full-time students for at least 5 months of the year, and supported more than 50% by their parents, are dependents of their parents. Even though the 1098-T comes under the child's number, the parents can claim the deduction or credit.

When I cashed out (distributed) my $92K IRA, I just assumed I'd be charged at my nominal tax rate whether it was lump sum or distributed over a number of years. Same overall tax either way. I just wanted to put my liquid cash into same account for a jumbo CD (or something; any ideas?). My old boss says I'm an idiot; I told him that he must haven't trained me properly. Am I an idiot?

Is there any chance, you cashed out less than 60 days ago? If yes, then go to the bank and transfer the money back into an IRA. Unfortunately, when your income goes up, the tax rate goes up. Our tax system graduated rate system, rather than a flat tax. IRAs and pensions are taxed at ordinary tax rates; there are no special tax rates.

I have a million dollars. I mean, I can't get at that much as about half is in retirement accounts that would require taxes and penalties to liquidate and why would I anyway? That is retirement money. But I have it. I rent, so I don't have any real estate asset. And that doesn't include personal belongings like the 14 year old Civic I bought from my parents a few years ago. It has taken a long time to get here. I graduated from law school with $70K in debt, a good job and a few thousand bucks in the bank. That was paid off a long time ago. My career has had its ups and downs including two very long bouts of unemployment which required using up a lot of savings, but never dipping into retirement accounts and never building up credit card debt. My taxes this year look like they are going to break even nearly exactly. And, you know, I still expect to work until I am 70 in 15 or 16 years. I hope that this milestone will get me to relax a little bit about spending on some nice vacations, but I don't expect my life style to change much otherwise. But, wow, it does feel good to have gotten here. Especially when I reflect back on the time someone put me on a list to get a food box for a holiday and I was so nervous about where my next paycheck would come from, I took it. Most expensive food ever. I sent the group a letter to make sure I was taken off the list the next year since I was working again and added a check for $150.

Wow! What a wonderful accomplishment. And I hope you can relax too. Because trust me, I see a lot of budgets and retirement accounts and you are in the minority. 

I recently retired and my income this year was more complicated due to a lovely parting gift . . . er, a package from my long time employer. Yesterday, I went to a nearby location (John Jay College in NYC) to avail myself of the free tax services for seniors. My income was too high to qualify for the free tax filing but I did receive excellent tutelage in learning how to file my taxes online from the IRS employees who were there to assist. They were professional, patient and knowledgeable. I paid for the tax program I used and did the entry myself with continuous support. I left understanding how the online programs work and having filed both my federal and state taxes. By the time I got home I had emails confirming that each return had been filed and accepted. It was a great experience. I recommend it to anyone who feels they need assistance. I didn’t know where I could go - beyond saying thank you to the two employees who helped me. Hopefully, the IRS will hear of this.

I know Chuck Rettig, the IRS Commissioner. He has really high standards for his employees and the will be thrilled to hear your praise. If possible, share it on Twitter, Facebook, Instagram... Wherever you have a voice, give them a shout-out.

What a great compliment and testimony about using the various venues to get tax help. 

Read: You can get free help on your tax return. Here are some options.


I am a tax attorney and while I still do my own very easy taxes by hand just out of some sort of stubborn pride, I have helped a friend with a more complicated situation including two small businesses and various tax credits. It isn't impossible, but it is difficult even for people trained in this area of law. Not that being a tax attorney is really about filling out forms, but the vocabulary is at least familiar. Splurge on the tax program, but try doing it by hand before you get it and then compare your results to the program's results. That way you can know if you need to use the software next year. Also, I think it is a really good thing to work things through so you can actually see how close you are to various cut offs (like having to reduce contribution to a ROTH IRA because of income) which the software tends to hide from you. They WANT you to be dependent. Which is OK if you really are, but any sort of accountant should be able to do it by hand if he or she wants to.

Really good points. Thank you!

I am wondering how the new FICO score systems affect people with so called "light" credit, via using debit cards and charge cards (like American Express) that don't have the option to carry any balance over. From what I've read it seems like they would stay mostly the same? Since the new scores would simply look over a longer period of the same behavior, but I would like to know for sure. I haven't read much on this topic, as the emphasis has been mainly on how it affects credit card uses, not charge and debit card users. And for the record, as long as my score remains above the 740 threshold where it always has, I am not interested in changing my habits. (She, DC)

From what I know the new FICO won't impact people with thin files or who don't use credit as much. The new score is looking for trends that indicated a change in behavior mostly for the worst. 

Read: FICO credit score changes could punish people who struggle to manage debts


I wrote in a few months ago, despairing of a sudden, meteoric increase in my husband's student loan payments. This happened after we got married, and filed joint returns for the first time. Since then it's been hard to make ends meet, and we're still not even touching the principal of the loans. We'd like to make things a little easier this year, but we're disagreeing on how. My husband thinks we should file separately, and then his student loan payments would go back to a manageable level. I think we should file jointly so we can deduct the student loan interest (and it's ALL interest), and adjust withholding so there's more in our paychecks. Who is right? (Additional info- married, no kids, both public servants, bought a house last year).

Before making the decision to file separately, you should run the calculations to see what results you get. In most, but not all cases, overall taxes are lower by filing jointly. How much does paying higher taxes save in the amount of the loan payments? Also, lower loan payments means that more interest will accrue. If possible, it is better to bite the bullet and get the student loans paid off as soon as possible. Finally,  before adjusting your withholding, make sure you will still break even when the taxes are filed or you will have tax debt in addition to student loan debt.

A friend, who works in banking, suggested it might be in our best interest to take a large sum of savings out of TSP (L 2020 fund) now, when tax rates are lower, and put the money in high interest CD. That the current tax rates are not permanent. Any thoughts, pros/cons you might share re: this idea?

It depends on how much you have in the TSP and how much it will raise your taxes. My suggestion, if the TSP is eligible and you have cash to pay the taxes without pulling from the TSP, is to convert part or all of the TSP to a Roth IRA. Once in the Roth IRA the investment earnings will now be tax free.

I think you shouldn't be taking such advice from a "friend" who works in a bank. Is this friend suggesting you get the CDs from his or her bank? 

And there aren't any "high" interest rate CDs unless you are defining high as rates just a little big over 2%. 

Also, you don't say how long you have until retirement? Since you're in a lifecycle 2020 I'm guessing you are close if not already retired. 

Nobody knows what will happen to tax rates. So make a decision based on your current situation. If you've got other retirement income -- Federal pension, Social Security, etc. -- you may need to reallocate the TSP funds to something with from growth. You would do well to sit down with a fee-only planner and map out a strategy based on all your information. 

Hi Michelle - quick testimony first. My husband just had unexpected surgery and we were able to cover all the associated costs out of our life happens fund, which was a big relief! I want to get a fee-only advisor to help us set up our money plan, as I very much feel like we’re winging it at the moment. But anytime I try to find someone, at least in Montgomery County, I get so discouraged that I am just not the target audience at all. Most firms I have seen quote around $5k for a comprehensive plan and want you to have at least $500k in invested assets. Am I doing something wrong? Not looking in the right places? Surely someone out there works with people other than doctors and lawyers and executives, right?! Any advice? I normally just end up giving up and thinking I’ll read a book, which just isn’t working.

If you know an advisor at one of the firms that require the high investment assets, ask them for a referral. If not there, ask your CPA for a referral. Not all advisors are the same and you want to go with someone you can trust.

I agree with Melody. There are financial planners who will work with people who don't have 1/2 million in assets. You just have to keep looking and asking for referrals. 

If you have workplace retirement plans, I suggest you reach out to the companies managing the plans to see if you can get some financial planning advice. 

My college freshman received a merit scholarship, and we pulled some of that money out of our Education IRA (Coverdell) -- no more than the scholarship amount. My understanding is that we won't pay the 10% penalty, but need to pay taxes on the earnings portion of what we pulled out. IRS Pub 970 is confusing on how to calculate that. What information do we need to figure that out? Thanks. MD, he/his.

First, look at the definition of qualified education expenses for the Coverdell withdrawals, because there are different definitions depending on the type of account. The amount of the distribution that is not earnings is determined by multiplying the total distribution by a fraction that is the total contributed (basis)/total value of the account. Subtract this number from the total distribution and the difference is the earnings. Many of the 1099Q statements provide the earnings.

Hi Michelle - Just wanted to send you a quick thank you for your great advice on how to prepare your finances for parenting. My husband and I started saving our estimated daycare payment (wow did that blow a hole in our typical budget!) so not only do I feel less terrified about our ability to manage daycare costs, but we also have a little nest egg built up that we've used to buy baby necessities and to take a little babymoon last month. It's not easy to wall off that much money every month, but I'm so glad we did!

Thank you for letting me know how the advice turned out. For background, I often recommend folks who find out that they are having a baby to start putting away money equal to their baby expenses --daycare, diapers, etc. during the pregnancy so they can see how their budget handles the new expenses. This serves two purposes. You start saving right away and you get to see how much you need and make adjustments before the baby arrives. 


Hi Melody and Michelle, I have been notified that some of my tax docs won't be ready until Feb 18th. I am impatient and want to keep moving forward with my returns. Can I use last year's forms in the tax software until I get the 2019 ones? What would happen if I forget to update the info? Coping mechanisms for being patient are also appreciated.

If you are trying to estimate the total taxes and you know that 2019 is similar to 2018, then you can use 2018 as a placeholder. Many tax software programs give the option to mark a number as an Estimate. If your program doesn't do that, then you need to make a list to keep track of it. Another way to do it would be to organize your tax documents and make a notation when you enter the information in the tax software. Insert a blank sheet with your estimate listed. Before you finish the returns, go through your tax documents to make sure you have pulled estimates and replaced them with the 2019 actual documents.

Me, I'd wait. Why make more work for yourself? 

This is coming form a person who is not patient by nature. Just ask my hubby. 

How to cope with waiting. Find other things you need to do. Even coming in by Feb. 18 you have quite a bit of time before your return is due on April 15. 

I live in MD and work in PA - there is a reciprocal tax agreement. There is, however, no law or regulation that requires my PA employer to (a) send taxes to MD and (b) not withhold PA taxes. I am in the situation of having to pay PA taxes and estimated MD taxes. Since PA has a flat tax, the is no PA W-4 form. Any thoughts?

Unfortunately, if you can't get help from your employer it seems like you are stuck with forced savings through the PA withholding that will be refunded.

One year my tax situation got a bit complicated (real estate partnership income in another state from an inherited partnership). I did Turbo Tax, then I also hired an accountant to do it. Sure, it was extra money, but looking at what the accountant did gave me the comfort that TT was working (with one small tweak) so I could continue to use it.

If you have the money to do it this way, I'm not mad at you. Second opinions can be good. 

Not sure if you consider this a financial testimonial but I certainly do. Two weeks ago my divorce was finalized. One aspect of that is that I get to keep the house and I have to refinance within nine months. I have spent the last three years since filing for divorce paying down debt and working on my credit so I now qualify for an interest-rate that is lower than the VA loan interest-rate on the mortgage currently on the house. Of course doesn’t hurt the interest rates are low but I went from a credit score in the mid 600s to one that is nearly 800. I’ve written him before I mentioned that I was working my way out of over $30,000 in credit card debt, student loans, two mortgages and quite a bit more. I am on track to pay off everything but the mortgage is in the student loans by 2022 if not faster. All while being in essentially single mother of a four-year-old with a long term restraining order against my ex. Thank you for all your advice that you’ve given to me and others over the last three years! (As a sidenote, YNAB has been a helpful from me when budgeting and creating my life happens, emergency and other pots)

This is most definitely a testimony. Thank you for sharing and so glad you are seeing some financial light at the end of a horrible tunnel!

Keep looking. I found a guy through a friend who is in the close-in MD suburbs who charged something like $600 for a comprehensive plan. And lower than that for check ins every year or so. He even said to me " I could advise you that I should take care of your investing and get a percentage, but you're smart enough to do it yourself" and then gave me some starting guidance. I dont feel comfortable giving his name on the internet, but they're out there. Look for solo practitioners or small shops, rather than the bigger companies.

Thanks for sharing. 

I am a VERY senior citizen, but still working 3/4 time, with 3-4 side gigs. After 4 kids, private school/colleges, divorce, conquering 2 foreclosures, I am FINALLY on my way to being debt-free (ex. mortgage, which is ok due to LOTS of equity). What thrills me are the frequent emails from Experian about my FICO score saying "Great job! Your hard work paid off and your score increased.". Makes my day!

You don't need Experian telling you a great job based on your credit score. You are doing a great job period! 

Anyway, so proud of you and not because you have a great credit score. But because you are getting those monkeys off your back. 

Is orthodontia considered a valid medical expense for tax purposes?

Yes, orthodontia is a valid medical expense. It is really hard to deduct medical expenses because the total medical/dental expenses must be more than 7.5% of your Adjusted Gross Income in order to reach a level that is deductible.

Hi Melody, thank you so much for being here. We have a complicated situation and have gotten very conflicting advice. My husband is the sole trustee of an irrevocable trust, set up by living family members, with one asset (property). There are three beneficiaries of this trust and the property is due to be sold this year. The trust attorneys who set up the trust have indicated that, when the property is sold, the trust will pay the capital gains tax. Then the remaining profit can be distributed to three beneficiaries but that these beneficiaries will pay income tax on the distribution. Our accountant has stated that that is not true, that the trust can file a lifetime gift tax exemption for each of the beneficiaries so that the distribution isn't taxed. The trust attorneys have disagreed on this. We have our own attorney (who does estates and trusts), should we reach out to this separate attorney or is our CPA correct?

Is there any income in the trust besides the gain from the sale of the property? If yes, that income, when will be taxed to the beneficiaries. If the only income in 2020 is the gain from the sale of the property and the cash is paid out to the beneficiaries after the trust pays the taxes, then this is not a distribution of profits and it will not be taxed again to the beneficiaries. 

It seems like the general consensus of the question of "where should I pull the medical bill money from" was my HSA rather than my emergency fund because emergency funds are for all emergencies. (I needed emergency surgery) However, I was thinking my emergency fund because I was under the impression that if I needed money later, I could save the receipts and pull that same amount of money out of my HSA, tax free, after more years of growth. It's also a lot easier to put money back into the emergency fund, as I'm not limited by how much goes in there per year. And (over time, but not necessarily each year) an invested HSA should make more money than a high yield savings account emergency fund. I also have a life happens fund that would cover a majority of this OOP max. Is the answer of the HSA still the decision?

Your HSA withdrawals are only tax free when they are being used to pay qualified medical expenses in the same year as the withdrawal.

"I also find there are a lot of people who have the room to take someone in or even a family to help them get on their financial feet. And they won't even consider it." I guess I get that some people won't take in relatives who have disappointed them in the past. But not accept help freely offered when it is really needed? I have been offered help at least once in the past and the only time I didn't take it was when I really didn't need it. It would have been nice, but the offer was delivered in a way that felt insulting and I could manage without it that time.

So my point was we are our brothers' keepers, meaning look around and see who needs help. Offer help or open your home to folks who could use a place to live while they are getting themselves together financially. Now, of course you want to be discerning and careful. You do not want to enable bad behavior. My husband and I did not take in a relative who asked to live with us because after a meeting with him discuss it, it became clear he was not doing certain things as he should. We felt he was going to take advantage of our good will. But soon after we took in a relative in debt. 

And you are right. If you are going to help be kind. You can be tough -- because you know I am -- but bring the love and compassion too. 

Spouse is retired CPA from second tier large national firm. We use TurboTax each year! It is still a lot of work to organize W2s, 1099s, etc but the program walks you through and prompts for each item. You can get different 'levels' depending on how complicated you are. We have to get the Premier level but it is worth it!

This is a good option, but even with software, mistakes can be made when you don't know what the result should be. If income is from multiple sources, I recommend working with a CPA with an expertise in income tax.

YNAB was noted in the previous testimonial what does it mean?

YNAB stands for "You Need a Budget," an online personal budgeting program. I haven't used it so can't tell you how it works. 

Are there any tax benefits to filing a joint return? The standard deduction for two people filing separately adds up to the same as the standard deduction for a married couple filing jointly.

Although the standard deduction is the same between the two filing statuses the tax brackets are different and certain benefits are lost. Sometimes there is a need to file separate if possibly one has outstanding tax debt. If there is no reason requiring it, then I would calculate the taxes both ways and choose the one that results in lower overall taxes. Keep in mind, if you are in a community property state, like California, then the income needs to be split equally, and reported equally on each separate return.

I am retired, my husband is not. I want him to max out his retirement contributions (to lower taxable income) and pull the same amount out of my Roth. Is this insane?

It depends on what the overall income is now and what it will be later. The answer to this question requires that you run tax projections.

Wow, so many tax questions. And I'm super sorry if we couldn't get to you. But Melody has agreed to answer some additional questions offline. I'll compile them and put in an upcoming column. 

Thanks for joining me today and see you next week. 

In This Chat
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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Melody Thornton
Melody Thornton is a certified public accountant.
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