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CNN Live Saturday
"Dollar Signs": Ways To Reduce Your Taxes
Aired December 13, 2003 - 16:31 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDRIKA WHITFIELD, CNN ANCHOR: Welcome to DOLLAR SIGNS, where we help make the most of your money. December 31st is less than three weeks away. Can you believe it? There are a number of things you need to do right now to reduce your taxes.
We have two experts to tell us how. Credit consultant Deborah McNaughton and tax specialist Donna Levalley.
Good to see both of you.
DEBORAH MCNAUGHTON, CREDIT CONSULTANT: Hi.
DONNA LEVALLEY, TAX SPECIALIST: Thank you.
WHITFIELD: Let's begin with being generous this charitable season. Perhaps we need to reassess how much we've given in terms of donations. Might that be a way to help catch up so that when we itemize perhaps we'll be able to benefit, Donna?
LEVALLEY: Absolutely and every small donation counts. Let's start off, if you're going to give some large donations, for instance, any cash donation of $250 or over, or any property donation of $500 and over, needs a written acknowledgement receipt from the charity.
If you're doing anything like that or have done it and don't have the receipt yet, it's a good time to start asking for those things and collecting them.
On the smaller scale, if you are going to be itemizing, even if you're gathering up those used clothes, even furniture, maybe appliances, I recommend that you go to the Salvation Army's web site, and they have a terrific list that will help you figure out how much those donations are worth.
You want to write them down and put them away with your other tax records and make sure you take all those donation deductions when April comes around.
WHITFIELD: And Deborah, where do people usually go wrong? Where are the biggest mistakes when it comes down to the charitable donations?
MCNAUGHTON: Usually, they lose all their records. Proper record keeping and saving the receipts is a necessity in order to help with any type of tax deductions, especially if you're ever audited.
WHITFIELD: All right, making additional tax payments is another way, Deborah, that perhaps people might be able to cut themselves a break when they're preparing or getting ready to prepare for their taxes.
MCNAUGHTON: Absolutely. People ought not only need to be giving monetarily, they can also be giving donations to charities -- clothing, furniture, different things that they can actually get deductions for.
WHITFIELD: And, Donna, opening a traditional Roth IRA or a traditional IRA, rather, maybe even a Roth, that's another one to kind of save, isn't it? You know, trying to get a tax break, so to speak, just before the end of the year. What's your best advice?
LAVALLEY: Absolutely. Fortunately, you have until April 15th of next year to actually open an IRA, any kind. The traditional IRA is the one that's going to give you a tax savings because you can make a deduction when you put the money into it. It's probably too late to make any additional donations to a 401(k) because those are usually excluded from payroll. It's probably too late to set one of those things up.
But the traditional IRA will give you the deduction. One thing I also recommend, which may not necessarily save you in taxes right now, but can save for the future, is if your IRA is depressed, if it has really taken a hit over the past few years. And it is below what you think it will be, in the future, it may not be a bad idea to convert it to a Roth IRA, and down the line, when the value of it reinflates, all the income from that Roth IRA is going to be tax free.
WHITFIELD: And Deborah, now is the time when -- we're getting close to the time when people will start receiving the W4s. What do they need to look at? Do they need to inspect these and familiarize themselves with what is on there, the kind of information they are going to need when it comes down to filing their taxes?
MCNAUGHTON: Definitely. They need to make sure they have the proper Social Security numbers, all of the dollars, everything that is been reported to the IRS from their employers. Everything has to match up. So you have to make sure everything is totally accurate.
WHITFIELD: OK. We're taking calls and e-mails. Coming up next on DOLLAR $IGNS, stick around, you can still send in your questions to dollarsigns@cnn.com. Or you can call in, that number is 1-800-807- 2620.
Debra and Donna, we'll be right back.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR $IGNS, we're talking about getting your finances in order, with Credit Consultant Deborah McNaughton and Tax Specialist Donna Levalley.
OK, there are a few things that perhaps you can kind of guide us through. Number one, New Year's resolution, it is always either diet or get my finances in check. So, how in the world can we start, Donna, I'm going to begin with you, how to get your checkbook balanced and how to restrict yourself or reflect on how much money you've spent in the past year and perhaps how you can slim down, financially, in the coming year.
LAVALLEY: I think it's always good to look back at the last year. Get out last year's tax returns. Maybe those old bank statements and bank books, where you have seen where it is that you spent your money.
Using your old tax return is a good indication of where you'll have your deductions, where you have your expenses, that were deductible. You can go back through and dig through those boxes or maybe file folders full of receipts and find the ones are going to be useful.
I always recommend sort of maybe making a sort through the year, between maybe travel expenses, entertainment expenses, and maybe not keeping up with them on an every week or monthly basis because then it becomes kind of overwhelming. But if you have them sorted out and sorted into piles, it maybe easier to go back in, and maybe between January and April, you can sort of put them in order. Every week, do a different type of expense.
WHITFIELD: Deborah, recently, a lot of credit card companies will help you now. They'll actually send you kind of like a summary of just how you've been spending your money all year. Don't toss those when you get them. You really could use this as a valuable tool.
MCNAUGHTON: Oh, absolutely. You need to go back and review all of your credit card statements for the year. Many of those could be business expenses that you can write off.
But not only that, when you get the itemized statements, you're going to be shocked at how much interest and finance charges. Usually people are panicked when they realize that they have spent hundreds and thousands of dollars on finance charges and interest.
WHITFIELD: So, Deborah, now you've assessed on how much money you've been spending all year. How in the world do you realistically go about trying to set a budget for yourself?
MCNAUGHTON: The best way is to look back at the last year and make a journal that you need to trim the fat. Find out where you've been wasting money, and by doing a journal, you can itemize every entry for at least 30 days. Every nickel, dime, and penny that you spend, expenditures for you know, rent, mortgage.
But even the lattes, the sodas, make a list of everything, and as soon as you total every nickel and dime that you've spent for 30 days, you're going to be shocked at probably the hundreds of dollars that you can now put back into a budget.
WHITFIELD: It's amazing how that stuff really adds up. Donna, you want to get a credit report for many reasons. Some people just want to know -- just lately, we're all being encouraged to do that just to find out whether you're a victim of identity theft. But we can really use this credit report to help us in our finances. How?
LAVALLEY: It will give you an evaluation of what the other people you may see credit from are going to see. Especially if you may be seeking a mortgage any time in the future. Based on your type of rating, whether or not you're going to be credit eligible, whether you're credit worthy, but there are different interest rates that are given to people with different credit.
If you're a "B" you're going to get a higher rate than someone who's an "A". So maybe if you find out where it is that you're maybe messing up. Maybe it's a good idea to lower your outstanding credit. We all sort of have an amount of credit that we're allowed to hold based on our assets and based on our income. If you're going to be seeking a mortgage, maybe it's a good time to pay off the credit cards now so you can increase the amount of money someone will lend you for a home.
WHITFIELD: William from California is on the line with us, and he's got a question.
CALLER: I'd like to ask. Is it Deborah?
WHITFIELD: Yes, there's a Deborah and a Donna. Take your pick.
CALLER: My question is for Deborah. The question is how do banks, credit cards, and other institutions and credit bureaus, how do they get everybody's name?
MCNAUGHTON: Well, it's interesting. You know, when you go to apply for credit and the little itsy-bitsy print on the bottom that says that you are authorizing them to inquire about your credit and to report it. So you basically are the one that is authorizing this to appear on a credit report.
WHITFIELD: All right. Thanks, William.
Now, Donna, a moment ago you talked about Roth versus traditional IRAs, and 31-year-old Bruce, out of North Carolina, is on the line. I think he's still there. He's got a question about Roths. What's your question?
CALLER: Well, I'm 31 now, and basically I want to know, by the time I retire, what can I expect if I put the maximum per year until I'm 59 1/2?
LAVALLEY: Well, it's all going to be depending on how well your investments do, in terms of how much income you can expect. Deciding whether or not to go for the traditional or Roth IRA, which is one of the questions that people usually sort of go through in their mind, should I take the deduction now or go for the tax-free income later? I have to say, all of the things that have been written, it seems like there is sort of almost a wash issue.
I actually would probably recommend going into it opening a Roth IRA because there's always been the specter like maybe they might close it down at some period. So at least you have one now. You can count on having a tax-free stream of income when you do retire.
Also, the money is accessible or more accessible than any money in a traditional IRA because you can always take out $10,000 -- for any reason, and you can take out some of that money for other purposes without paying a penalty.
WHITFIELD: And then as of this year, Donna, it's now a $3,000 contribution, right? An increase over the traditional $2,000?
LAVALLEY: It's a $3,000 limit for everybody and it is a $3,500 limit for those 50 and over. Fortunately, part of the tax bill that is still phasing in, that was passed in 2001, is going to raise those limits to $4,000 and then $5,000, and also keep that additional $500 bonus for people 50 and over.
WHITFIELD: That's a good place to save. Here's an e-mail question coming in from Al.
He asks: "What 2003 tax strategies come to a close on December 31 versus those which close on April 15, 2004 for the 2003 tax year?"
That's a toss-up. Who wants to tackle that one?
MCNAUGHTON: I think Donna.
LAVALLEY: I think that since we're coming to the close of the year, there are a limited amount of things that you can do before the year closes. Make an additional payment on your state or local taxes, making charitable contributions, opening a traditional IRA. But there are certain deductions that aren't going to be around much longer that will be closing out.
For instance, next year will be the last year for the college tuition deduction. This is the last year for the deduction for teachers who purchase supplies for their classrooms. And in terms of things now versus April 15th, the one sort of thing that is still open to everybody by April 15th is opening a traditional IRA, and that gives you a deduction.
And you can actually still open and make contributions to an education IRA although you don't get a deduction for the funds you put in there, but you are certainly building a nice account towards somebody's education expenses.
WHITFIELD: Now, Rick from Georgia is on the line, Deborah. He's got a question about 1099s.
Rick?
CALLER: Yes, my question is to Donna. I'm a 1099 employee, and I'm wondering what tax deductions are available to me for filing a 1099?
LAVALLEY: Well, 1099s are the information returns that you send out, right, for your employees' income, sort of notify the IRS how much you paid him. And 1099s go back and forth for different reasons. Either interest that you paid, interest that you received.
For a self-employed person, deductions that you should be looking for are maybe -- since this is the first year, self-employed people can deduct 100 percent of their health care premiums. That's going to be something huge that was not previously available. I think it was 70 percent the year before.
Obviously, the employment tax for your employee. Half of your employment taxes for yourself.
WHITFIELD: OK, we have a caller from Florida on, I think, IRAs once again. What's the question? All right. I think we may have lost that caller from Florida.
Frank in Florida. Are you there? Hello, Frank.
CALLER: Hello?
WHITFIELD: OK, Frank, what's your question? I'm glad you're still there.
CALLER: This is Rafael from Virginia.
WHITFIELD: OK, how about that? We'll take a call from Virginia. What's your question?
CALLER: My question is I refinanced my home, and on my credit report there was a bank statement from a bank, Transamerica Bank, saying that I have an account with them and I have some kind of payment. And we don't have anything from Transamerica Bank. Do you have any suggestions on what I could do?
MCNAUGHTON: Oh, definitely. The first thing you need to do is get copies of your credit report from all three major credit reporting agencies, which would be Trans Union, Equifax and Experian. Once you get copies, check and see if that entry is on all three different reports.
Whatever reports are reporting this, of the three, you're going to need to write a letter disputing the inaccuracy and have them investigate it with the creditor. If it's unverifiable or if there is an error, it will be corrected. You'll get an update within 45 days after your initial dispute is sent.
WHITFIELD: All right, Deborah and Donna, stick around. We'll take a short break. We've got lots more of your calls and e-mails coming up.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR $IGNS. Getting into the new year on a sound financial footing can depend a lot on what you do right now. Deborah McNaughton and Donna Levalley are taking your questions.
Susan from Georgia is on the phone. Deborah, I think this one's for you because it really does pertain to credit reports and credit ratings and the importance of - Susan?
CALLER: Yes. I'm trying to rebuild my credit, and I want to know how often (AUDIO GAP)
MCNAUGHTON: (AUDIO GAP) adjusted probably every month. As you make your payments and the balances go down, or whatever activity, when the merchant reports that item, then that will make a difference as to what your FICO score is.
I would say usually the first of every month you'll see a change. But you'll be able to tell how your creditors are reporting, just by getting a copy of your credit report and look at the date of the last activity or the date that they last recorded it. Some only report once a month, sometimes every three months, so you can find it out.
WHITFIELD: And, Deborah, is there an optimal rating that you're looking for, that people want to strive toward?
MCNAUGHTON: So much depends on the purchase -- what you're trying to purchase. Obviously, in the 700s would be great. But to purchase a home, if you have a 620 FICO score, you will get the best interest rates. I've heard with automobiles, 700 FICO score, it's no questions asked. So it really depends on the type of purchase.
WHITFIELD: Here's another e-mail that's come in. This one says: "I've been told that you can deduct moving expenses on your tax returns. If this is the case, what are the restrictions and requirements for taking this deduction on your taxes?"
Donna.
LAVALLEY: Well, it has to be done in a relationship of either taking a new job or being transferred because of your job. If you decided to move just for moving's sake, that's not going to be deductible.
The good thing about the moving expense deduction is that it's above the line, which means you don't have to itemize your deductions in order to take it.
In addition to it being related to taking a job or being transferred for a job, it has to be 50 miles away from your original residence. So if you've maybe taken a job in a metropolitan area as opposed to the suburban area where you were living, and you may move closer, if the new job isn't 50 miles from our old residence, not your new residence, then it's not going to be deductible.
And you might want to keep track of every type of expense you have. If it's a long enough journey, the overnight expense, the motel, the meals related to that trip, the mileage on your car if you're driving separate from your possessions, all of those things can be deductible as a moving expense.
WHITFIELD: Here's another e-mail. This one coming from New London, Connecticut. "I've begun baby-sitting my grandchildren and make $1,000 monthly, 10 months out of the year. Do I have to pay taxes on this money?"
Deborah?
MCNAUGHTON: I'm going to let Donna take care of that one.
LAVALLEY: If she's making $10,000 a year, she may be coming into the area where she does have to report. You have your standard deduction and your personal exemption, and that shelters a certain amount of income from taxation generally.
But if that doesn't cover your income, then you do have to report it. Now, there may be an advantage to reporting, you may not owe taxes. You may be owed a refund. In this case, she's probably getting a cash payment, in which case she may be owing the IRS for some FICA taxes if they haven't been paid.
WHITFIELD: Oh, man. That's a bummer.
LAVALLEY: That is a bummer, but there's the other side, where if her daughter is going to try to take the deductions related to child care, she's going to need to report the income. Because they're going to want to know who received it because they want to know who she paid it to. It's not necessarily the worse thing. Everybody wants to rack up enough credits because you want to get the maximum check when you retire.
WHITFIELD: This is getting way too complicated for everybody.
All right, ladies, Ellen from Florida is on the line. She's got a question about CD rates. We all know that they have just been tanking. Very unimpressive interest rates on CDs.
Ellen, what's your question?
CALLER: Oh, it's Ellie. Ellie, from Melbourne, Florida.
WHITFIELD: Oh, Ellie.
CALLER: The CDs, I've seen ads in the newspaper. They're not banks. They offer CDs that are over 4 percent, one year, probably a minimum of $10,000, FDIC insured. And I'd like to know are these safe?
LAVALLEY: Well, if they're FDIC insured then the federal government has insured them. If you lost your investment due to some type of institutional failure or fraud, then you're in a good position.
Whether or not you feel comfortable with who's offering them, it's a matter of you maybe looking into, you know, are they established? Maybe check with the Better Business Bureau in your state. Your state attorney general's office. But the FDIC Insurance is a good way to protect against institutional failure.
WHITFIELD: All right, Donna Lavalley and Deborah McNaughton, thanks very much, ladies, for joining us on this edition of DOLLAR $IGNS, helping us get our financial houses in order. Really appreciate it.
LAVALLEY: Thank you for having me.
MCNAUGHTON: Thank you for having us.
WHITFIELD: That's all we have time for right now. DOLLAR $IGNS.
I'd like to thank Credit Consultant Deborah McNaughton and Tax Specialist Donna Levalley for joining us.
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Aired December 13, 2003 - 16:31 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDRIKA WHITFIELD, CNN ANCHOR: Welcome to DOLLAR SIGNS, where we help make the most of your money. December 31st is less than three weeks away. Can you believe it? There are a number of things you need to do right now to reduce your taxes.
We have two experts to tell us how. Credit consultant Deborah McNaughton and tax specialist Donna Levalley.
Good to see both of you.
DEBORAH MCNAUGHTON, CREDIT CONSULTANT: Hi.
DONNA LEVALLEY, TAX SPECIALIST: Thank you.
WHITFIELD: Let's begin with being generous this charitable season. Perhaps we need to reassess how much we've given in terms of donations. Might that be a way to help catch up so that when we itemize perhaps we'll be able to benefit, Donna?
LEVALLEY: Absolutely and every small donation counts. Let's start off, if you're going to give some large donations, for instance, any cash donation of $250 or over, or any property donation of $500 and over, needs a written acknowledgement receipt from the charity.
If you're doing anything like that or have done it and don't have the receipt yet, it's a good time to start asking for those things and collecting them.
On the smaller scale, if you are going to be itemizing, even if you're gathering up those used clothes, even furniture, maybe appliances, I recommend that you go to the Salvation Army's web site, and they have a terrific list that will help you figure out how much those donations are worth.
You want to write them down and put them away with your other tax records and make sure you take all those donation deductions when April comes around.
WHITFIELD: And Deborah, where do people usually go wrong? Where are the biggest mistakes when it comes down to the charitable donations?
MCNAUGHTON: Usually, they lose all their records. Proper record keeping and saving the receipts is a necessity in order to help with any type of tax deductions, especially if you're ever audited.
WHITFIELD: All right, making additional tax payments is another way, Deborah, that perhaps people might be able to cut themselves a break when they're preparing or getting ready to prepare for their taxes.
MCNAUGHTON: Absolutely. People ought not only need to be giving monetarily, they can also be giving donations to charities -- clothing, furniture, different things that they can actually get deductions for.
WHITFIELD: And, Donna, opening a traditional Roth IRA or a traditional IRA, rather, maybe even a Roth, that's another one to kind of save, isn't it? You know, trying to get a tax break, so to speak, just before the end of the year. What's your best advice?
LAVALLEY: Absolutely. Fortunately, you have until April 15th of next year to actually open an IRA, any kind. The traditional IRA is the one that's going to give you a tax savings because you can make a deduction when you put the money into it. It's probably too late to make any additional donations to a 401(k) because those are usually excluded from payroll. It's probably too late to set one of those things up.
But the traditional IRA will give you the deduction. One thing I also recommend, which may not necessarily save you in taxes right now, but can save for the future, is if your IRA is depressed, if it has really taken a hit over the past few years. And it is below what you think it will be, in the future, it may not be a bad idea to convert it to a Roth IRA, and down the line, when the value of it reinflates, all the income from that Roth IRA is going to be tax free.
WHITFIELD: And Deborah, now is the time when -- we're getting close to the time when people will start receiving the W4s. What do they need to look at? Do they need to inspect these and familiarize themselves with what is on there, the kind of information they are going to need when it comes down to filing their taxes?
MCNAUGHTON: Definitely. They need to make sure they have the proper Social Security numbers, all of the dollars, everything that is been reported to the IRS from their employers. Everything has to match up. So you have to make sure everything is totally accurate.
WHITFIELD: OK. We're taking calls and e-mails. Coming up next on DOLLAR $IGNS, stick around, you can still send in your questions to dollarsigns@cnn.com. Or you can call in, that number is 1-800-807- 2620.
Debra and Donna, we'll be right back.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR $IGNS, we're talking about getting your finances in order, with Credit Consultant Deborah McNaughton and Tax Specialist Donna Levalley.
OK, there are a few things that perhaps you can kind of guide us through. Number one, New Year's resolution, it is always either diet or get my finances in check. So, how in the world can we start, Donna, I'm going to begin with you, how to get your checkbook balanced and how to restrict yourself or reflect on how much money you've spent in the past year and perhaps how you can slim down, financially, in the coming year.
LAVALLEY: I think it's always good to look back at the last year. Get out last year's tax returns. Maybe those old bank statements and bank books, where you have seen where it is that you spent your money.
Using your old tax return is a good indication of where you'll have your deductions, where you have your expenses, that were deductible. You can go back through and dig through those boxes or maybe file folders full of receipts and find the ones are going to be useful.
I always recommend sort of maybe making a sort through the year, between maybe travel expenses, entertainment expenses, and maybe not keeping up with them on an every week or monthly basis because then it becomes kind of overwhelming. But if you have them sorted out and sorted into piles, it maybe easier to go back in, and maybe between January and April, you can sort of put them in order. Every week, do a different type of expense.
WHITFIELD: Deborah, recently, a lot of credit card companies will help you now. They'll actually send you kind of like a summary of just how you've been spending your money all year. Don't toss those when you get them. You really could use this as a valuable tool.
MCNAUGHTON: Oh, absolutely. You need to go back and review all of your credit card statements for the year. Many of those could be business expenses that you can write off.
But not only that, when you get the itemized statements, you're going to be shocked at how much interest and finance charges. Usually people are panicked when they realize that they have spent hundreds and thousands of dollars on finance charges and interest.
WHITFIELD: So, Deborah, now you've assessed on how much money you've been spending all year. How in the world do you realistically go about trying to set a budget for yourself?
MCNAUGHTON: The best way is to look back at the last year and make a journal that you need to trim the fat. Find out where you've been wasting money, and by doing a journal, you can itemize every entry for at least 30 days. Every nickel, dime, and penny that you spend, expenditures for you know, rent, mortgage.
But even the lattes, the sodas, make a list of everything, and as soon as you total every nickel and dime that you've spent for 30 days, you're going to be shocked at probably the hundreds of dollars that you can now put back into a budget.
WHITFIELD: It's amazing how that stuff really adds up. Donna, you want to get a credit report for many reasons. Some people just want to know -- just lately, we're all being encouraged to do that just to find out whether you're a victim of identity theft. But we can really use this credit report to help us in our finances. How?
LAVALLEY: It will give you an evaluation of what the other people you may see credit from are going to see. Especially if you may be seeking a mortgage any time in the future. Based on your type of rating, whether or not you're going to be credit eligible, whether you're credit worthy, but there are different interest rates that are given to people with different credit.
If you're a "B" you're going to get a higher rate than someone who's an "A". So maybe if you find out where it is that you're maybe messing up. Maybe it's a good idea to lower your outstanding credit. We all sort of have an amount of credit that we're allowed to hold based on our assets and based on our income. If you're going to be seeking a mortgage, maybe it's a good time to pay off the credit cards now so you can increase the amount of money someone will lend you for a home.
WHITFIELD: William from California is on the line with us, and he's got a question.
CALLER: I'd like to ask. Is it Deborah?
WHITFIELD: Yes, there's a Deborah and a Donna. Take your pick.
CALLER: My question is for Deborah. The question is how do banks, credit cards, and other institutions and credit bureaus, how do they get everybody's name?
MCNAUGHTON: Well, it's interesting. You know, when you go to apply for credit and the little itsy-bitsy print on the bottom that says that you are authorizing them to inquire about your credit and to report it. So you basically are the one that is authorizing this to appear on a credit report.
WHITFIELD: All right. Thanks, William.
Now, Donna, a moment ago you talked about Roth versus traditional IRAs, and 31-year-old Bruce, out of North Carolina, is on the line. I think he's still there. He's got a question about Roths. What's your question?
CALLER: Well, I'm 31 now, and basically I want to know, by the time I retire, what can I expect if I put the maximum per year until I'm 59 1/2?
LAVALLEY: Well, it's all going to be depending on how well your investments do, in terms of how much income you can expect. Deciding whether or not to go for the traditional or Roth IRA, which is one of the questions that people usually sort of go through in their mind, should I take the deduction now or go for the tax-free income later? I have to say, all of the things that have been written, it seems like there is sort of almost a wash issue.
I actually would probably recommend going into it opening a Roth IRA because there's always been the specter like maybe they might close it down at some period. So at least you have one now. You can count on having a tax-free stream of income when you do retire.
Also, the money is accessible or more accessible than any money in a traditional IRA because you can always take out $10,000 -- for any reason, and you can take out some of that money for other purposes without paying a penalty.
WHITFIELD: And then as of this year, Donna, it's now a $3,000 contribution, right? An increase over the traditional $2,000?
LAVALLEY: It's a $3,000 limit for everybody and it is a $3,500 limit for those 50 and over. Fortunately, part of the tax bill that is still phasing in, that was passed in 2001, is going to raise those limits to $4,000 and then $5,000, and also keep that additional $500 bonus for people 50 and over.
WHITFIELD: That's a good place to save. Here's an e-mail question coming in from Al.
He asks: "What 2003 tax strategies come to a close on December 31 versus those which close on April 15, 2004 for the 2003 tax year?"
That's a toss-up. Who wants to tackle that one?
MCNAUGHTON: I think Donna.
LAVALLEY: I think that since we're coming to the close of the year, there are a limited amount of things that you can do before the year closes. Make an additional payment on your state or local taxes, making charitable contributions, opening a traditional IRA. But there are certain deductions that aren't going to be around much longer that will be closing out.
For instance, next year will be the last year for the college tuition deduction. This is the last year for the deduction for teachers who purchase supplies for their classrooms. And in terms of things now versus April 15th, the one sort of thing that is still open to everybody by April 15th is opening a traditional IRA, and that gives you a deduction.
And you can actually still open and make contributions to an education IRA although you don't get a deduction for the funds you put in there, but you are certainly building a nice account towards somebody's education expenses.
WHITFIELD: Now, Rick from Georgia is on the line, Deborah. He's got a question about 1099s.
Rick?
CALLER: Yes, my question is to Donna. I'm a 1099 employee, and I'm wondering what tax deductions are available to me for filing a 1099?
LAVALLEY: Well, 1099s are the information returns that you send out, right, for your employees' income, sort of notify the IRS how much you paid him. And 1099s go back and forth for different reasons. Either interest that you paid, interest that you received.
For a self-employed person, deductions that you should be looking for are maybe -- since this is the first year, self-employed people can deduct 100 percent of their health care premiums. That's going to be something huge that was not previously available. I think it was 70 percent the year before.
Obviously, the employment tax for your employee. Half of your employment taxes for yourself.
WHITFIELD: OK, we have a caller from Florida on, I think, IRAs once again. What's the question? All right. I think we may have lost that caller from Florida.
Frank in Florida. Are you there? Hello, Frank.
CALLER: Hello?
WHITFIELD: OK, Frank, what's your question? I'm glad you're still there.
CALLER: This is Rafael from Virginia.
WHITFIELD: OK, how about that? We'll take a call from Virginia. What's your question?
CALLER: My question is I refinanced my home, and on my credit report there was a bank statement from a bank, Transamerica Bank, saying that I have an account with them and I have some kind of payment. And we don't have anything from Transamerica Bank. Do you have any suggestions on what I could do?
MCNAUGHTON: Oh, definitely. The first thing you need to do is get copies of your credit report from all three major credit reporting agencies, which would be Trans Union, Equifax and Experian. Once you get copies, check and see if that entry is on all three different reports.
Whatever reports are reporting this, of the three, you're going to need to write a letter disputing the inaccuracy and have them investigate it with the creditor. If it's unverifiable or if there is an error, it will be corrected. You'll get an update within 45 days after your initial dispute is sent.
WHITFIELD: All right, Deborah and Donna, stick around. We'll take a short break. We've got lots more of your calls and e-mails coming up.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR $IGNS. Getting into the new year on a sound financial footing can depend a lot on what you do right now. Deborah McNaughton and Donna Levalley are taking your questions.
Susan from Georgia is on the phone. Deborah, I think this one's for you because it really does pertain to credit reports and credit ratings and the importance of - Susan?
CALLER: Yes. I'm trying to rebuild my credit, and I want to know how often (AUDIO GAP)
MCNAUGHTON: (AUDIO GAP) adjusted probably every month. As you make your payments and the balances go down, or whatever activity, when the merchant reports that item, then that will make a difference as to what your FICO score is.
I would say usually the first of every month you'll see a change. But you'll be able to tell how your creditors are reporting, just by getting a copy of your credit report and look at the date of the last activity or the date that they last recorded it. Some only report once a month, sometimes every three months, so you can find it out.
WHITFIELD: And, Deborah, is there an optimal rating that you're looking for, that people want to strive toward?
MCNAUGHTON: So much depends on the purchase -- what you're trying to purchase. Obviously, in the 700s would be great. But to purchase a home, if you have a 620 FICO score, you will get the best interest rates. I've heard with automobiles, 700 FICO score, it's no questions asked. So it really depends on the type of purchase.
WHITFIELD: Here's another e-mail that's come in. This one says: "I've been told that you can deduct moving expenses on your tax returns. If this is the case, what are the restrictions and requirements for taking this deduction on your taxes?"
Donna.
LAVALLEY: Well, it has to be done in a relationship of either taking a new job or being transferred because of your job. If you decided to move just for moving's sake, that's not going to be deductible.
The good thing about the moving expense deduction is that it's above the line, which means you don't have to itemize your deductions in order to take it.
In addition to it being related to taking a job or being transferred for a job, it has to be 50 miles away from your original residence. So if you've maybe taken a job in a metropolitan area as opposed to the suburban area where you were living, and you may move closer, if the new job isn't 50 miles from our old residence, not your new residence, then it's not going to be deductible.
And you might want to keep track of every type of expense you have. If it's a long enough journey, the overnight expense, the motel, the meals related to that trip, the mileage on your car if you're driving separate from your possessions, all of those things can be deductible as a moving expense.
WHITFIELD: Here's another e-mail. This one coming from New London, Connecticut. "I've begun baby-sitting my grandchildren and make $1,000 monthly, 10 months out of the year. Do I have to pay taxes on this money?"
Deborah?
MCNAUGHTON: I'm going to let Donna take care of that one.
LAVALLEY: If she's making $10,000 a year, she may be coming into the area where she does have to report. You have your standard deduction and your personal exemption, and that shelters a certain amount of income from taxation generally.
But if that doesn't cover your income, then you do have to report it. Now, there may be an advantage to reporting, you may not owe taxes. You may be owed a refund. In this case, she's probably getting a cash payment, in which case she may be owing the IRS for some FICA taxes if they haven't been paid.
WHITFIELD: Oh, man. That's a bummer.
LAVALLEY: That is a bummer, but there's the other side, where if her daughter is going to try to take the deductions related to child care, she's going to need to report the income. Because they're going to want to know who received it because they want to know who she paid it to. It's not necessarily the worse thing. Everybody wants to rack up enough credits because you want to get the maximum check when you retire.
WHITFIELD: This is getting way too complicated for everybody.
All right, ladies, Ellen from Florida is on the line. She's got a question about CD rates. We all know that they have just been tanking. Very unimpressive interest rates on CDs.
Ellen, what's your question?
CALLER: Oh, it's Ellie. Ellie, from Melbourne, Florida.
WHITFIELD: Oh, Ellie.
CALLER: The CDs, I've seen ads in the newspaper. They're not banks. They offer CDs that are over 4 percent, one year, probably a minimum of $10,000, FDIC insured. And I'd like to know are these safe?
LAVALLEY: Well, if they're FDIC insured then the federal government has insured them. If you lost your investment due to some type of institutional failure or fraud, then you're in a good position.
Whether or not you feel comfortable with who's offering them, it's a matter of you maybe looking into, you know, are they established? Maybe check with the Better Business Bureau in your state. Your state attorney general's office. But the FDIC Insurance is a good way to protect against institutional failure.
WHITFIELD: All right, Donna Lavalley and Deborah McNaughton, thanks very much, ladies, for joining us on this edition of DOLLAR $IGNS, helping us get our financial houses in order. Really appreciate it.
LAVALLEY: Thank you for having me.
MCNAUGHTON: Thank you for having us.
WHITFIELD: That's all we have time for right now. DOLLAR $IGNS.
I'd like to thank Credit Consultant Deborah McNaughton and Tax Specialist Donna Levalley for joining us.
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