THE Cambridge Connection - Episode 27

5 this month. And basically what happened with that was the Federal Reserve, they increased the prime rate pretty much to decrease spending, to decrease inflation. So what happens is a consumer with typically a credit score of 660 or above qualifies for prime rate. So consumer beware. You’re going to see your interest rates on your credit cards increase a little bit.

The power of spending is going to cost you a little bit more than it did a month ago even. So that is something that everybody wants to take a look at. I encourage everyone to look at their credit card statements and monitor the rate. It’s not bad to actually call your credit card companies to see, negotiate a lower rate or even stay the same. If it’s something that’s not acceptable to the credit card companies, they deny it.

Call Cambridge Credit Counseling. Yeah, important distinction. So prime rate, there is no real prime rate. It really is the large lenders, the best rate that they’re going to give to their best lowest risk customers typically in the commercial side. Exactly.

So you’re going to see people who have decent credit scores pay more to borrow money. It’s going to cost them more. And again, that’s in order to reduce inflation. I remember from my counseling days, one of the questions that we would get frequently when trying to help customers with interest rates on their credit cards was, can I do this on my own? So with credit card companies, the key distinction is you sure can if you are not a high credit risk.

So when you call your creditors, you should ask them, can I get my interest rate reduced? So if you’re not a risk, if you’re not a credit risk, you typically have an opportunity to get a lower interest rate on your card or switch products with the bank that you do business with. The problem is the people that seek the help of Cambridge Credit Counseling is a lot of times the reason their rates in the 22, 24, 26% range is because they are already now a credit risk. You don’t want to go to the hotel and use your credit card to spend and it’s declined because you’re borrowing power decreased without your knowledge. Yeah, there’s many reasons.

You want to be able to monitor your reports for things like identity theft, who’s looking into or trying to apply something for you and people, again, that’s one of the things that if we could give a sound piece of advice on that today, it is so important because once you get hit, if you’re not paying attention, your life financially is somewhat ruined for a little while while you’re working on getting things straightened out. I’m working with a consumer right now who just found out that she went to refinance her home and found out her son actually applied for credit in her name. And now it’s a whole mess because she was denied the refi because of her debt to income, which she had no knowledge of. I’m going to guess it’s not the first time you’ve heard that. No, not at all.

It’s not the first time I have either. So it happens. It’s one of the great reasons you should pay attention to your credit and credit report as frequently as you possibly can. Yes, agreed. All right, so we’re going to get into taxes.

Tom’s going to join us after this break. So I’m very excited to be able to talk. It’s that time of the year when March comes. There’s all kinds of fun things, but taxes is certainly not one of them. All right, we’re going to take a quick break.

Tina Marie’s co host introduction

We’ll be right back. This is the Cambridge Connection. We’ll be right back. Hey, all. My name is Tina Marie, and you might know me as Gordon Oliver’s co-pilot for The Cambridge Connection every Saturday morning.

What you might not know is that I’ve known Gordie for a really long time, and as a certified credit counselor at Cambridge Credit Counseling for over 20 years, I am thrilled to join Gordie every week to share and chat about real people with real financial problems, along with many success stories both myself and all of the counselors at Cambridge Credit have been a part of. We know it takes a village of support and inspiration if someone is struggling financially, so it’s nice to know if that person is you, that you’re not alone out there. m. right here on WHMP for The Cambridge Connection, because Gordie and I, we are here to help you have a better relationship with your money and hopefully make you smile. Right, Gordie?

Meeting Tom Foley the CPA

Couldn’t have said it better myself, Tina Marie. Welcome back. This is The Cambridge Connection. I’m your host, Gordon Oliver, here with my co-pilot, Tina Marie, and it is an honor and a privilege to introduce our guest this week, Thomas Foley, who is a certified public accountant. Thomas, welcome to the show.

Well, thank you. Thank you very much for the invitation, and I enjoy being here with you, and hopefully I’ll be informing your listeners a little bit more about their personal taxes. I’d like you to tell the audience a little bit about yourself, and I also just want to thank you, because we know how busy you are at this time of the year, so for you to take the time out and join us on this show to give this information to people, we’re truly thankful for you taking the time out. So tell the listeners a little bit about you and anything you would like them to know. Oh, great.

Well, as you heard, my name is Thomas Foley. I’m a local person. I grew up in Springfield and have many relatives here in Western Mass. I reside now in South Hadley, Massachusetts, where I have my practice. I have an individual practice preparing both corporate and personal income taxes.

So you’re all at it right now, safe to say? I sure am. All right. When do you sleep? I don’t.

You don’t? After April 15th. Okay. Hopefully, right? Well, I will.

Yeah. All right. So taxes. Obviously, as employees or as business people, we pay taxes. For a lot of people, it’s very confusing.

So... Let’s start. I know we have talked so many times that you have tips that you love to share for regular people to just kind of get in the know of what you’re doing with your taxes. So where do we start? Well, you know, luckily, my name is Tom, and I do have prepared taxes for many years now.

Early tax tips from Tom

So the segment of tax tips from Tom fits me perfectly, made all the requirements to do that. So I’d like to start off with that, if you don’t mind. Absolutely. Let’s do it. We’re now falling back to traditional due dates, and this year, April 15th, which has been delayed the last two years, is back on target.

, that’s a holiday. So it’s being delayed for the weekend. Oh, interesting. So it’s Emancipation Day, I believe, but I could be wrong there. And that’s why it’s been pushed off to Monday the 18th.

But we’re in Massachusetts. Monday the 18th is a holiday. It’s also opening day for the Red Sox and the Boston Marathon. So Massachusetts and Maine are delayed another day. So our filing date, if you’re filing a return in Massachusetts or for Massachusetts, the due date is April 19th, Tuesday, April 19th, three weeks from today.

Already learned something. I said earlier it was the 15th. I did too. Here we go. I did too.

Wonderful to know. And that’s the reason why I brought it up, because many people would be scrambling around saying, oh, what day is it due this year? I guess it’s important to know that, right? Yep. Yep.

So you can certainly go on the 15th. You’ll be early at that point. Better to be early. Right, Tom? Yes.

So what’s tip number two? And this year, the child tax credit has expanded dramatically. Some of you may have heard it over the summertime back in July. Some individuals, some families were receiving the partial credits back then. But the credit is, depending on your qualifications, and if your child is 17 or under, it’s $3,000 per child is the credit.

Wow. And if you happen to have children six or under, there’s another $600 for each of those children. Wow. It’d be bad to miss that, huh? Yes.

And hopefully a lot of the tax programs out there, like TurboTax and things like that would have that. But keep your eye open for it, because you may, there’s a thing called phasing out. So if your income gets too high, that credit will either be reduced or phased out to zero I was just going to ask that. So is there a cap on income, or it is definitely income-based, the amount? Income-based is the amount, yes.

And so some families have a little too much income. Now income would be defined as wages, interest, dividend income. They could own a business that generates income, taxable income. So that’s all the factors into that. So you have to be a little careful, but certainly ask questions, open your eyes about this, inquire about it.

So the person that’s preparing your return, like myself, will then summarize to you saying, well, you don’t qualify. And these are the reasons why. Reasons why. Perfect. Yes.

And that’s the reason why certain things have been faded out. Got it. Tip number three. Tip number three is take a look at your withholding. And I suggest to do this as soon as possible on your, whether it’s weekly, biweekly paycheck.

So there, for instance, if you take your, let’s use first the state of Massachusetts. If you take your state withholdings from your paycheck for that week, divided by your gross payroll amount for that week, you’re looking for a percentage of around 5%. 25%. But the 5% rate will get you to a point of knowing at the end of the year, you’re not going to owe any money whether you get back. You might get back some, but anyways, that keeps you safe and sound.

So that’s something, if I was a customer, I could say, can we look at my pay stub and make sure that my withholdings are at the right level? That’s correct. And are you an advocate of not overpaying? Yes, I am. Some folks use it as a incentive for savings because they want to get that big refund in April and then they have plans to go buy something big.

Maybe some furniture. Right, money in the bank, they consider it, yeah. And you give tax tips for tax refunds when it comes to debt reduction when you’re talking to consumers as well, right, Tina? Absolutely. Sometimes we may tell them to decrease their holdings if they can’t make it day to day.

And we’ve had financial advisors on this show that when you’re trying to plan for retirement, one of the places you would look as a counselor is the budget. But more importantly, talk to your tax preparer about your withholdings and maybe that additional money could be put towards retirement savings or reducing debt. Investments even? Yeah. So on the federal side, several years ago, to be exact, in 2008, 2009, the tax tables that are used to calculate your withholding taxes were changed on the federal level.

They were reduced because back then, you know, the economy was horrible. You know, you couldn’t sell a house even if you’re giving away for free. Nobody wanted those. The economy was just in bad, bad shape. So as an incentive to put more money in people’s pockets, they adjusted the tables down.

And so you had more change in your pocket at the end of that week. Well, those tables have never been changed. So right now, the tables, my opinion is the tables are not withholding enough from people’s paychecks. So if you do that same calculation, take your federal withholding tax divided by your gross pay for that week and look at that percentage. That percentage should be, it depends on your income.

Everyone’s is different. 2? 2 because it’s a flat tax in mass. But on the federal level, the tax rate goes up as your income goes up. Is there a significant level where if you made X amount of dollars a year, you should be looking at that?

No, I think it’s just the reverse. Because many folks that I encounter, they owe monies. They owe a few thousand dollars on April 15th and they’re always saying to me, well, why is this happening? Why is this happening? Well, their withholding tax is way too low.

I mean, it’s not uncommon to see someone with having a withholding tax of approximately 10, 11, 12%. They’re probably in the 17% tax bracket. So when you file your return, that difference is what you’re paying in at the end. So for responsibility, is it the employer that’s responsible or is it you that’s responsible to make sure that the employer is deducting the right amounts? What you just said is correct.

It’s your responsibility because every employer kind of has different ways of withholding. They’re giving you this federal form that says, oh, fill this out and give it back to us. We’ll be fine. No, you got to test it out. As I say to other people, take it for a test drive.

And if you save enough doing this, adjust your withholding properly, you might be getting a smaller refund at the end of the year rather than paying. You could go out and buy a car and take it for a test drive. Just like your credit reports. It’s your responsibility to monitor it because it’s your situation. You want to make sure that things are happening properly.

More tax tips and home office deduction

If you’re just joining us, this is the Cambridge Connection. We’re here with special guest Thomas Foley, CPA, to talk about tax time and tax tips. And we’re currently reviewing tax tips from Tom. So Tom, we’re on number four. Number four.

This is one that has, I’ve seen a lot of confusion over the years I’ve been doing this. It’s called the head of household and who qualifies for head of household. Now some folks Particularly the younger folks of the world think, oh, I just graduated from college, I have my own apartment now, I should qualify for head of household. The answer to that, unfortunately, is no. And I’ll now go through what you have to have to become a head of household tax filer.

First you have to be single or considered unmarried at the end of the year. So you may get divorced on December 10th, well, you’re considered to be single then for the whole year because you were single before the end of the year. So first of all, you’ve got to be single. So if you’re married up until December 30th, and you’re single on the 30th, you can file as single. As single, right.

And then you would then look into, hey, do I qualify for head of household? I’m assuming that’s not, oh, I just decided I’m single, you mean legally single, right? Right, right, yeah. So there’s a difference. And I won’t go any further than that because there is going to be a moral issue in this conversation I have right now which we’ll get to in a second here.

The second requirement, you must have a qualifying dependent living in your household for more than half the year. And define qualifying dependent, if you don’t mind. The qualifying dependent normally is a child. But as an adult, you could have someone move into your home, like your parents. It could be aunt and uncle.

Some blood relative could for some reason fall into some hardship, mostly it’s either health or age, and you extended yourself to help them out, they could become your qualified dependent. Just if I could ask a quick question, because this has come up with consumers that I’ve counseled as far as qualifying dependents where either the husband, well, let’s not say husband or wife, a significant other or someone in their household did not work and could not file taxes for the year. Do they qualify as a dependent? I would think that’d be very difficult, but they could. A little further research, a little more questioning on my part would then be able to define or qualify them as a dependent.

And this is not direct language, but on the student loan application when you’re doing family size, there’s a definition that basically says, is there anyone in your household that requires more than half of their expenses to qualify as a dependent? So it has to do with the amount that it would actually cost you for them to be within your home. And again, you have to look it up. That’s not 100% technical, but it is a definition of how much is actually spent required to take care of an individual. Yes, and that rule of thumb would be still used here too.

I would certainly look at those factors as being, if you’re providing more than half of their support is the technical term. This is where the record keeping is important, right? Right. Yeah. All right.

And the third step in this qualification process, you have to pay for more than half the cost of keeping that dependent home for the year. Half their cost. So they may contribute some back to you, but it has to be at least half, if not more. And those costs would be housing, heat, utilities and basically in general. Living expenses.

Living expenses. Yeah. Food is another qualification. So the younger the person might be, a child would be a little bit more expensive than an older person that may be, older child that may be supporting themself. Now Tom, does there have to be proof of this?

I mean, how would you prove that you supported somebody with more than half their expenses? There’s nothing to be submitted. Everything I’m talking about here falls underneath the idea of, you could be audited someday and at that point you have to provide support, which would be receipts, proof of what you’re claiming as half the support. So I may suggest on a yearly basis, you keep some numbers together. Many people use QuickBooks, other software that you produce some reports off that and keep that for the future in case you ever need to bring it back out again.

So the thing here that, this is where taxes and morality don’t get hand in hand. So if you fall into this situation, you might as well just live together because you could both possibly qualify and have a dependent and two people would qualify as head of households. So number five is, don’t shy away from looking, and we talked about this a little earlier, about using home office expenses as a deduction. Many folks have, particularly those who are self-employed or an independent contractor, which is also self-employed, maybe have, their business might be a landscaping business. So they’re out on the streets mowing people’s lawns and taking care of gardening things, but they have to run their business and you’ll normally, you don’t want to necessarily run it in the garage where you keep your equipment.

So now, particularly with COVID that has happened and expiring now, hopefully expiring now, you can use your home as your office. What about employees that actually were working from home because of the pandemic? There were some employees that were required to by their employer, and so those could be a deduction. And when I say those could be a deduction, you have maintenance of your home, utilities, which is- Internet. Would internet be- Internet is another one.

Telephone, if you use your phone for business. Most expenses now have been expanded and will be expanded through, I believe, 2022. All right, we’re here with Thomas Foley talking about tax tips from Tom Foley. We’re going to take a quick break. When we come back, we’re going to do tips six through 10.

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Later tax tips from Tom

I’m here with my co-pilot, Tina Marie and Thomas Foley from Tom Foley CPA, and we are going through tax tips from Tom. So, Tom, thanks for joining us. We’re really ... I mean, this is incredible information. So, let’s get to tip number six.

Yes. So, tip number six would be to look at your possibility of making any additional contributions to a retirement plan. This could be an IRA. You could be self-employed and have a SEP plan is the term. So take a look at that, inquire about that.

Talk to your financial advisor. I’m not a financial advisor myself, but talk to them about what other possibilities you might have now. For an individual, it’s all about the pieces, financial advisors, CPA, all of the pieces that make you whole financially. Right. So, absolutely.

I’m going to jump into tip number seven. Now, many people think that you reach a certain age, you don’t have to file taxes anymore. And those folks also imagine an age, they might say, oh, when you’re 80 years old, you don’t have to file taxes anymore. It’s not true. You can file taxes up to the age of 110 if you live that long.

It’s all based on income. So your tax is filed depending on your total amount of taxable income that you earn during the year. Wow. Again, never want the tax man coming after you. You got to be smart about it.

Tip number eight would be to consider moving into 2022. Look at your 401, your retirement contributions. See if you can update that. See if you can put a little bit more away. It’s going to benefit you both at the end of the year tax-wise and in the future when you do retire.

Also, look at HSAs, health savings accounts. You can contribute to health savings accounts, get a deduction for it. You get benefits down the road. And the more you save as time goes on, you have a bigger nest egg there to capitalize on. Tip number nine is to calculate the go through, especially now for the folks of you that are retired or moving into retirement.

You have to have required minimum distribution. If you’re hitting the age of 71, now I think it’s been extended to 72, that you have to start taking money out of your retirements that you’ve been saving for for years. Calculate that minimum distribution. You may not need it at all and you want to do a little planning for that distribution. You may have a goal.

Oh, I want to take a trip. Well, factor your minimum distribution in to use that up. It sounds like CPA, financial advisor, again, talk about the best strategy. If you have to take the money out, what are you going to do with it? Right.

So you’re penalized if you’re not taking enough out. Yes, you are. Most, what happens most times is the retirement folks that you’re using will disperse the payment to you. They may warn you and say, this is your minimum distribution. They probably send you letters about it, but you have to take it out.

If you don’t take it out, you are penalized on it. All right. If I was a drummer, I’d be doing a drum roll right now for the final tip. Number 10. Okay.

Well, tip number 10 is harvest your capital losses if you have any. So over the past several years, it could be that you’ve incurred capital losses on your investments. And you can only, you’re limited to $3,000 max of a loss on your personal return. So many of these losses get carried forward. So look at how much, find out how much you have as a loss carryover, and then plan some of the investments you have that are going to be great profits or great gains with those.

And you can offset the gains with these losses you have compiled. Because at some point, the losses will stay going forward, but it doesn’t mean that you’re necessarily going to keep moving forward. Well, this show is all about financial empowerment and financial wisdom. And when it comes to taxes, obviously, it’s so complicated. And for joining us today and sharing this with our listeners, I’m sure someone’s going to be looking for your assistance.

Contact info and closing thoughts

So can you tell our listeners how they can find you if they’re interested in utilizing your services? com. And the phone number? Phone number is 529-0030. With a 413 area code.

That’s right. I forgot that other people that are 413 might be listening to the show. Awesome. Well, Tom, thank you so much for joining us today. We really appreciate your time and your advice for our listeners is just, you can’t put a value on it.

So thank you so much for joining us today. Thank you for having me. Thank you, Tom. Yep. Have a good day, everybody.

Well, Tina, another 28 minutes gone by and just great- Oh, there’s so much information to try to store in 28 minutes. We know people get nervous around this time when it comes to taxes. So just great to have Tom on and sharing this information because everybody needs it. Yep. I learned a lot today.

And as we do when we close the show, I’ve got a quote today. The best way to teach your kids about taxes is by eating 30% of their ice cream. Love it. Bill Murray. Love it.

Love it. Love it. Huge thanks to our producers, Leah and Lisa. We always have great experts on this show and we have more great experts coming on the horizon. 30 AM.

com, click on podcasts, and you can listen to us on SoundCloud or wherever you find your favorite podcasts. Once again, we want you to be part of the conversation. org. And if you need help with your credit card and unsecured bills, feel free to call 1-800-CAMBRIDGE.