Color of Money Live

Michelle Singletary
Washington Post Personal Finance Columnist
Wednesday, March 11, 2009 12:00 PM

Need advice about how to handle your personal taxes and finances? Post personal finance columnist Michelle Singletary and Jim Dupree, the IRS spokesman for Maryland and Metropolitan Washington, offered their advice and answered your questions on Wednesday, March 11 at 12 p.m. ET.

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.


Michelle Singletary: Good afternoon everyone. Lots of tax questions so let's get started. Also, if we don't get to your question today it's a possibility that I'll have an answer for you in next week's eletter. If you don't subscribe, please do.

_______________________ Subscribe to Michelle's Weekly E-letter here.


Pikesville, Md.: I entered into a payment agreement with the IRS for back taxes I owe. an I claim any of the interest and penalty I pay when I file my taxes yearly until I am finished paying?

Jim Dupree: Sorry, in general, interest that isn't on the mortgage for your house, or part of a business enterprise, isn't deductible - and penalties are never deductible...


Atlanta, Ga.: If I bought a car (paid cash for it) in the amount of $10,000, is this gift deductible by me and is it taxable to my daughter?

Jim Dupree: Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions). Take a look at IRS Publication 950(9/2008), "Introduction to Estate and Gift Taxes." (

For 2008, you generally can give a gift valued at up to $12,000 each, to any number of people, and none of the gifts will be taxable.


Red Oak, Iowa: Thank you for taking my question. I'm nearing retirement where I will be on a government pension. My house is paid for and by the end of this summer I will be totally debt free, barring something unforeseen. I'm thinking about getting a reverse mortgage at 62 instead of collecting social security at least until I'm 67. One, is a reverse mortgage a good idea (I am single with no heirs)? Two, is the banking crisis affecting the future of reverse mortgages?

Michelle Singletary: If you aren't going to be desperate for money I wouldn't get a reverse mortgage. It's a loan meaning debt. And it doesn't appear you need the money that bad.

Additionally, reverse mortgages carry heavy fees.

For more information about reverse mortgages go to


Midwest USA: I do not have the money to pay my taxes (almost a $1000) this year, due to losing my job. What should I do. I am looking for a job very hard but so far no luck

Jim Dupree: Don't panic. If you cannot pay the full amount of taxes you owe by the April 15 deadline, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. You also should contact the IRS to discuss your payment options at 1-800-829-1040. The agency may be able to provide some relief such as a short-term extension to pay, an installment agreement or an offer in compromise. In some cases, the agency may be able to waive penalties.


Boonsboro, Md.: Obviously, the best tax advice is simply not pay until you get nominated for a Cabinet position.

Michelle Singletary: You've been watching late night television, haven't you!


Washington, D.C.: Before Pres Obama was elected I remember reading something about being able to withdrawal $10K from your 401K w/o the early withdrawal penalties. However you would still have to pay income tax, since it would be additional income for the year. This is something that Pres Obama was going to implement. I haven't seen or heard anything else about it. Any advice.


Michelle Singletary: That one one of many proposals.

Didn't make it into the final law.



St. Croix, U.S. Virgin Islands: My husband turned 70 last April. He is required by law to sell off part of his IRA at one of the worst moments in modern financial history. If he does not sell the government will penalize him by hitting him with a tax fine. The question is: would it be wise to NOT sell the IRA mutual funds and take the tax penalty? Can they force him to sell off a portion of his IRA, and how would they do it? We were hit pretty heavily by Hurricane Omar and have have major deductions due to property damage. Might this be to our advantage, financially, to leave our IRA in tact until better financial times? We are both still working but partially live off of Social Security to make ends meet. Here are some recent columns that may help: IRA Change Helps Retirees Ride Out the Storm (Color of Money, Jan. 15)

The Confusion Over Required Withdrawals (Color of Money, Feb. 5)

Michelle Singletary: Please read these two columns. At least for 2009, you don't have to make required withdrawals from certain retirement plans.


Richmond, Va.: Please please please help me. When I lost my job last January I moved all my money in my 401K into a stable value fund. The value has held steady in these bad times. My problem is that I don't know if I am being smart or foolish. I haven't seen on TV or in the financial magazines where the experts are recommending these funds as "safe harbors" and I am getting scared that I am missing something. Am I?

Michelle Singletary: I so wish I could tell you what to do. But the fact, is nobody these days really knows the "smart" thing to do.

But I will say that I hope you understand that there is no safe harbor when you invest. You put your principal at risk. Depending on the investment you can take less risk but as many have found investing isn't like parking your money in the bank.


Arlington, Va.: Did the government raise the tax rate on either capital gains or on dividends? thank you, Joe

Jim Dupree: The rates were not raised for the 2008 tax year.


Greenbelt, Md.: Is there a place where I can find a simple, concise, and complete list for 2009 tax breaks/incentives related to purchasing "green" products, such as home improvement items? Thank you!

Michelle Singletary: Here's a link on Kiplinger for Tax Breaks for Going Green


Two Spoons, N.C.: Michelle: Love your columns. You consistently say that an emergency fund should have 3-6 months of living expenses. Do you really think that is enough anymore? Maybe the job statistics generally show more optimistic time frames for finding a job, but from my point of view, that seems really low -- most people that I know who have been laid off over the past couple of years (and being in the tech industry, that means A LOT of people) have taken almost a YEAR to find another job with a salary that pays all the bills. On top of that, in some cases, they were required to relocate without having the usual relocation assistance, since companies have been cutting back on that benefit as well. Now that the economic situation is even worse, I suspect it will take upwards of a year for folks to find another job. Personally, I will not rest easy until my emergency fund has at least 18 months of living expenses in it. Am I going overboard with that, meaning, would that "extra" money I am socking into my fixed-rate emergency fund be put to better use in some other kind of investstment like an index fund?

Michelle Singletary: You make an great point. And in fact, I have been telling folks to aim for the one year of living expenses.

Here's another problem. Often professionals are reluctant to take just any job, so they go thu their savings when what they should do is take any job (working shifts, weekends to leave days or some days to look for a better full-time position) so they have some income coming in. That would cut down on the amount they have to pull out of their savings.


Fort Worth, Texas: I have a personal business. I set the money needed for taxes aside in the stock market in triple A rated companies in the fall thinking that would be a safe place. It's all gone. Now what?

Michelle Singletary: You poor dear. I'm so, so sorry.

Unfortunately you are in a terrible pickle. If I were you, I would contact the IRS and try to work out a payment plan.

And going forward this is a good opportunity to remind people that money you need for the short-term such as for taxes should NEVER be invested. EVER. I know people hate to put their emergency money or life happens money or even money set-side for taxes in low yielding savings accounts. But you must. You shouldn't try to invest this money even in something you think is low risk. Just never a good idea even when the markets are good.

Please read my column for tomorrow. The IRS is having again its "Super Saturday" where people can go to various IRS offices and get help with working out a payment plan if they don't have the money to pay their taxes.

You can also go to and in the search field type in "Super Saturday" to find a location near you.


Philly, PA: I just got the 1040 back from my CPA. There was a miscommunication and for my refund (whew!) he crossed out the option for direct deposit which means I would be getting a paper check. Do I need to have him fill out a new 1040 if I want to do direct deposit instead? Thanks.

Jim Dupree: I'm afraid it's too late. Your return is most likely already being processed, and your refund is most likely on its' way.


Often professionals are reluctant to take just any job, so they go thu their savings when what they should do is take any job (working shifts, weekends to leave days or some days to look for a better full-time position) so they have some income coming in.: Often, ANY income can stop your unemployment benefits. Sometimes, that's why a professional is reluctant to take a meanial job for sometimes less or as much as the benefits to which they feel entitled.

Michelle Singletary: Well, there are some part-time jobs that do pay more than unemployment. That's the point I was making. Second, many of these professionals run out of unemployment and still are reluctant to take any job.

And further some, although not many, part-time or lower paying positions come with benefits such as health care.

That was my point. I've worked one-on-one with a lot of people still collecting unemployment waiting on the perfect job like they had before.

I know it's tough to go backwards job wise, but sometimes you have to do what you have to do.


Debt vs. Bonus Money : Michelle --

I have about $25,000 worth of credit card debt (low interest, but still cc debt), and am about to get a $25,000 bonus (after taxes). I also have no emergency savings.

I am wondering should I put the bonus money to an around the world cruise-- er, paying off the credit card debt or keep the debt and put the money into savings?

I'm 32, single, and worst-case scenario could always move back in with Dad. Thoughts?

Michelle Singletary: Withhold enough for about one month's living expenses for the emergency fund and they use the rest to pay down as much of that credit card debt as possible.

That's what I would do.


Durham, N.C.: How do I reduce the amount of Federal taxes taken out of my check?

Jim Dupree: You can adjust your witholdings by submitting a revised Form W-4, "Employee's Withholding Allowance Certificate"

to your employer, adjusting the amoung of federal witholdings.

Check out the IRS' "Witholdings Calculator" at This easy-to-use assistant can help you figure your Federal income tax withholding so your employer can withhold the correct amount from your pay. This is particularly helpful if you've had too much or too little withheld in the past, your situation has changed, or you are starting a new job.


Alexandria, Va.: "At least for 2009, you don't have to make required withdrawals from certain retirement plans."

This is true, but please stress to your 70-year-old readers that you DO have to contact your plan administrator and state what your choice is (to withdraw money or not). If you do not contact the plan your account can be considered abandoned. It is vitally important to be in touch with them, and keep copies of your correspondence.

Michelle Singletary: I believe I did tell them in my columns, but worth saying again.

And the rule also applies to people who have inherited an IRA.


Fairfax County, Va.: Hi Michelle -

I need some advice about refinancing. I refinanced my home in late 2002 on a 7/23 ARM. The 7 year portion was fixed at 5.5 percent but is due to convert to the variable rate at the end of this year. I am currently shopping mortgage rates for both 15 and 30 year mortgages.

I am employed full-time but my organization has indicated that it may have a RIF as early as June of this year. I don't have a good sense of how 'at-risk' I am so I'm planning for the worst. My emergency fund will currently cover me for 3-4 months. I've stopped all extraneous purchases and am saving as much as I can to make sure I have at least 6 month of expenses saved. I have $1400 on a credit card due to unexpected pet illness, car repair, emergency room visit, and appliance failure. I expect to have this paid in full by 3/31. I own my car outright and manage to save about 20 percent of my income in 401ks, Roth, 529, and emergency fund each month.

I have about 250k equity in the home (even after the downturn/reduction in home values). I currently owe 130k on the mortgage and am paying $1200/month for P and I, home insurance and property taxes.

After taxes, health insurance, and retirement, I bring in about 4000/month.

With the possibility of a job layoff by this summer, I am thinking of refinancing sooner rather than later. I originally wanted to refinance on a 15 year loan to pay off my house before my daughter enters college (in 13years). However, with the economic uncertainty, I'm willing to consider a 30 year mortgage to keep my monthly cash outlay as low as possible.

Based on this information my 2 questions are:

1) Should I continue to pursue a 15 year refinance or stick with lower payments on a 30 year mortgage (the monthly difference = $400).

2) When I refinance, should I take out 10-15,000 in cash and stick in a savings account to cover a potential job loss?

Thanks, Lori

Michelle Singletary: Given your job uncertainly, I would get a 30 year. You can always make extra payments to pay off the mortgage early.

And do not pull out out of the house. Remember that's just more debt. It's not a savings cushion and shouldn't be used as one. Just keep saving madly to weather the storm that may be coming.


HELOC: Would you advise paying down a HELOC with some extra cash, or putting said cash into savings? Our HELOC is at 3% right now, and we don't have a great savings cushion... thanks!

Michelle Singletary: Do both!

Build up your cash reserve and aggressively pay off the HELOC.


Annapolis, Md.: I have submitted my return and am due a refund. I noticed that I understated the state tax paid deduction. Should I submit an amended return now or wait until my return has been reviewed and I have received my refund?

Jim Dupree: Wait until after you received your initial refund. You can go ahead and cash your check. You'll have up to three years to amend your return.


Taxes: Michelle, I had written you when I paid off my mortgage in June, then was laid off in August. Thanks to your voice in the back of my head, we have no debt.

My commments are that when this layoff came up, I adjusted my withholding so that I only owe the IRS $73 for 2008. Also, please remeber that unemployment compensation -is- taxable income. Plan accordingly.

Thanks again. I loved your appearance on the panel for the Black State of the Union. I thought your points were good for all Americans.

Michelle Singletary: Thank you so much. And I'm so glad you were prepared for the worse. Bet you are glad you don't have a mortgage to worry about.

And FYI the Economic Stimulus package provides that $2,400 of unemployment benefit payments you receive in calendar year 2009 (to be reported on the tax return you file in 2010) will not be subject to federal income tax. This applies to all unemployment benefit payments - regular and EUC benefits.


re: bonus vs cc debt: How in the world does that poster have $25K in credit debt but clearly has such a high paying job that he/she is receiving a $25K bonus (after taxes which means it was originally $40K).

Surely that this must have befuddled you as well, Michelle?

Michelle Singletary: Oh please, me befuddled?

I'm seen it all. People making seven figures, broke.

People with credit card debt equal to their yearly salary.

People making more money than most of us, living paycheck to paycheck.

I'm so over befuddled.

But at least this person is asking the right question and knows he or she needs to get rid of that debt. Some would already be spending that money.


NW, D.C.: I tithe, not always by check. Can i claim my cash contributions too.

Isn't there a general rule of thumb for how much of your gross you can claim for deduction or church contributions?

Jim Dupree: For a contribution of cash, check, or other monetary gift (regardless of amount), you must maintain as a record of the contribution; either a bank record or a written communication from the donee organization containing the date and amount of the contribution and the name of the donee.


Pittsburgh, Pa.: Hi Michelle, I wanted to get your opinion on my situation. Our (husband and me) lease on our rented house is up in May, and we are moving because we need more space. We have $7500 saved right now; could possibly have $10,000 at the time of the move. I keep thinking we should buy a house, rather than rent. I know now is the best time to buy, and I don't want to be kicking myself later that I missed this opportunity. The trouble is, we have one daughter and a baby on the way (due in July). We have a lot of big expenses coming up this spring and summer: daycare for the older child and 3 month maternity leave for me with the baby. If we decide to buy, I'm guessing we'd have to use all of our savings for a down payment. I would rather use that to fund those other big expenses, and am sometimes okay with accepting the fact that we just can't afford to buy a house right now. Other times, I feel like I'm making a mistake and honestly feel like a little kid for continuing to rent (I'm 34 and live in a very affordable city!). Your thoughts?

Michelle Singletary: With the little information you've given me I would say you are not ready to buy yet. First, even if the $10,000 was enough -- and trust me it probably isn't -- you will move with no cash cushion, a baby, young daughter and no job for three months. Not a good position to be in as a new homeowner.

You need to save for the downpayment, which in any market these days can be as much as 20 percent, plus closing costs, plus you should have an emergency fund and life happens fund (for the car repairs, etc.).

So no, you are not ready for homeownership.

But please know this. You are not a financial failure because you are still renting. Contrary to what some folks say you do get something in return for your rent -- a roof over your head.

Save some more, take care of that new baby, relax. If you do all the right things, you can own a home one day.


Springfield, Va.: Hello. I've been helping my dad pay some of his bills, including his mortgage, over the past few months. Is there anyway to claim this on my taxes?

Jim Dupree: To be mortgage deductible, interest you pay must be on a loan secured by your main home or a second home and you must be legally liable on the loan. So, unless the home and the mortgage are yours, the amount you pay is a gift to your dad and not deductible by you.


Philadelphia, Pa.: Can a separated couple file separately without financial consequences? I was told by H&R Block I would owe "a lot" if I filed separately. They suggested filing a joint this year. Thank you!

Jim Dupree: It really depends on the specifics of your financial situations. For some married couples, filing separately actually can give them a greater tax benefit.


Marathon, Fla.: Ms. Singletary,I read with much interest your recent column. Hopefully after reading this letter you will reach out and help me. The IRS has misled you in my case.

IRS has been EVERYTHING OPPOSITE of what you said in your article. They have been unrelentingly vicious, mean, vindictive, cruel, unresponsive, etc.

I am jeopardy of losing everything I own, being homeless, losing my health insurance, my job and no longer able to survive without assistance from others (public and private).

I owe back taxes from a company I once was a principle in. IRS has levied my paycheck. When they were contacted to find out why and what it will take to have the levy lifted they did not return phone calls. When finally spoken to was told the issue has been given to a "revenue officer". The revenue officer was also non responsive and after a few calls and voice mails, the answer was "I have 30 - 45 days to respond". Hardly an acceptable answer to someone who has NO INCOME as a result of this levy. Next step was to contact the "tax payer advocates office". Who supposedly is supposed to respond in 3 business days. This has not happened. Again, multiple phone calls, voice mails - NO RESPONSE.

I am bankrupt, unable to pay bills of any kind without assistance as a result of this levy. This certainly quite contrary to any information you have received from Commissioner Shulman.

I am reaching out to you for help, as I am at my wits end only trying survive, not get a "free ride".

Please help,

Richard IRS Tries Walking in Our Shoes (Color of Money, Feb. 15)

Michelle Singletary: I know things seem hopeless, but keep contacting the IRS. Call until your fingers are blue. Also, read my earlier note about the upcoming IRS Super Saturday on March 21. Find a location near you and take all your paperwork. There will be IRS employees there. At least then you will be face to face with a person from the IRS.


Explanation of $25K Debt: Happy to explain to the curious questioner:

I took a new job part way through the year, just before the housing crisis hit and had to sell my house at a serious loss. I financed the sale on the credit cards. The debt was almost $35,000 at one point.

Also, out here in business land, compensation is often highly weighted to bonuses based on economic performance -- a strange concept to people in DC, I know.

Michelle Singletary: Thanks for the explanation. Wasn't me judging.


Arlington, Va.: whoops, I just realized I forgot to file my state taxes last year. I did my federal on time. What should I do? Am I going to face a penalty?

Michelle Singletary: You may face a failure to file and penalties and fees for any tax that may be due.

Contact the state and file right away.


Annonymous: I haven't paid my taxes in several years. I recently got all the paperwork, went to an accountant and had my taxes done. I owe about $5000 before interest and penalties.

What do I do now?

Michelle Singletary: As I've told other posters, go to that Super Saturday and see what payment plan you can work out if you don't have all of the $5,000.

See this link on the IRS website


Philly, Pa. again: No, my CPA didn't e-file. Sorry I didn't make that clear. He sent me the form to mail in but he x'd out the areas for the ACH/account numbers. If I try to write the numbers over the X's will it get kicked out of the system for review by the IRS? Or should I ask him to prepare a new 1040 leaving the lines for those numbers blank so I can fill them in?

Jim Dupree: Sorry, I misunderstood your original question. If your return hasn't been submitted yet, just get your CPA to send you a form with areas left blank so you can clearly fill in your account and routing numbers. Then mail in your return.


Washington, D.C.: Hello Michelle,Hope you can help me. Other than having sold my condo last summer and broke even, my situation is the same as it was -- same employer, same single status. Should I use TurboTax or spend as much as &700 to have a CPA do my taxes this year? Would the ROI be sufficient to cover the difference between pro and TurboTax? Thank you.

Michelle Singletary: Well, the average fee to prepare a fairly simple tax return is about $200 nationwide.

So me, I'm going with TurboTax or find someone with a more reasonable fee -- again assuming your tax situation isn't complicated.


Minneapolis, Minn.: Re: Often, ANY income can stop your unemployment benefits. Sometimes, that's why a professional is reluctant to take a meanial job for sometimes less or as much as the benefits to which they feel entitled.

When did this line of reasoning become so prevalent? When did we decide that to get paid by Tax Payers for doing nothing was preferable to earning the same amount by working? There is intrinsic value in being productive.

Michelle Singletary: Honestly, I don't think it is prevalent.

I'm working with a lot of folks out of work right now and they aren't skipping and jumping with delight about getting unemployment.

They want to work.


Help, need more deductions.: To my surprise the child tax credit has been or is lowered for certain income groups. i did get a little raise but I am not realizing the full amount I got for my 4 kids. Any other ideas? for my income i can't claim education, not student loan interest either. From our Tax Time Special Report: 11 Most Overlooked Deductions (Feb. 15)

Michelle Singletary: Here are some links that should help.


Vienna, Va.: My sister has accumulated a large credit card debt as a result of medical bills. There are ads for debt counselors who supposedly will help you negotiate down your debt, but not all of these seem reputable.

Is it possible to get your debt reduced without declaring bankruptcy? How can you identify whether a counselor is actually going to help you, or simply charge you additional fees? How can you find someone to help you on this?

Michelle Singletary: You don't need to file for bankruptcy to get your debt reduced.

And tell your sister not to pay some crazy fee to get help. She can negotiate with her creditors herself.

Or go to this site


Roth IRA Question: What is the maximum amount for a person over 55 setting up a Roth IRA account?

Jim Dupree: If your contributions are made ONLY to Roth IRAs, your contribution limit generally is th lesser of the following amounts:

$5,000.00 ($6,000 if you are 50 or older in 2008)

Your taxable compensation.

However, if your modified AGI is above a certain amount, your contribution limit may be reduced. Check IRS Publication 590, "Individual Retirement Arrangements."


Baltimore, MD: I am having a baby later this year - I know I can claim another dependent on my tax return for 2009 when I file in 2010. Should I adjust my witholdings now to account for the baby, even though it isn't here yet? Thanks!

Jim Dupree: Congratulations! May may or may not want to adjust your witholdings. Check the "Witholdings Calculator" at IRS.Gov to help you figure your Federal income tax withholding so your employer can withhold the correct amount from your pay.


Washington, D.C.: I owe the IRS about $700 from a few years ago. Can I set that up to be automatically paid out of my tax return this year?

Michelle Singletary: If you mean your tax refund, please, they will snatch any refund quick.

If you aren't getting a refund, contact the IRS ASAP to pay that money because interest accures daily!!!


Cincinnati, Ohio: I owe IRS taxes from a IRA distribution I received in 2002. I have heard on the radio that IRS has a program for leniency for taxpayers who can't afford to pay the tax. They have a lien on my house. I took the distribution because I could not find a job in my profession. I have been working as a substitute teacher. Please advise. Thanks for your help.

Jim Dupree: Call the IRS at 1-800-829-1040. There can be additional help available for taxpayers facing unusual hardship situations.


Michelle Singletary: I am so sorry we've run out of time. Man this hour goes by fast.

So again, your questions and time won't go to waste. I'll try to get answers to as many of them as I can.

Thanks as always for joining me on this discussion.


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