 Aloha. Welcome to Working Together on ThinkTech Hawaii. I'm your host, Cheryl Crozier-Garcia, and remember on this show we discuss the impact of change on workers, employers, and the economy. We invite you to join in the conversation, and you can do that by either calling in to the number you see on your screen, or you can tweet us at atthinktechhi. Now, April 18th was an important day in the average business year of individuals, because that was the day that taxes were due. And people are deathly afraid of having to do their taxes every year. It's not pleasant, usually. It's kind of a hassle, and we worry about getting audited. So, today, we have somebody here who is going to take the pain out of filing our income taxes for the federal and the state. So, please join me in welcoming our resident tax analyst, Paulette Madaris. Hi, Paulette. Hi, Cheryl. Thank you for having me. You're very welcome. You know, I've got to ask you before we start sort of the questions about taxes specifically, I don't think anybody lays awake at night as a young girl and says, you know, when I grow up, I really want to do people's taxes. I don't think that happens. Yeah, it doesn't happen. So, how did you get into what interests you about this kind of work? Well, I like crunching numbers. I like finalizing things. I like things that are final that we can file away and be done with it. So, in the close of a year, when you file your tax return with me, if I'm missing something, I'll ask you for it, and we'll try and put everything together and close that year off for you. So, I guess I like to finish things and have it done, and we don't have to worry about it again. Right. Good. And you've been now doing people's taxes for over 20 years, right? Yes, 22 years. Wow. So, when you started when you were in the second grade? No, no, no. I was recruited. It was just a by chance. Somebody was saying, hey, we'll review your return for free. Bring your stuff. And the woman who checked our tax return, because my husband thought I had done it wrong at the time, she checked it. She said, hey, she's pretty good. Why don't you put her in a class? Oh, wow. And once she comes out of that class, you know, we're looking to recruit her to work, you know, part-time job. Yeah. Something small, you know, around, around my children, around my family, around my regular job. What? So that's good. Yeah. People are afraid of taxes. In the same way, we're afraid of like snakes, you know, spiders, things like that. So let's spend some time talking about how to take the pain out of doing your taxes. So I guess the first thing I'd like to ask you about is how does a person decide which form they're going to use, say, when they file their federal tax? They first decide what they want to do. Right. If they want to do it themselves, or if they want to seek help in having it done. The forms are specific to how much income you earn. If you have children on your return. If you have retirement income, and then the form will choose itself at that point. So there's only typically three forms you can file, and one of the three will fit in one of those categories. Okay. Now, at what point does the tax payer make the decision say about whether they're going to file, say, I married. Now, I could file married half of a couple or married filing separate. What are the advantages there? The advantages of married filing joint is you only pay for one return. You only prepare one return. Versus if you do married filing separate, you're going to essentially do two returns. We're going to split the expenses up the middle and see who or who gets what. You know, it's a toss up at that point. We're not sure. It's advantageous if you have children to file a joint return. If you choose to file separate, you lose a lot of the children credits. Oh, I see. That bring you a larger refund. So it's important to talk to somebody that knows before you get started, right? Yes. That would be good. Somebody like you. Somebody like me. That's great. That's right. Now, Paula, tell us about some of the common mistakes that you might have seen that are misconceptions people have about taxes or misconceptions about what's what's out there regarding, say, audits and things like that. So the misconception is, hey, it's easy. Let's use TurboTax. And I like that TurboTax program. It works just fine. TurboTax and also the each and our block program is set up to get you under the radar. However, you file it. When you answer those questions, it's going to give you the least amount, you know, the lowest amount of refund you can. If you understand how to answer those questions a little further, you could get more of a refund or a lower balance due. And so essentially, we're looking for those two things. A lower balance due or maximized refund is what we always look for. Those programs are set up so you can get through it with minimal damage, right? It's when you start answering the intricate questions and you're not really sure but you're just answering the question. The program doesn't tell you everything that you need to know. That's when you should ask, stop and ask, call somebody, ask them because we answer questions all year long. Wow. All year long. And what about things like, you and I have had this conversation before about, you know, in Hawaii it's not unusual for people to be working two and three jobs sometimes between, say, a married couple over the course of a year depending on what their employment situation is. You could have four, five, six W2s at the end of the year and it's, you know, at what point does it become so unwieldy that I would rather pay you to do it? If you're confident in how you do it, then by all means, go forward with it. But if you feel even the slightest, I'm not sure about what I'm doing, then just call somebody, ask for help. We always say ask for help. I'd rather you get help than get an IRS letter. Yeah. An IRS letter. So. Yes. I know what those are like. Right. Yeah. So that's scary though. What percentage of people get audited every year? I want to say it's a 2% audit rate, but it's a very big audit is one in 300,000. But IRS has nearly caught up. Last year, the letters that came out early, they're called a CP 2000 letter. Those letters just scan your return, scan all the documents that, you know, should go with that return. And if they find the slightest of issue, boom, it's going to trigger a letter, scares the heck out of you. You don't know what to do. Then you, if you have a relationship with a tax professional, reach out and call them, call them. It's the smallest of things. The smallest CP 2000 audit I've seen is mortgage interest. The husband is the primary. The wife is the second second person on the mortgage, two social security numbers. But say in this case, the husband had passed away the year before. Okay. So in the current year, she's filing by herself under her social security number. But the primary social security number on the mortgage is still him because she is not, she is not fully transferred the house over to her only. I see. So it triggers a letter. And most of the times we write a letter explaining, we show the documentation for accident. And they usually get a letter within 30 days, you know, saying that it's all good. It's good. Yes. And we see these commercials on television for the tax refund support network and folks like that. And these people talk about I had $100,000 worth of tax debt. How long do you have to go without filing to get $100,000 worth of tax debt? I mean, it seems, it seems like if you're on top of things, you wouldn't have that problem. Right, right. A lot of those big debts are usually a business debt. So a lot of the business debts, once it compounds, it just keeps compounding yearly. The IRS is not going to try and put you out of business to pay it because they want to get paid. Right. So eventually they'll lean things that you own and take it to cover your debt. Wow. And how far could they go in terms of confiscating your goods? They normally what they do first is they close your bank, they shut down your bank accounts. They just shut it off. You can't get money in or out. If you have a direct deposit, it's going to freeze it. And they're going to tell you're going to call in and they're going to tell you what you need to do to get it unfrozen. And at that point, you just comply, fax everything in and wait for the release. I'm so glad I have you to do it because that way, you know, we can be you could post bail for me if I ever get arrested. So and let me ask you a little bit about that because we hear all kinds of stories about people getting into all kinds of tenuous situations around taxes and not paying them or filing them incorrectly, whatever. What's the who should we choose? How can you tell that a tax person is is sufficiently trustworthy enough to have access to your personal information like that? Well, that's a really tough question. Your tax profession needs to be trustworthy and you need to feel that trust the minute that you turn over your paperwork to them. Right. A lot of the CPA offices, which I really like, I like the CPA offices, they take your items, they prepare your return and you come back and you pick it up signed for them and go. Not always do you have an explanation on what it is you're just hoping for the best right that type of thing. At other tax offices, you sit with the prepare and we enter everything into the system and review it with you. So you know what you're looking at and you know what product you're getting. So if ever you're not satisfied, don't pay for it, walk away. Walk away from it. Wow. And and that would be considered acceptable if you were dissatisfied, say with the way the return was done or something. If you didn't feel all of everything that you provided were taken into account, then there should be an explanation why. And they should show you where it came from, why they disallowed or did not put on your return. And once you have those, you know, shown to you should be acceptable at that point. Right, right. So how what should we look for in terms of finding someone we can trust as a tax advisor? I mean, I know how I found you. So that was quite humorous. It was lucky, right? It was lucky. And and you could be very lucky. Your friends and family refer people, the best people to you. I have friends and family that refer the best people to me. Why? Because I have their best interests at heart. And therefore they have no, they have no problem referring people to me because they know I'll take care of their friends and family. Right. In Hawaii, it's word of mouth. Yeah. Whoever does well, you you get a good review. If you do badly, of course, it's extremely the opposite. Right, right. Which brings me to my next question. Which is better to not owe anything or to get a big refund? Good question. People ask me this all every single year. For me, it's the preference of the persons who you're preparing their return for. Okay. If they feel they're going to pay into the federal government and then pay me to get back their money, I'm okay with that because that could be the way that they save for vacation, perhaps. But it's a it's a it's it's their way of doing it. Right. Now, if you really want to maximize, take all of your deductions during the year. And maybe your return could be zero. You know, took $300. That would be great. Great. Think about that. While we're we're going to go to break right now. And then Paulette is going to come back and tell us more about how to stay out of prison by filing your taxes on time. This is working together on ThinkTekHawaii. We'll be right back. Hey, Stan the energy man here. Thanks for joining us on ThinkTekHawaii. And I invite you to join me every Friday on ThinkTekHawaii at 12 o'clock, where I give you all the energy news that's worth talking about here in Honolulu. And I love to talk about hydrogen. So join us on Friday on my lunch hour here at ThinkTekHawaii. Be there, Aloha. Are you looking to get shrunk? Join us on shrink wrap Hawaii. My name is Steven Phillip Katz. I'm a licensed marriage and family therapist. I see couples, individuals, families. Because you know why? Because we all have problems. And if you're curious about shrinks and what they talk about, come look at my show shrink wrap Hawaii. And maybe you'll find your shrink. Welcome back to working together on ThinkTekHawaii. I'm Cheryl Crozier Garcia. And today we are talking about all things tax with my good friend, Paulette Madaris. Paulette, before we went to break, you were saying that one of the things, one of the strategies that you can help your clients accomplish is using, say, the tax system, the federal government in a way like your personal piggy bank. You could tell us tell us how that would work. So if you feel that you're unable to stay for vacation, but you want to go on a vacation, you can actually have your deductions with held a little bit higher and have more tax taken out. The federal government will hold on to that money. Once we shore up the year end by filing a tax return, whatever refund you get, you could use that towards your vacation. That's if you want to do it that way. Some people like to do it that way. They think of it as this is my vacation money. I like that. For me, I would rather have all of my money during the year and try to manage it myself. So I try to get down to the lowest refund possible or a little bit in a balanced. Yeah, I think a lot of people are also afraid when they do their taxes that at the end of the year, they perhaps will have a tax bill that they didn't foresee. Like they under withheld or had some additional interest payments or something like this that raised their taxable income. They didn't manage to make those necessary deductions. And now they're looking at a big bill. In the face of something like that, are there folks that people can go to to get assistance with say negotiating a payment plan or something like that with the IRS? Yes, when you file your tax return, you can ask for an installment agreement and pay as you go. That does not help you for the next tax year though. Right. So what I like to do is help my clients plan ahead of time. So if we have a balance do this year, and you say you came to me in March, we're already three months down, we need to plan for the rest of the nine months of the year so that we can get you out of the balance doing into a refund or small refund, right, or into any kind of refund where you won't have to all again the next year. So I like to plan a six month planner with them. Come up with half a year's worth of income, half a year's worth of deductions, double it, do a hypothetical tax return and see where we're at. As of June. Now, if I double it, it would be your income. And at that point, when I file a I'm not filing the tax return, we're just hypothetically doing preparing one. Right. Once we come up with that bottom line, we'll know what we need to do now. So that come the end of the year, you make it. And you don't have to. You really don't want to. If you don't have to, because you already have your normal bills, right? Car, house, you know, utilities, kids stuff, whatever you could have, you already have those those already set in place. Right. Paying an additional tax is much more harder. Yeah, that's true. And especially when there have been years when you finished our taxes, and I just went, Ooh, because it clearly we had under withheld in a particular year. And that was just, it's kind of frightening. Because the IRS, you know, they could put you in jail if they wanted to. Couldn't they? They could. They could absolutely put you in jail. And let's just clear the arrow in that myth. They do not want to put you in jail. Because they can't get their money from you if they put you in jail. So they want you to be as profitable as possible and do your best to pay them back. Oh, timely. Monthly. Yeah. And they you can work out some kind of payment plan if, if that's necessary in order to make sure that you are meeting that obligation. Yes, absolutely. Yeah. There's an installment agreement form you can fill out. Make monthly payments, do automatic debit from your bank account. They'll take any form of payment. They're not afraid. They want their money. If you owe it to them. Of course. Yeah, I heard a story recently about a person who had something like a $10,000 tax bill in a particular year. So they said, okay, and they said he got $10,000 in pennies, one cent coins, and took them to the IRS and said, brah, here's and they had to count it. They had to count it. I heard that story too. From what I understand is they had to count it and apply it to towards his tax bill. That's right. They're not going to turn it away. They of course don't want $10,000 pennies. No, it's like more than that because it was $10,000 in pennies. Correct. $10,000 in pennies. They obviously don't want that. They don't have to. Yeah, but it's sweet. That's just sweet sometimes. Tell me this because you sometimes you have clients that have to go audit. Maybe they don't. Maybe they filed an extension or forgot to do something, didn't do it correctly, things like that. How IRS people really these awful sort of boogeymen that they're portrayed to be sort of humorless and miserly and just really unpleasant to be around? They're absolutely not. The IRS system itself, once you file that electronic tax return, it goes through a series of scans. So they scan your items that belong to your tax return, making sure everything's on there. If something is out of place, they're definitely going to set up a red flag. And these big audits that people go to, it's one in so many hundred thousand. It's just unfortunate if you get chosen, but they will tell you what they're looking for. We're looking for receipts for this. We're looking for mileage for this car. We're looking for, they're very specific. At that point, we go back to your records that you keep to see if you have those things. Now, if those things are not in order, or you don't have them and you made up some kind of mileage, or you put down more of a deduction than you should have, they will disallow some or all of it, depending. Right. Now, that seems to be a problem though, because people don't know what should I keep, what should I toss, what is actually deductible as a legitimate business expense, what isn't, can you tell us a little bit about that? A business, a lot of the items that you should keep, if you're planning on deducting it, keep that receipt. If you take a client out for lunch, keep that receipt right on that receipt, who you took, what it was for, how it was going to become income producing for you, those type of things. Work related expenses, sometimes the boss doesn't know you need all of these things to actually do your job well, so you deduct these things. Now, if you could get back your money for all the pens, paper, scotch tape, anything that you bought for your job, of course get it back from them, because it's dollar for dollar right back in your pocket. Right. You don't need to deduct it. Sometimes you bring in your own things because it's easier for you to get your job done with some of your own things. Right. Those are the items you make sure you keep your receipts for, and it was work related, and it's within reason. Okay. If your employer provides you a computer, don't buy a laptop and say, hey, I needed it for work. It's hard to prove because he or she, your boss, is giving you the tools to do your job. Right, right, but what about things like, oh, let's say I have a hearing impediment, and so I need a special amplifier for my phone, and my job requires that I am on the phone frequently. So is that, do I save the receipt? Is it a business expense? Is it medical because it has to do with health issues? How does that... It could be any one of those things. It could be work related because you're required to be on the phone all the time that you need a special device so you can do your job. Most times your employer will cover it. Most times. It could also be a medical expense at the very least. It would be a business expense first because it's medically necessary. You can't hear. Right. So you need that in order to do your job. Then it could possibly be at that point. So I think what I'm hearing you say is get a box. Get a box. And just anything you think you might possibly file, might have some value at tax time. Throw it in the box and then come to you and or see your tax professional when you start doing these things and then we can figure out, they can figure out whether or not that Lava Rock launch over at highway in was a legitimate business expense. Correct. When you first start your business you don't know what to keep. I always say if it's your first time with me I always say if you're having a hard time keeping your receipts, take a shoe box, wrap it up with the ugliest Christmas paper you can find, cut a hole at the top and leave it on the kitchen table or somewhere where you go in and out of the house. When you come in, empty your pockets. See what's in there. Empty your wallet. See what's in there. Oh, this should have been deductible. Write a name on it, who you spoke to, put in a box. At tax time we'll go through all of it. I still have clients that come in with the box and we sift the receipts and it's okay you know eventually we'll move over to they're going to sift their own receipts and bring in totals. Right. You know so I have a lot of clients that have progressed over the years some of them are just too scared they just as long as they collect it it's good yeah collect it but at least if you want to deduct something at least have a receipt. Right. At least have a receipt. Now what about the deductions say that we you know we have to submit wherever we have a new job or make some major change to our pay situation we have to fill out an amended W-4. So how many deductions should I claim? That's a good question. I just had my son call in from Arizona asking me how do I fill this out. So I say read the lines. It's A to G, A to H. Read every line. Put a one or two wherever all the boxes are. At the bottom the total that total number you come up with at the bottom letter H that is the maximum allowances you can claim that is not the allowances you should claim. So anywhere from zero up to the maximum allowances is where you can be. And it depends on how much you're going to earn how many deductions you have during the year. So I have people call all the time in the middle of the year I'm starting a new job. Is it your first job or is it your second job because in Hawaii some of us do have two jobs. Right. Okay second job zero do they have 401k? I always ask. It's never too late to start a retirement plan. Right. And it's always good. Right. So speaking of retirement plans because this is a conversation you and I have this conversation at least once a year. I do not want to run out of money before I run out of life. Correct. And I think a lot of people are in that position so what's the best way to prep for retirement without having to say you know continue to cashier it safe way part-time until you die because you don't have money and you can't afford. How do we how do we prepare for a reasonable and fun retirement where we're not having to worry about money. That's a good question. I always say to try and pay off as much debt as you have whatever you have try and pay that off as fast as you can. That's part of what I call life that's part of life. You grow up you get a job you pay for all of the things that you want and have and you pay them off in an order so that when you retire you shouldn't have to go back to work. Right. Right and that's what we're trying to avoid when we retire we want to retire. We don't want to rework to retire again. Yes. Want to do it once and be done. Now along the way it is hard to save for you but if you have a balance doing your tax return wouldn't you rather pay yourself or pay Uncle Sam. Yeah. You have to choose. I'd rather pay me reduce my income. Okay. My taxable income so that. That's good advice and it's advice we should follow. Paul it's been keeping me out of prison for low these many years. Thank you for joining us and our time has gone so quickly but we'll be back in two weeks with another episode of Working Together on Think Tecawaii. I'm Cheryl Crozier-Garcia with Paulette Madaris. Bye bye everybody.