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Michelle Singletary
Washington Post Personal Finance Columnist
Thursday, January 17, 2008; 12:00 PM

Need advice about how to handle your personal finances? Whether the struggle is saving for retirement, organizing your bank files, talking about money responsibility with your spouse or loved one, Post personal finance columnist Michelle Singletary offers her advice and answers your tough questions.

This Story
This Story

She was joined by Paul V. Thompson, president of Premier Accounting & Tax, Inc., who answered tax questions.

A transcript follows.

Read Michelle's latest columns, check out her Color of Money Book Club selection archive or sign up for her weekly e-mail newsletter.

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Montgomery County, Md.: Hi Michelle,

Just got engaged a few weeks ago (ring paid for with cash) and feeling completely overwhelmed by the financial impact of planning a wedding. We want to have a small wedding for a reasonable price, but are having difficulty locating reasonably priced places. Do you or your readers have any suggestions on how to cut costs? Thanks so much!

Michelle Singletary: Good afternoon to you all.

Thought I get started with this question even though it's not tax related.

So help me out guys, any ideas?

Something to think about:

-- Community hall at your church or some other church or religious organization

-- Community Center

-- Plan the wedding on an off day or time, for example a Sunday afternoon

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Washington, D.C.: I had some freelance income from the 4th quarter of 2007. I also have a full-time job. I changed my withholding to zero to make up for some of the tax hit, but I didn't file a quarterly. Will I be hit with penalties? I have to say that losing 50% of my freelance income to taxes makes me wonder if it really is worth it.

Paul V. Thompson: There can be a penalty. If your federal withholding from your full-time job matchs or exceeds last year's tax liability, then there will be no penalty. Also if your withholding is at least 90% of the current year's tax, there will be no penalty. The other way is to have made an estimated payment by Jan 15th.

Michelle Singletary: I do a lot of work outside my day job here at the Post and that tax hit can give you pause. But then again, it's still income and your ability to generate it puts you so far ahead of so many people.

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Rockville, Md.: If my credit score is so important, why is the only way to get it through some advertising plan where it is the "bait." Why can't I get if from my credit union or bank?

As a matter of principal, I refuse to sign up for a service I do not intend to ever pay for. That just seems wrong to me.

Am I out of date? It certainly seems like it.

Michelle Singletary: You are not out of date. And I agree with you. Just like we are entitled to free credit reports, we should get at least one a year a free look at our credit scores.

If you are mad enough write your representatives in Congress.

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Bowie, Md.: Michelle, you always say we should have three to six months' expenses in general savings. I know that should include things like groceries and utilities, but what about for non-recurring expenses like car maintenance and property taxes (for which we save separately anyway) or haircuts and clothes (if my hubby loses his job I'll just stop cutting my hair and buying clothes)? Should that all be part of the three-to-six months? Thanks!

Michelle Singletary: I think you should look at your budget and calculate what you typically spend -- for everything -- and aim to save that. You may say you will cut your expenses right away if something happens but my experience with counseling people is that generally people don't pull back soon enough.

So better to save as much as you can and have it as a cushion if in fact you do pull back as soon as you hit a financial crisis.

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Virginia: Hello Michelle and Paul!

Just last night my hubby and I were talking about what kind of car to buy (his has no heat) and I said, What would Michelle Singletary do? He just laughed. Michelle are you proud of us for driving that heap until now? (it's paid off).

My question for Paul is, can you explain the Earned Income Credit? My tax program and the IRS Web site give somewhat differing explanations so I'm not sure if we qualify for this.

Thank you for all your wonderful advice!!!

Paul V. Thompson: The earned income tax credit is based on the number of dependents that you claim and your earned income. There are requirements for claiming the dependent that need to be addressed. The maximum credit for one child is $2,853.00

Michelle Singletary: You can also find out if you are eligible for the Earned Income Tax Credit by answering some questions and providing basic income information using the EITC Assistant on the IRS web site (www.irs.gov). The information by the way is available in English and Spanish.

By the way you do not have to have a child to qualify for EITC, however, you must meet certain rules. If you are 25 years old but under age 65 at the end of the year and had low wages or other earned income you may be able to claim the credit. If you are still unsure about this seek help from a tax professional.

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Silver Spring, Md.: Due to the combination of my salary and my wife's (both of us are governmental managers) we got hit with the alternative minimum tax the last two years. What changes if any have been made to the AMT and at what level does it still have an effect on our tax bills?

Paul V. Thompson: Unfortunately Congress did very little to fix AMT this year and so you will more than likely be hit with it again.

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401(k) to Roth: Hi,

My husband and I have 401(k)'s from former employers totaling close to 500k. We would like to convert them to Roth IRA's, but obviously can't pay that kind of tax burden in one year. Can you suggest a strategy for rolling them piece by piece? Also, I know there is a cap ($160,000?) on how much a couple can make and still be eligible for a Roth at all. Does the money you add to your yearly income simply because of the act of rolling a 401(k) into a Roth count against that maximum? In other words, if a couple makes $145,000 and roles $20,000 into a Roth did they just make themselves ineligible for the Roth?

Paul V. Thompson: The rollover amount is not included when looking at the limitation amount.

Michelle Singletary: Also, before definitely deciding to roll over the money to a Roth please seek the advice of a competent financial advisor. You may find the numbers don't add up to take the tax hit now.

I find to often that people are so narrowly focused on reducing their tax burden that they make fundmental money mistakes. Just think in retirement you won't be withdrawing all that money as once, so is there a possibility that later in your retirement years you will be a lower tax bracket therefore reducing the taxed you pay on the 401 (k) money? Just asking.

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Frederick, Md.: I am possibly interested in keeping and renting out a property I own that is not selling. Would it be smart for me to speak with a CPA who specializes in rental property tax implications? Further, how do I chose the best person to do my taxes...especially if I am increasingly dealing with more difficult items like a vacation home, rentals, more than 1 property, stock purchase plans, stock options, etc? (mine seemed great with "normal" taxes but is not as comfortable with more complex items.)

Paul V. Thompson: I would highly recommend you speak to a tax professional. Seek someone with credentials such as EA, CPA, ATA and someone with experience. The tax laws are complicated.

You can contact the National Society of Accountants for a recommendation. 1-800-966-6679

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Tax Idiot, D.C.: Hey, Michelle, and hello, Mr. Thompson! I have a stupid question about withholding. I'm newly divorced and so I need to change my withholding -- but to what? Well, to single, obviously, but would it be a better idea for me to claim one exemption (myself) or no exemptions at all?

I'm asking because my ex- and I had to pay the IRS the last few years because he refused to have enough money withheld to cover what we'd owe, and I do NOT want to be in that position by myself. My taxable salary will be in the area of $60,000; I will be having 8 - 10% going to charity, no major medical expenses, and I'll probably have less than $5,000 in dividends, interest, and capital gains. (I just increased my TSP contribution from 10% to 15%, and I have two Roth IRA stock funds to which I contribute.)

What would you recommend? I would be very grateful for any assistance you can offer.

Paul V. Thompson: Your best option is to meet with a tax professional because you have many issues that will affect your tax. I usually recommend claiming zero the first year, if you don't want to go through the calculations.

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Life Happens versus Debt: Hi Michelle! I LOVE your advice. I have only been reading you for a little more than a year but you have truly changed my opinions about money and debt. I have a question that I think should be easy but I'm waffling with. I own a condo, have a student loan, a car payment, and owe $1700 on a credit card. I do have 5k in an emergency fund, $600 in a life happens fund, contribute 12% of my pay to my 401k and my ER matches 6%. I have taken the Michelle approach to life and determined I don't need a lot of things I believed I did and have come up with $800 a month that can be applied to debt/savings. My life happens fund keeps getting wiped out over the last 1.5 years because of medical/dental bills and the remainder keeps going on my credit card. Does it ever make sense to pay the minimum on your credit card for say 2 months and take that $800 per month and stick it in my life happens fund - then for the next 2 months not save and pay the bill off? I feel like I can't get ahead of life at the moment for things I need i.e. dental work and medical tests. I think once I get to a comfortable life happens fund, say 2k, I could then attack the credit card and save a bit into the emergency fund, then tackle the car payment, then the student loans, etc.

Michelle Singletary: This isn't an easy question. You are waffling like so many others asking which comes first savings or debt reduction.

But you don't have to choose. Why not take half of the $800 and build up the Life Happens fund.

Then take the other $400 and pay down the credit card bill. You will have it paid off in about five months. And stop using the credit card. PERIOD.

At a last measure, if you are still getting hit by expenses before you build up your life happens fund then cut back a little on your retirement savings until you can catch up. BUT ONLY DO THS IF YOU REALLY, REALLY, REALLY will go back to saving for retirement.

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Giving to Charity at a Grocery Store: I know there are new rules on tax deductible contributions to charity. How can I make sure that the $1.00 I give at the grocery store and the pet store that is stated on my receipt can be deducted from my taxes? Do I just keep all of the receipts which list not only the 1.00 to charity but also mayo, cat litter and other unrelated items?

Paul V. Thompson: Yes, you have to keep the receipts. Proof is required under the new rules.

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Dayton, Ohio: A question concerning the claiming of a dependent for tax purposes.... An 18-year lives with one of two relatives (grandmother and mother) equally during the year. He goes off to college (full-time) and does not pay for his own support. His support (e.g., tuition, fees, books, room, board, transportation, generally everything) is being paid for by the grandmother. Who gets to claim the "child" as a dependent? Who gets to claim the tax benefits for education (e.g., Hope Credit, Lifetime Learning Credit)? Thank you.

Paul V. Thompson: The dependent exemption goes to the person the child lives with for the great part of the year. If it is exactly the same the tie breaker rules go into effect and it would be the person who has the highest adjusted gross income

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Trying to save - impossible: Hi Michelle

LOVE the chat and first time posting. My husband and I really want to save for a house and possibly buy next year but how do we start? I'm trying hard to save money but we just keep putting what we make toward bills/debt. I want to have this paid down first. We owe about $10k in cc, car loan and student loan. How would you go about saving money for a down payment? CD/Money market? RIght now we have about 2k just sitting in the bank (savings).

We're in our late 20's and haven't even started a 401 or anything for retirement. I actually feel helpless over the situtation and it's overwhelming that I just don't know where to start.

Suggestions?

Michelle Singletary: Welcome first timer.

Here's what I recommend first to people in your situation.

Breathe.

Seriously, after you read the answer to your question. Take a deep breath. Because it's going to be okay.

Next, you will be able to calm down when you get a plan. Yes maam, that means a budget. You'll find a template for one on my page at the Post Web site.

For example, you may be rushing into getting a home too soon. I mean you're just in your 20s. No rush. It's better to be free of that debt bondage first. And really you don't have a lot if that $10,000 is spread across credit cards, car and student loan. Aim to pay off the debt -- all of it.

I wouldn't even me mad at you for delaying contributing to your retirement fund at work if you had a plan. Get this monkey debt off your back first.

You also need to build up your emergency fund (at the very least 3 months of living expenses). The 2k is a nice cash cushion for what I call a life happens fund becuause well life happens. You need that money for car repairs, etc.

Then start contributing to your retirement fund. Then start saving for the home. Go talk to some real estate agents and figure out where you want to live and how much house you can afford. That will give you a starting point on how much you need to save.

Finally, after all this you are ready to save for a house. If you plan on buying in less than five years, park the money in a high yielding savings account or money market.

Hope this helps and keep coming back. I'm here for you.

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Philadelphia: In regard to the freelance income, from reading on the IRS website it seemed like if this is the first year you've had freelance income you are exempt from the penalties. Is this true or did I read it incorrectly? I've never owed money before, but due to 4th quarter freelance income, and in spite of 0 withholding, I'm going to owe money. So what exactly are the rules for new freelancers? Thanks for the clarification.

Paul V. Thompson: Sorry, but you are not exempt from penalties. If you earned the income in the 4th quarter of 2007, you should have made an estimated payment by January 15th. Is the freelance income your only income in 2007? You can still make an estimated payment and it will only be a few days of penalty.

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Wedding Costs:1. Use vendors outside of the immediate D.C. area - the prices drop quite a bit just heading a a bit out into the burbs.

2. Immediately disregard things like napkins printed with your names.

3. Print your own invitations

4. Figure out what is important to YOU and spend the money there. If you don't dance, don't feel obligated to have a dance band.

5. Don't feel obligated to let every single person bring a guest.

Michelle Singletary: Amen. Amen.

Oh and I bought a used wedding dress. I figured the person who wore it before me wasn't coming to my weddng so nonone had to know.

And my cousin drove us to the ceremony and the reception.

People drank their own liquor at home.

Had a friend DJ the music.

Remember this is just one day, and most of the day is just about a party. Concentrate on the ceremony and what that means and everything else becomes expendable.

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Anonymous: Hi Michelle,

My husband and I own our own home and have no credit card debt. Aside from our mortgage, we have about $80K in home equity line that we have used only to renovate and update our home. We also have $15K in cash for emergency fund. My question: Should we just take that cash and pay down part of the line? We bought our house from my parents, they are the "bank" (paid $300K for it) and even with the market, it is worth nearly $800K today. What's the best thing to do? I would love to pay down the line but am afraid to give up the cash!

Michelle Singletary: If that $15,000 represents your emergency and life happens money, don't use it.

Just do what you can to cut expenses, earn extra income to pay down the equity line.

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Washington, DC: Where does the IRS come up with the formulas for "extra" withholding? Last year I got hit with a big tax bill because my withholding was too low, so I dutifully used the two-income calculator on the W-4 form. We don't have any income besides our jobs, so that should work, right? This year, I'm going to owe nearly $3,000. Does everyone else in my tax bracket have extra magical deductions that I'm not aware of? Finally, I created a spreadsheet that mimics the 1040 and Schedule A to actually calculate my taxes based on what I'm theoretically going to make - much better than relying on that horrible form.

Paul V. Thompson: The most accurate way to calculate your taxes is to estimate based on all your income and deductions. Then look at how much is coming out of your paychecks. If it is short, you can have your employer take out extra through the year and avoid the penalty. Those W-4 forms don't take into account everything. You're on the right track.

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Falls Church, Va.: Re: Ways to Have an Inexpensive Wedding

-Schedule the ceremony for late morning and have lunch after

-Look for a local restaurant with a private room, rather than a place that caters to weddings

-Don't serve alcohol

-Find friends/acquaintances who might be able to provide services for less money: amateur photographer/videographer, crafty friends who can do floral arranging or favors, someone who can make the cake

We did our wedding (with 175 guests) for under $10,000.

Michelle Singletary: Love these ideas, used most of them myself.

And by the way, I spent soooo much less than soooo many people I know and I've stayed married soooo much longer than many of them -- 16 wonderful, wonderful years to the finest, kindest, sexiest man I know.

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About that cushion: Not just for job loss: We had the cushion. We needed it for illness. Medical costs went through the roof, plus living costs. We managed. Now we want to rebuild it...but income took a huge hit and it's hard to do. Your usual advice to get an additional job is not an option.

Michelle Singletary: I also say cut expenses. If you own a home, try getting a boarder.

If you have two cars and can make it with one, sell a car and take that cash to help.

The thing is you have to keep thinking to find ways to live on what you have. If you can get a second job outside the home, what can you do at home to make extra money? Are there things you could sell on E-bay? Do you have skills you can offer a small business -- copy editing memos for example.

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Silver Spring, Md.: I know I'm going to owe a few thousand in taxes this year due to inheritance and converting from W-2 to a 1099 with nothing withheld for a few months. Is it best to pay it all now and get it over with or to keep the money in savings until April?

Paul V. Thompson: I'm not sure if your inheritance is taxable or not. Since you are now receiving 1099 income, you should decide to start making quarterly estimates. I usually suggest that self employed people calculate their net income (Gross income less deductions) each month and reserve one-third of the net in a savings account for taxes. I realize that when you are starting out that it might be difficult, but do the best you can, as you will be glad when it comes time to pay the estimates. As far as paying it all right now, it depends. If you are going to be assessed a penalty then I would say yes. If not, then I would say put it in a savings account until April 15th.

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For Mont Co - Wedding: We got married in Jamaica a couple of years ago. Cost about $5k for everything, including a sunset cruise for everyone (30 people), brunch, wedding ceremony/reception, and transportation to/from airport (1.5 hrs each way). Everyone loved it - we spent 4 days hanging out at the beach with our family and friends, with absolutely no stress. Everyone still talks about how great it was, 4 years later. A number of our friends and relatives loved it so much that they are doing their own destination weddings. I would definitely recommend that if it fits your personalities.

Michelle Singletary: However, be careful people about planning destination weddings. Might not cost the couple much but can be burden for those who want to attend.

They then have to pay airfare, hotel, etc. And while your peeps may have loved it, I hear from a LOT of people who feel pressure to go to these destination weddings and they can't afford to. And since they don't have a Michelle Singletary whispering in their ear or knocking them upside their head they go ahead and go to the wedding and rack up more debt.

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Alexandria, Va.: Hi, Michelle. I couldn't participate last time so read the chat later. I have to say, the first question blew my mind! Here's someone making $50,000 a year, with $30,000 in debt, and a mortgage company lends him/her something like $350,000? I'm not real sympathetic to prime loan borrowers, esp. investors who expected a quick buck as prices continued to appreciate (NOT), but this is just insane. I wish someone could track down the lender before they do major damage to other potential mortgagees.

washingtonpost.com: Color of Money Live (Jan. 3, 2008)

Michelle Singletary: I so agree with you.

And loved, loved that you went back and read the transcript.

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Glen Burnie, Md.: I have a full time job but also do mystery shopping as a part time job. Yearly, I probably make $2,000 - $3,000 a year. Was I supposed to do anything to prepare for taxes? Are there any penalites that I should be aware of? I only have 1 exemption and figure that since I know I am overpaying taxes with my full-time job that that would cover taxes from the mystery shopping?

Please advise. Thanks for this chat!!

Paul V. Thompson: If the mystery shopping income is as an employee then you may be OK, depending on how much excess taxes you have paid in. If it is self employment income, deduct your expenses first and then the net will be taxed based on your tax bracket, plus 15.3% for self employment tax.

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Rockville, Md.: My non monthly expenses used to distort my budget more than any thing else. Now, I dedicate one income stream (about $200 a month) just for these bills. They are:

Expenses less frequently than monthly

Insurance Auto

Insurance Renters

insurance umbrella

Prescriptions - Me

auto- service

computer warranty

car tags

newspaper

meals out

This makes everything work much better.

Just a thought.

Michelle Singletary: Good thought. Really you can take any variable expense and turn it into a fixed expense. For example, if you know that your car insurance is due once a year and it's going to be $1,200 then every month budget for that $100. Same with car repairs. If you have a hoopty plan for repairs. Put aside say $50 a month for the eventual repairs. That my friends is why I suggest you create a life happens fund. This is where you keep such funds.

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Bad loan write-off?: Hi Michelle and Paul,

My husband and I are trying to get the most out our tax return so we can pay off some credit card debt. My husband loaned a family member money over the course of about 2 years(over 50K) to try and salvage a business. The family member is is now going through bankruptcy. He declared the amount of money owed to my husband in his bankruptcy proceedings--and we have this documentation.

We always do our taxes by ourselves using e-file. It appears to me that this loss translates to a capital loss-and we can only take a 3K deduction. Is this correct? Is there anything else that we can do to get more back from this loss?

Thanks for you help!

Paul V. Thompson: Unfortunately not. Personl loans that become a total loss are considered capital losses and subject to the $3,000 a year limit. You can offset any capital gains with the losses as well. There is a tax strategy to get a bigger deduction, but it has to be done before the money is loaned. Hind sight is 20/20. Sorry.

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Fixing credit report after illness?: Hope you'll take a non-tax question today.

In a nutshell, I was waylaid by severe clinical depression for several years before being treated successfully, and among the many things I neglected during that time were my finances.

Two charge-offs and several delinquent accounts later, I'm trying to repair things as best I can. I paid the charge-offs in full, and I have only 3 accounts (only!) left in collections, which I am working to pay. Together they total around $1000.

However, I have several years of delinquent credit card and student loan payments on my credit report that I know don't make me look good, but both my ability to keep a job and to manage my affairs were greatly impacted by the depression (which is a real medical condition, it's not just "feeling down").

Can you offer me any advice on how to salvage my credit? Do the credit reporting agencies give any leeway for illness? I would like to buy a house in the next 5 years. (I'm 34 now, btw.)

Thanks!

Michelle Singletary: First, I'm so glad you are well done. I say that because keept that in mind as you fight thu this and get back on your feet.

Second, stop stressing about that old debt. There is nothing you can do about it. It happened. The good thing is each month, quarter, year the bad debt has less and less impact on your credit ratings. You will have to clear up those collection items if you want to buy a home but otherwise the next best thing to improve your credit is going forward pay ALL your bills on time ALL the time.

And stay away from consumer debt, ie. credit cards.

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Alexandria, Va.: What's the threshold for using a tax professional? I say that a smart person should be able to do the taxes for a family including two parents, two to four kids, one salary, one from-home self-employment business, one home, one mortgage, and no unusual income or expenses. My wife says that, even though I'm smarter than 98% of the people on the planet Earth, I'm probably missing tax benefits that would justify the price of a tax preparer. I agree that if we had a second home that we rented out part of the year, or major medical bills, or income from a big trust fund, we should pony up, but not now. What should be the tipping point?

Paul V. Thompson: The tipping point would be when you cannot look in the mirror and say to yourself; I know I am getting all the tax deductions allowed by the tax law. The tax laws are changing every year and some are very complex. I can give you a 1,000 examples of people who thought they had gotten everything. My recommendation is to get a second opinion. There are tax professionals who will look at your prior year returns for no charge. What do you have to lose? Time?

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Alexandria, Va.: Michelle,

I finished paying off all of my credit card debt 12 months ago. When I started paying them off I had two cards, both waaaaay over their limit and both 120 days behind. One of them was cancelled by the issuer b/c of delinquency and I cancelled the other when I finished paying it off. Right afterwards, I checked my credit score and it was 650 (I guess it wasn't completely ruined b/c I have been paying my student loans religiously since 2000).

I bought a car 4 months ago (my first big loan) and I am hoping to have enough money saved to make a down payment on a house in a couple of years.

I checked my credit score again a couple of weeks ago and it was up to 760! I would like to to be even higher though when I apply for that home loan in a couple of years. I am really averse to opening a new credit card, but I'm thinking that it would help my score even more.

Advice?

Michelle Singletary: Don't you dare open another credit card. Why mess with success.

Just keep paying your bills on time and paying off what debt you do have left.

Besides at 760 your score is in great range for a good interest rate.

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Washington,D.C.: Hi Michelle and Paul,

Does it ever make sense from a tax standpoint (and the shaky real estate market) to be a long-term renter? I realize that rent is not building equity, but I wonder if the intrinsic costs, property devaluation, etc., might not make it a wash?

Thanks!

Paul V. Thompson: The answer is maybe. There are a multitude of calculations and issues to take into account and no one has a crystal ball. There are many "experts" who write articles about your question, but most of it is speculation.

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Md.: If I get hit with AMT and owe more tax, does that mean I also get penalties for underwithholding? I am dead on with my withholding calculations otherwise.

Paul V. Thompson: A penalty may appy if you did not have at least 90% of the current year's tax liability covered or if your withholding this year is not more than your 2006 tax liability.

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Huntsville, Ala.: Hi Michelle. The last time I ran a credit report on myself was 2 years ago when I bought a house. Everything looked good and I got a good interest rate. I don't worry too much about my scores because I live by cash. But I did have a bunch of credit cards over 10 years ago that I opened, ran up, paid off, and closed. Can you explain to me what a negative account is? Some of those cards were still on my report but marked closed. I only had them for a few years.

Michelle Singletary: A negative account is an account in which you have been late paying or in collections.

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Tax Advice: Michelle,

How do I find a tax advisor? I don't need H&R Block to do my taxes but I have longer term questions that I would like professional advice on - like what changes if we rent out the condo we own and are currently living in, what do we do about taxes while we're working overseas (and getting taxed overseas as well) - questions like that. No one I know has an accountant or advisor. Any advice on how to find one who is familiar with international tax law and taxes related to being a landlord? Thanks!

Paul V. Thompson: Check with the National Society of Accountants for a referral. 1-800-966-6679. I'm sure many of the Large firms deal with international tax issues as well.

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Santa Monica, Calif.: I recently started a new job that allows me to work from home a few days a week. I connection with the job, I set up a home office (bought some furniture and equipment, upgraded my computer, etc.) I have heard from a couple of sources that claiming deductions for home office expenses makes you more likely to get audited. Is there any truth to that? Saving a little bit of money by claiming these deductions would not be worthwhile if I ended up going through the hassle of an audit.

Paul V. Thompson: I would tell you to claim every deduction allowed by law. Typically the home office deduction is not that big. Measure the square footage for business use, take pictures of the office area and take the deduction. I would think it would be a red flag if you are claiming a large portion of the home and large deductions.

Michelle Singletary: I completely agree with Paul. For the longest time I was reluctant to take home deductions because I didn't want the IRS come messing with me.

But that's nonsense. I follow the advice of my tax preparer and do everything that is legal. If I do get audited they will find everything in order.

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State of Refunds: The new "products" to help people get their refunds sooner are so sad. When are these leperous companies going to stop peddling that stuff? A $2800 refund should not be something looked forward to and planned out. Sad.

washingtonpost.com: Tax Refunds Can Be Worth Their Weight in Gold (Jan. 17, 2008)

Michelle Singletary: Read my column today.

I so agree with you.

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Silver Spring, Md.: My husband took a three and a half month contract working as a "independent contractor". He works in his employers home office, under her direction, and is assigned tasks by her. Although he is familiar with the industry, he needed to be trained on how to do the work. I was looking into his taxes and is wondering if he needs to pay the self employment tax, since the IRS makes a distinction between independent contractors and employess. I know they have a form on their website (a questionaire both the employee and employer fill out), but I fear getting his employer in trouble. At the same time, I don't want to shell out an extra $1500 to the IRS if we don't need to. Any advice?

Paul V. Thompson: You have hit one of the 6 million dollar questions. This issue is huge and the IRS has an audit program to go after as many employers as they can. One of the key factors is "control." The IRS has come out with a new form this year for individuals to report their income as an employee and give the specifics. This will of course mean that they will probably look at the employer. Too many times people pay the self employment tax because they do not want to cause their employer problems and lose their job.

_______________________

Oakton, Va.: Is there any reason to delay filing taxes this year (meaning, filing in March instead of February) because of changes to the AMT and needed updates to the computers?

Paul V. Thompson: Maybe. It depends on what forms you file. The expected online date for AMT affected returns is Feb. 11th right now.

_______________________

Hyattsville, Md.: What is your opinion of Dave Ramsey and the advice he gives on his readio/TV shows? Thanks

Michelle Singletary: I really like Ramsey. But if you think I'm radical about not having debt, you should see what he says.

_______________________

Student Loan Interest Deduction: Paul,

I am trying to get the most out of my deductions, but am confused about my students loan interest deduction. My lender lists my qualified interest at several hundred less than what I actually paid in interest on my student loans (just federal).

As well, I recently read that to have private student loan interest (which I have a considerable amount of) be considered, I would have had to fill out a WS-9 form a few months ago.

Do you know why my qualified interest is less than I the interest I paid on my federal loans?

Is there anything I can do now about getting my private student loans to qualify for this interest deduction?

Thank you so much for your help!

Paul V. Thompson: I do not know why the actual interest you paid is not reflected on the form. Could some of it be loan principle you paid back? You should contact the student loan company about submitting a W-9S.

Michelle Singletary: If I were you I would read IRS Topic 456 - Student Loan Interest Deduction

Here's the link

http://www.irs.gov/taxtopics/tc456.html

Also check the IRS Web site for more information abut the WS-9 form.

_______________________

Arlington, Va.: If I forgot to claim a deduction on a past tax return (2003 & 2004), can I do anything about it after the fact? Or is that money gone forever? In short, I went back to school during those 2 years, and didn't properly claim my education credits.

Paul V. Thompson: You can amend any of the prior three years returns. 2003 is a no and 2004 is a yes, but do it before April 15th.

_______________________

Michelle Singletary: Well this wraps up this chat. Thanks to all who participated. Paul has agreed to answer more questions, which I'll either post in my print column on in my e-letter.

Have a wonderful day and save on purpose.

_______________________

Editor's Note: washingtonpost.com moderators retain editorial control over Discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. washingtonpost.com is not responsible for any content posted by third parties.


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