Last Minute Tax Tips for Procrastinators
This week, Maggie chats with CPA Michele Cagan about filing your taxes and how you can apply for an extension if you get behind.
Even though we now have until July 15, 2020 to file and pay our 2020 taxes, you can still start getting organized now. Tune in to hear about tax filing advice, and why you shouldn’t be afraid of the IRS, from Michele Cagan, CPA.
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Michele Cagan is a CPA, author, and financial mentor with more than twenty years of experience. She has written numerous articles and books about personal finance, investing, and accounting, including The Infographic Guide to Personal Finance, Retirement 101, Debt 101, *and Real Estate Investing 101.*
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To learn more about Maggie and her coaching and speaking services, visit www.maggiegermano.com.
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The theme music is called Escaping Light by Aaron Sprinkle. The podcast artwork design is by Maggie’s dear husband, Dan Rader.
TRANSCRIPTION
Maggie Germano (00:05): Welcome to the money circle podcast, a safe space where women can learn about and better understand money so that they can take control of their finances and create a better financial future for themselves and their families. Hey there and thanks so much for listening.
Maggie Germano (00:22): I’m your host Maggie Germano and today I’m talking to Michele Cagan, a CPA who helps people navigate their finances. We’re talking about taxes and what to do if you get behind on filing. We recorded this episode before the recent cares act was passed, so some of the information on the filing and payment deadlines is out of date. The federal deadline for both filing and paying your 2019 taxes is now July 15th, 2020 which is an extra three months from the usual April 15th date. Many States have followed suit with that date, but you should definitely find out if yours has done the same. You don’t want to be caught waiting until July to file your state taxes and find out that the deadline had actually already passed. So, even though you have an extra three months to deal with your taxes, for the most part, this episode is still incredibly helpful when it comes to understanding what your options are right now and generally when it comes to your taxes. So take a listen and enjoy. Hey, welcome Michele. Thank you so much for being here today.
Michele Cagan (01:31): Thanks for inviting me. I’m really glad to be here.
Maggie Germano (01:33): Great. So why don’t you tell us a little bit about who you are and the work that you do.
Michele Cagan (01:39): So, um, I’m a CPA, which is a certified public accountant and I’ve been doing that for a really long time. I’ve had pretty much every job you can possibly have in accounting, working in a giant firm, working in a tiny firm, working for a private company, teaching writing. Um, and now what I mostly do is help people figure out how to manage their finances themselves. So kind of like improve their financial confidence, financial literacy, and sort of help move them to a better sense of financial freedom and independence.
Maggie Germano (02:18): That’s great. And that’s a big part of the work that I do too. So that definitely resonates with me.
Michele Cagan (02:25): Yeah. It’s, um, there’s a real fear and a lot of misunderstanding and miscommunication around financial things that doesn’t need to be there.
Maggie Germano (02:39): Oh, I totally agree. And since money really touches every part of our life, when we’re stressed or overwhelmed or feeling uninformed when it comes to money, it’s going to impact everything else. So it’s like a nonstop kind of stress cycle.
Michele Cagan (02:54): Absolutely.
Maggie Germano (02:55): Yeah. And so how did you get into this line of work? You mentioned that you’ve doing this for a really long time and that it’s kind of taken different iterations, but how did this all start for you?
Michele Cagan (03:07): Uh, well growing up my dad was an accountant, so, um, it was just like when I would go work at his company over summers and stuff, I sorta just did that kind of work. When I was in school, I went sort of the other way and I took tons of art classes and I love, you know, like photography and painting and all that stuff. But when it’s time to graduate, when it was time to like figure out what I was going to do, I realize that accounting majors got paid a way, lot more money than any other majors. I was living independently already and um, wanting to make more money. So I went into it. I started out in a big, giant multinational Accounting company, accounting firm I guess. You know, offices in the world trade center, just like a big deal. And, uh, after two years of that, I got totally burnt out and just moved to a small company in Richmond, which couldn’t have been more different than working at a giant company in New York.
Michele Cagan (04:09): And uh, yeah, everything just sort of flowed, you know, for a while. Um, then I started doing bookkeeping for some companies and taxes and then I got into teaching and, and I had a kid, um, which changed a lot of stuff, but I did more writing because I could work from home to do that kind of thing. So I read a lot of books and newsletters and things like that, and then I kind of got back into tax work and more and more. Okay. Talking to my friends, seeing what my kid was learning in school, I realized that people are really afraid of money stuff. So they ignore it and avoid it and then all of a sudden it’s a giant problem that blows up in their face. And I decided I needed to do something about that.
Maggie Germano (04:54): Yeah, I love that. And I love that you’ve kind of gone through, like I said, like lots of different iterations of what your career looks like, but it’s, it’s still pretty consistent around the financial aspect and when you’ve seen issues kind of arise in what people are struggling with, it sounds like you, you know, stepped in and, and helped figure out ways to, to fix those problems, which is great.
Michele Cagan (05:20): Yeah. And I think one of the best things I can do is help people figure out how to solve their own problems so they don’t get as scared when the next thing comes up and they don’t feel helpless.
Maggie Germano (05:31): Yeah, I love that. That’s so important. That’s such a big piece of it. Um, and so while we’re recording this, we’re in the midst of not only tax season but also the Corona virus, a crisis which is affecting everyone in the world it seems like. And so, you know, I originally asked you to come on just to talk about how to deal with your taxes, especially if you’re kind of getting down to the wire and you might be late with filing and those sorts of things and we’ll definitely get into that. But considering the coronavirus and the recent announcement from the IRS yesterday, uh, I wanted to make sure that we were touching on that. So can you tell us a little bit about what the IRS said yesterday and what that actually means?
Michele Cagan (06:16): Well, actually the IRS didn’t say it, the treasury did. And the IRS hasn’t actually provided guidance yet. Um, normally what happens is, um, the white house or somebody makes an announcement and then the IRS figures out how to deal with that. So what is going on right now is they’ve extended the time for people to pay taxes. They owe by 90 days with no fees or interest or penalties, but they haven’t extended the tax filing date. And that’s where the lot of confusion, because a lot of headlines they like don’t have to file your taxes by April 15th and that is not true. You still have to file by April 15th or file an extension by April 15th and then you’ll be eligible. Do not pay until July 15 if you need the extra time to pay taxes that you owe. If you’re getting a refund, you should go as soon as possible before the money runs out.
Maggie Germano (07:21): Is that something that is potentially likely?
Michele Cagan (07:24): Yeah, that’s not going to happen, but it could take a while. I mean the later you’ve an enormous all year, the later you file, the longer it takes for them to process your return and get your money back to you. So this year it’s going to be probably even a little bit longer just because of everything that’s complicating everything.
Maggie Germano (07:43): Yeah, no, that makes sense. And I had seen even before the announcement from the treasury yesterday, I had seen on social media kind of hints around like maybe they will push the filing date, maybe April 15th won’t be the date to make sure you’re doing your taxes. Um, but yeah, I saw that even though the, the delay in payment is happening if that doesn’t apply to filing, which is kind of strange.
Michele Cagan (08:07): Yeah, I mean that could change too because I’m in a lot of CPA chat groups and stuff and they’re all like, wait. So we have to be around people and we have to put ourselves at risk to file back with, cause they’re not extending, I’m just putting, I mean a lot of my clients I’ve just already said, let’s put you on extension. If we file on time, great. If not, let’s not worry about it.
Maggie Germano (08:29): That’s a good approach. Yeah. So then no one is risking being late and you’re just assuming you’ll have to have that extension without maybe necessarily needing it.
Michele Cagan (08:40): Yeah, I mean just because you file an extension doesn’t mean you have to take the extra time if you don’t want to.
Maggie Germano (08:46): Okay. That makes sense. And so, so since you mentioned filing, filing an extension, can you tell me a little bit more about that might be necessary, how to actually do it and kind of how much extra time you get.
Michele Cagan (09:01): Okay. So in general, people sometimes need extensions when they can’t get all their tax stubs together on time. Or there’s been some kind of like family emergency, like an illness that keeps them from doing their taxes. They hadn’t gotten all their forms. Like there’s a ton of reasons that it can happen and it can be really stressful if you feel like, Oh my God, I’m not gonna be able to file on time. But the solution is so easy. It’s a single half page forms. It’s number four, eight six eight form 4868, it’s right on the IRS website. It’s every single tax software you can use has them included in the software. They’re free to file. All you have to do is put your name, your social security number, how much money you think you’re going to owe. Put zero this year for sure. Put zero and then you just mail it and most States let that count for them as well. If you’ve filed a federal extension it counts as a state extension as well. Um, I do want to point out that a lot of States have already said we’re extending the time to file. So I mean Maryland where I am is, is one of those States and there are a lot of States who are doing that so you can check your state website. Awesome. Super easy form takes less than five minutes to fill out.
Maggie Germano (10:25): That’s great to hear cause I feel like that’s not always the case with taxes or just government forms in general. Things can seem not super straightforward and kind of difficult to complete and so it’s good to hear that it’s a short form. It’s very straightforward and quick to, to complete.
Michele Cagan (10:45): Yeah, super easy. That’s great. Yeah. I mean I think anyone who thinks they may not be able to get their taxes done should just just bio one because there’s, there’s no penalty if you think you’re going to file late and then you don’t. But there is a penalty if you don’t put the extension and then you do finally.
Maggie Germano (11:06): Okay. Yeah, that makes sense. So, so like you said, it’s free to file for that extension. How long does that usually give you when you do file? That extended six months. Six month extension. That’s great. Awesome.
Michele Cagan (11:20): Then you wouldn’t have to file until October. However, this year it’s probably gonna end up being more like July because when you file an extension, when you do the extension, it’s extension to file, not extension to pay. So even if you don’t have to file until October, normally you’d have to still pay April 15th this year you don’t have to pay until July 15th okay. But you’d still have to pay before October 15.
Maggie Germano (11:52): right. So how does that work if you haven’t filed yet, how might you know how much you would actually need to pay?
Michele Cagan (12:00): Okay. Even if you haven’t officially filed, you can still run, like do your taxes to see around how much the tax bill is going to be. And you can use your best guess. I mean it’s, if you think for example, you’re going to owe $5,000 and then you end up going $6,000 so you’re only late with a thousand and not 6,000 so it’s, it works out better this year though, I’m going to say, you know, wait as long as possible to pay. I would even tell people don’t make estimated tax payments if you’re a person who has to make X estimated tax payments because you don’t get money from a regular paycheck where they take taxes out. I would say don’t make your estimated tax payments because the late payment penalty and the, and the interest that you might have to pay at the end of the year are going to be a lot less stressful than not having cash on hand right now.
Maggie Germano (12:56): That’s really good advice actually. And that’s something that I’ve been saying to people and even just to my husband, he was like, Oh, maybe we should be putting more money in our IRA right now. And I was like, Oh, I’d actually kind of like to have a little bit more money on hand at the moment. And so it sounds like the same can apply to the taxes to making sure if, if income is disrupted that you actually have enough to be working with day to day.
Michele Cagan (13:20): Yeah. I think having cash available to you right now is more important and retirement saving more important than taxes because rent and food, that’s today. Taxes and retirement. That’s what had happened.
Maggie Germano (13:36): Yeah. No, I completely agree with that and it’s good to hear more people kind of saying that too, just because this is sort of unprecedented and we don’t actually know what’s going to happen, how long it’s going to go on. So it’s, it makes sense that taking care of immediate priorities is more important than those more down the line responsibilities.
Michele Cagan (13:57): Yeah. I mean I fully believe things will get back to more normal later in the year, but you just don’t know what’s going to happen and having access to money is better than not right now.
Maggie Germano (14:12): Yeah, absolutely. Especially if there is that delay in having to pay your taxes and we do get another 90 days. So hopefully things are kind of wrapped up by then or at least on the mend by then and that you know, we’ll have more of a idea of, of what things are going to look like by them.
Michele Cagan (14:31): I think so too. And I actually, I, I believe that they are going to forego the penalties and interest on estimated payments too because retirees is the biggest people that effect and side gig people. I mean they don’t want people to stop working, you know, cause you know, worried about tech. They need people to keep doing what they’re doing. Retirees need money. So I think they’re most likely going to not worry about fees and penalties on that either. So keep your money.
Maggie Germano (15:03): Yeah, that’s good to know. And so for the estimated taxes, that is for the year 2020 right. Like not making those payments. Okay. All right. That’s good to know since I do that myself too. So you know, holding onto that for now. Yeah, it’s probably in other circumstances it would be terrible advice. But right now I think it’s the best advice. Yeah, everything’s a little bit more different. I just, I’m also in Maryland and so we just, I just got an email from our Congressman saying that they’re opening enrollment and the marketplace health plan right now as a special enrollment because of coronavirus for anyone who doesn’t have insurance. And so it sounds like a lot of places are willing and able to be bending some of the rules right now and the IRS is no different, which makes you wonder why the rules has to be that way anyway, but, okay.
Maggie Germano (15:56): Exactly. Now I’ve been thinking about that of how like wondering how things will change in the long run when we see like, Oh, I guess like being in an office every single day is not actually necessary and maybe working from home works just as well for a lot of people and, and maybe certain penalties and rules and timeframes don’t actually need to be in place. So hopefully things will change for the better when we learned through this process.
Michele Cagan (16:24): Oh yeah.
Maggie Germano (16:27): And so when it comes to taxes in general, so not when we’re just living through a global crisis, um, what are, what is like the number one thing you wish people understood about taxes generally either, you know, throughout the year or when they’re filing two things.
Michele Cagan (16:46): Really, the first thing is don’t be scared of the IRS. I mean, if they’re like this big boogeyman, but honestly, for most people, you will almost never have interaction with them. And if you make an honest mistake on your taxes, it’s not a big deal. If you are purposely doing fraud on your tack, this will then, yeah, you want to, you want to worry about that. But for most people, the IRS is knocking, take your house away, or anything like that. It’s a bit scary. But it doesn’t really happen that way at all. Not even close. And the second thing is most people tend to overpay their taxes because they’re worried about the IRS. They’re worried about taking deductions that they may, you know, they think, well, I’m not sure if I can take this one. I’m not going to. So I think more people over pay their taxes than need to. And can I add one more thing? Most people also get who refunds get big refunds and I personally think that’s a mistake because you’re giving the government and interest free loan when you could have had that money all year. So you should be aiming for either Oh wing or getting back no more than $200 either way it should be your aim. If you’re getting back $3,500 you don’t want to do that. You want to have more of your money during the year to help your finances all year long instead of getting one lump at the end of the year.
Maggie Germano (18:25): That’s great advice because, and that, that was something I heard I think a couple of years ago from my dad. I had gotten like a $2,000 refund or something and I was thrilled about it at the time because it was like, Oh wow, free money. And he was like, no, that just means that you gave a $2,000 loan interest free to the government for the year. And that really made a shift in my mindset where I was like, Oh, I never thought about it that way. I could have been using the money for anything else that I wanted to be using it for. And I just had a similar conversation with my little sister recently cause she was saying that she was only getting $900 back and I was like, you know that’s, that’s money you could have brought all year.
Michele Cagan (19:06): Exactly. Your only money you’re getting back. Well and you know for people who like to have that lump, what they can do is just do an automatic deposit to a things account for the amount that they’re changing their taxes by. So they’re still getting the same net paycheck and they don’t spend that money since they’re not used to having it. But then at least they’ll earn interest on it and then they can access it when ever they want to instead of having to wait till they get a refund from the federal government.
Maggie Germano (19:33): That’s great advice. I love that. That’s, and I’m a huge proponent of automating savings too. And I never thought about it in terms of like adjusting your taxes so that you’re not going to be getting a refund at the end of the year, but still setting aside that money as you go because if it’s just going to go into your checking, you’re probably just going to spend it and not realize that you’re spending it and then you’ll just be sad if you don’t get a refund at the end of the year. But you actually were having that money coming in all along.
Michele Cagan (20:00): Yeah.
Maggie Germano (20:00): Yeah. I love that. And I like to also what you were saying about how the IRS is not a boogeyman. And I mean, I, I got like slightly audited last year with, there was, uh, an issue with, uh, me being on marketplace insurance and then getting married and we ended up owing a lot more than we thought we were going to. And it was like this whole thing and it felt really, really scary when it was happening because you hear the word audit or you’re getting letters in the mail and you’re just like, Oh my God. Like, what did we do? Um, and you know, they’ve been, it’s been an ongoing process that I think is finally done. Now they just send us our final, a bill for like interest on the amount we owed on. Um, but, but even just hearing you say like they’re not some scary boogeyman that’s going to come and take house. They just want you to pay what you owe. That even made me feel more relaxed about the situation that had happened. Like it doesn’t have to be that big of a deal.
Michele Cagan (20:57): It’s just another bill. I mean honestly that’s all it is.
Maggie Germano (21:01): Yeah. And at the end of the day they just, they want to work with you to get the money that you owe. Like I have some coaching clients who owe quite a bit in taxes. It’s a very large bill, but they are working with the IRS to come up with a payment plan that actually, that they can afford and that fits in with their life because you know, the IRS is not here to bankrupt you or to make it so that it’s impossible for you to make payments. So it sounds like they’re open to, to working with you on, on a payment plan.
Michele Cagan (21:34): They absolutely are. And here’s just one more thing I want to add there is that the IRS is not always right. In many situations they are often wrong, very often wrong. And uh, just because they say you owe money, it doesn’t mean you do.
Maggie Germano (21:48): Hmm. That’s really interesting. So how would you figure out if they were wrong in a situation?
Michele Cagan (21:56): Well, normally I would say talk to your tax preparer, but if you don’t have one, you don’t just accept what they say. Look at what they say and make sure that it’s correct. Because if they say, you know, we, most of the reason that they do that is because like when you get a W2, they get a W2. When you get a 1099 they get a 1099 so if there’s a typo on something that they get, it’s just a computer saying, Hey, what you put doesn’t match. But just cause it doesn’t match doesn’t mean yours is wrong.
Michele Cagan (22:29): So if you tell them, yes, it didn’t match, but here’s why, then they’ll say, Oh, you’re right. Nevermind.
Maggie Germano (22:37): Oh, that’s good to know. Yeah. So double checking those kinds of things and not just taking it at face value.
Michele Cagan (22:42): Yeah. Because they make and you know, if they could be, um, have gotten your name confused with somebody else. I mean, they make mistakes all the time, so
Maggie Germano (22:52): yeah. Yeah, it is. It’s people working at a company, you know, within the government. So it’s not this perfect place.
Michele Cagan (23:02): Nope, not at all. I mean, stuff happens.
Maggie Germano (23:05): Yeah, totally. And something I’ve noticed that there’s sometimes just, um, like some wires get crossed. Like I said, we had to pay a little bit in interest on the amount that we owed for 2018. And I got the letter a couple of weeks ago and I had it kind of sitting on my desk for a little while and then I went and I paid it online and a few days later I got another letter with the same amount of interest saying that it was still owed. Plus, then they had added interests on top of that and I was like, wait a second, I paid this like three weeks ago and I called them and they were like, Oh yup, we must have just automated that next letter to go out before you actually submitted the payment. So you’re all set, don’t worry about it.
Michele Cagan (23:44): Right. But if had actually gotten scared and made that second payment, they wouldn’t just give it back to you. You would have to figure out that you overpaid and try to get it back. So that’s a really good example.
Maggie Germano (23:57): Yeah, that’s good to know too. Cause I was kind of, I almost went on to just pay it and was wondering if it hadn’t gone through. But then I looked back and saw like I had a confirmation email that I had paid it. It had been deducted from my bank account. Like I saw that it had all gone through and I was like, well, maybe, maybe if I paid again just to like, you know, ha send back this letter, it would get applied to anything else that I would potentially, Oh, but I didn’t actually know that for a fact. So I’m glad that I called.
Michele Cagan (24:28): Yeah. And another thing, um, is that you shouldn’t ignore letters from the IRS. Like just because it looks something that’s upsetting and scary. Don’t ignore it, respond, always respond and then then you can take time to figure it out. But if they send you multiple letters, that’s when they start getting annoyed.
Maggie Germano (24:48): Hmm. Yeah, that’s really good to know. So I guess what, what are some ways, and I’m sure it depends on the situation, but what are some ways to respond? Like is it a matter of responding to a letters and a matter of calling? What, what’s some of the action people should take?
Michele Cagan (25:03): Usually a letter. Usually when you get a letter from the IRS, they’ll tell you how to respond to it. And you can just send the like have a rip off portion that you can send back. And usually not usually with an envelope, but sometimes, and then they say like, here’s how to respond to this. If you think we’re right, do this. If you think we’re wrong, do that. You have 60 days to respond or whatever. Always respond if you think they’re wrong. Say so because responding stops sometimes stops the clock and not responding leaves that clock running.
Maggie Germano (25:40): That’s a really good point. And so say someone didn’t respond, like maybe they tend to avoid things like this because it stresses them out and so they are getting a series of letters where you know, they’re just not responding. What are some of the things that happen after that? If that’s the case?
Michele Cagan (26:00): Well, if you don’t respond to believe the IRS has, well if you didn’t respond, that means we’re right. So now you officially owe us this, you can’t, you know, and then they’ll start, they can, you know, hold onto your refunds. They can do all kinds of stuff. Okay. Two they can end up garnishing your paycheck and stuff like that if they think you’re ignoring them and you’re just so just don’t ignore it. Even though it looks scary, it feels scary the minute you get it, put it down for a day, read what it really says and then just respond. You don’t have to do anything other than respond at the time or contact me and say, Hey, I got this letter. It’s scaring me. What do I do? And I will say, let me see the letter, here’s what you do. And then you’re done.
Maggie Germano (26:54): That’s great. And yeah, and I like that you, you mentioned that too because it doesn’t always have to be something that you’re handling on your own without any kind of understanding of what’s going on. There are people like you out there who can review the situation and give you advice, at least for just immediate next steps.
Michele Cagan (27:14): Yeah. And just take some of the anxiety out of the letter because as soon as you see the IRS on the envelope, like even I, I see IRS in an envelope and I’m like, Oh, what do I owe? And sometimes it’s just, you know, we just renewed your preparer number. Like sometimes they just send letters. Um, I want to say one more quick thing here is that the IRS will always, always, always make first contact by a letter through the mail. They will not call you, they will not email you. They will never contact you over social media. So if you get, ah, contacted by the quote IRS in any way other than regular mail, do not believe it. It’s not them.
Maggie Germano (27:57): Thank you for saying that. Cause I that came to mind too when I was taught when we were talking about receiving letters because that’s something that is happening all the time, right? Like we’re getting these scary calls, these robocalls from the IRS or these voicemails. I haven’t seen something on social media, but I’m not surprised that there is a scam around there too. But I feel like I’m not the target. Who are some of the targets for that kind of scam?
Michele Cagan (28:22): These are people, older people are more like, seniors are very big targets of IRS scams because they’re the scariest, you know, cause this, and they say things like, we’ll keep your social security if you don’t do this and like that. So yeah. But there’s always scams about the IRS, so they will only ever contact you by an actual letter.
Maggie Germano (28:49): That’s good to know. And, and, and I feel like what you were saying earlier about the IRS being this scary boogeyman that we kind of, you know, we’re really afraid of, it’s such an easy approach to take if you wanted to scam people out of money, like take this big scary thing that everyone’s worried about and then, you know, put threats on their voicemail.
Michele Cagan (29:10): It is, it’s, it’s not nice, but it happens.
Maggie Germano (29:14): No, it’s not. Yeah. So that, that’s a really, really good takeaway. I think even just the, if people took one thing away, it’s that they’re not going to call you on the phone. They’re going to send you a letter. Um, so you mentioned like having people reach out to you. For example, if they got a letter in the mail, um, when are, when is the kind of scenario that someone might want to hire a tax accountant to help them with their taxes generally?
Michele Cagan (29:41): Okay. Well normally if you have what’s considered a complicated tax return or you’ve had a major change in your life, you might want to see a tax preparer to take care of that at least the first time you’re doing it so that you can see the right way to do it and have something to compare with. So for example, if you have three rental properties and a side gig and a job and two kids and a 529, you might want to have somebody do your taxes cause that’s a lot of moving parts. If you got married recently and you know your finances, obviously your financial picture has changed or divorced or there’s been like a major change in your job or something like that. You might want to just have somebody do it for you one time to to take advantage of all the things that are involved in that change tax prepare tax prep software like turbo tax tax, that they’re great but they don’t, if they don’t know to ask you a question because you don’t know they, you need them to ask you that question. You’ll can end up paying more in taxes then you need to. So having somebody walk you through it the first year you have a confusing, complicated or just different situation can make it easier moving forward so you’ll know what it’s supposed to look like.
Maggie Germano (31:10): That’s really helpful and that’s something that I have definitely found myself where there was a year where, you know, I had quit my job to run my business full time. We were also running in an Airbnb out of our basement and we got married. And so it felt like things were too complicated and I didn’t really know what to do, especially with, you know, home office deductions and all of those sorts of things. And so hiring somebody else made it just feel a lot easier. Like I wasn’t going to be missing things in the way that I would if I was doing it alone. Um, and the same with this year, we just decided to hire someone again because there are so many different moving pieces and we just want to make sure that we’re doing the right thing. And, and even through the process of working with the tax preparer, they often will reach out and ask, Hey, did you, did you happen to like do this with your house? Or did like this thing happen? And we’re like, Oh my God, we didn’t even think about that. And so we can respond to that. And it’s really been helpful.
Michele Cagan (32:08): Yeah, that’s what I’m exactly the point because it’s the tax software is not going to ask you that because it doesn’t, it doesn’t, no. You have to tell it what to ask you sort of, if that makes sense.
Maggie Germano (32:20): Oh yeah, absolutely. I mean like you were saying with uh, a computer algorithm, like at the IRS, the tax software is the same kind of thing. It’s, it doesn’t have like an actual human brain knowing to ask you follow up questions.
Michele Cagan (32:36): yeah, I mean some things it does, like if you tell it, yes I know I did this, then it may tell you did you do this? Did you do this? Did you do this? But if you don’t think to tell it that you did the thing, actually last year a lot of people overpaid cause they, people with side gigs and freelancers especially cause they didn’t realize that they were eligible for 20% deduction of their business income. Millions of people overpaid their taxes.
Maggie Germano (33:02): That’s, and those are the people probably who they could really use that extra money in their pocket.
Michele Cagan (33:08): Yes. And by the way, if you are one of those people and you did over pay your taxes, you can file an amended return and get some of that money back.
Maggie Germano (33:15): That’s great. Yeah. That happened to me. I don’t know if this is why that happened, but I have a new tax preparer this year and she looked at our taxes from the previous year and realized that we had overpaid our taxes to the state and so she filed an amended tax return for us for the state and we got, I think it was $350 back, which I appreciate it.
Michele Cagan (33:36): Yeah, you have a few years. If you, if you’ve filed wrong, you can just do it over.
Maggie Germano (33:41): Yeah. What is that timeframe? Is there a limit to the window where you can do that?
Michele Cagan (33:46): You know, I want to say it’s three or five years. I honestly don’t remember the timeframe, but you want to do it as soon as possible because you’ll see it’s easier to have the backup that you’ll need sooner than later.
Maggie Germano (33:59): That makes sense.
Michele Cagan (34:00): Really bad at memorizing the time.
Maggie Germano (34:03): That’s okay. I mean three years is still a good amount of time to be able to realize that maybe you had made a mistake and still have the ability to go back and fix it.
Michele Cagan (34:13): Yeah. So if you are a freelancer or consultant or you get any kind of 10 99 income and your tax software asks you if you have qualified business income QBI, say yes.
Maggie Germano (34:26): That’s helpful. Thank you. That’s a great segue. Um, so for folks who, you know, maybe they don’t necessarily have a complicated tax situation, but they do feel like they end up struggling with their taxes every year. What are some tips you have to, whether it’s, you know, staying organized throughout the year with your taxes or knowing where to turn in order to be able to file your taxes on time so you don’t feel as overwhelmed Twitter, some of the general tips you’d give people?
Michele Cagan (34:57): Well, I think it’s probably unrealistic to expect people to stay on top of their tech stuff all year round if they don’t have to pay estimated taxes. People who do have to pay estimated taxes tend to, there’s, there’s the people who really stay on top of it and the people who are just like, Nope, I’m, but for, for most people and most people have W2 salary income. So there’s really nothing to do during the year.
Michele Cagan (35:27): And just at the end of the year, just keep your stuff together. And even most people delay filing cause they think they’re going to owe or they, that it’s just, it’s, it’s like a hard thing to do when it’s just like a, a mental block kind of. And they don’t want to use the software. But honestly, if you have a pretty simple tax situation where you have just like salary income, maybe a house, some charitable donations, fewer people than ever right now, or even taking, um, itemized deduction. So it’s, it’s easier than it’s been to file your taxes. It’s mostly fear that keeps people from doing it that they’re going to make a mistake. But I promise you’re not going to make a mistake. And even if you do, it’s not hard to fix it. You can fix it before they catch it. You can fix it after they catch it. It’s not going to cost you $15,000. If you make a mistake on your taxes, it’s going to cost you $25 maybe. And sometimes you can say to them, look, it was a mistake, can you cancel the penalty? And they’ll say, sure.
Maggie Germano (36:36): Hmm. That’s good to hear too that you can request that the penalty be waived. And that’s something that happened. We had underpaid a couple of years ago and our tax accountant had those fees waived because it was an error. Um, and so, and that’s often a thing with like even you know your credit card, if you had a late payment you can ask them to waive your fees and they often will. So usually people, even the IRS are willing to work with you with that kind of thing.
Michele Cagan (37:04): Absolutely. I mean if you don’t ask, they’re definitely not going to say yes.
Maggie Germano (37:08): exactly. The worst they can say is no, and then you’re in the same situation anyway. But best case scenario, they weighed that and you can save some money there.
Michele Cagan (37:17): If you, if it’s your first time or you have a really good reason, they almost always waive it. If it’s like your 80th time asking, they’re going to be like, no. But you know, if it’s reasonable you don’t do it every single year, they’re almost definitely going to waive it.
Maggie Germano (37:36): That’s good to know. And so you, you mentioned some of the, you know, I think you mentioned turbo tax, but what are some of those other platforms people can turn to to file their taxes themselves?
Michele Cagan (37:48): Well the first thing people should do is check out if they qualify for free file and you can go right on the IRS website. It’s irs.gov so make sure you go to the right IRS website cause there are a lot of fake IRS websites out there. Um, and then look in their free file stuff and they have links out to all the free file software. So millions million, tens of millions of people qualify for that. So try that first because it is 100% free. If it brings you to a page where it says you have to pay, don’t believe it. Go back to the IRS site and find a different profile. Um, and mostly it’ll say fill in the information from your W2, fill in the information from the, you know, all the tax forms you get. And there’s so many, there’s a lot of different ones. I mean the ones I know off the top of my head are H and R block, turbo tax, tax Slayer, tax act. I’m sure there are others. I know there are others, I just don’t remember all of them and I use professional one so you can’t, regular people don’t need to use that because it’s, yes,
Maggie Germano (39:03): no that’s helpful. Even just having a few like a handful of them and, and I think realizing that there are options for filing for free is really helpful too. And I’ll make sure to link to all of that in the show notes with the actual IRS links and all of that because there is a lot of scams out there.
Michele Cagan (39:22): Well, even there was this whole thing on ProPublica that TurboTax would like if you searched free before this year, if you search free file TurboTax, it would bring you to one that turned out to not be free file and then people ended up having to pay thinking that they were going to free file and it was really hard to get to the right free file page. So go through the IRS website to get to the free file page because there’s no need to pay for this if you don’t need to pay for it.
Maggie Germano (39:50): yeah, I heard that too. I heard a podcast going over that whole scandal because yeah, there are more, like you said, plenty of people qualify for pay for filing for free and, and there are those kinds of web patterns that try to prevent that sometimes.
Michele Cagan (40:08): Yeah. This year is a lot stricter but still if you go to the IRS website, you’re more likely to get to the right free file site.
Maggie Germano (40:15): Okay, great. So no, and I’ll definitely link to that. Um, so is there anything else you want to make sure listeners know, whether it’s about taxes in general or taxes in this current situation?
Michele Cagan (40:30): Hmm, yeah. I think I would say if your taxes feels scary to you, get help from someone [inaudible] you are confused by anything. Shoot me a question. I’m not going to charge you $100 to answer one question that’s not going to happen. Um, or you know, there’s also, um, there’s free tax help for people who can’t afford like the CPA or, or H and R block or something like that. It’s the VITA program, V I T a. I volunteer income tax assistance. Um, and that’s also available. You can find a link to that through the IRS website that it’s people who will help you do your taxes for free, like a person, not software. Then you can bring them all your stuff and they’ll help you out. Don’t let fear keep you from filing because you don’t want that link to hang over you and linger even longer. File either your return or your extension by April 15th and then relax.
Maggie Germano (41:37): I love that. Thank you. That’s, that’s great advice cause that’s stress. It ends up growing and growing and feeling bigger and scarier. The longer you put it off. So the faster you deal with a situation, the better you’ll feel. I agree. So how can folks get in touch with you?
Michele Cagan (41:55): They can um, reach me on Twitter, Facebook Instagram, they can um, come to my website which is just Michelecagancpa.com, and they can ask me questions and if you know, if it’s an easy question and I can just answer it, I totally will. If it’s something like really involved, you know, we’ll see what happens, we’ll talk. But a lot of questions that seem really confusing to people who don’t do taxes all the time are not confusing for me and I can give you a quick answer and I’m happy to do it.
Maggie Germano (42:29): Great. Well I appreciate that and that’s a great resource for folks. So I’ll make sure to link to your social media and your website in the show notes so people can get to you easily. Uh, and thank you so much for taking the time to chat taxes with me today
Michele Cagan (42:44): and thank you so much for having me on. I really appreciate it. Of course.
Maggie Germano (42:51): Thank you so much for listening again this week. Don’t forget to rate, review and subscribe in your podcasting app so that more people hear about the money circle podcast and listen if you’d like to get more connected with Money Circle or with me, there are lots of ways you can do that. To join the free Facebook group, visit facebook.com/groups/moneycirclegroup. To stay informed of any upcoming events, subscribe to my weekly newsletter at maggiegermano.com/subscribe. To sign up to attend the next money circle meetup, visit Maggiegermano.com/moneycircle. To learn more about my financial coaching services, my speaking and workshop offerings, or just to read my blog, visit Maggiegermano.com. You can also follow me on Instagram and Twitter @MaggieGermano. Thanks for listening and have a great week.
