Good Cents Ep. 3: 2021 Tax Season Checklist

Tax Season is a great time to take a pause and take a deep dive into our finances. Eric Rosenberg asks Enda Ferraro, volunteer income tax assistant, all about what’s unique about this year’s tax season, some common tax questions, and gets some last-minute tax preparation tips you might be able to use this weekend. Don’t forget to download the Payactiv app and create an account to save up to $15 on TurboTax.

Let’s get to the interview.

Eric Rosenberg:

Today’s guest is Edna Ferraro. She is a volunteer income tax assistant site coordinator. That means she with other tax professionals helps people just like you do their taxes completely for free. It’s an amazing service, and we are so lucky to have had Edna sit down with us to chat all about taxes so you know what to do this year and beyond. Without any further ado, here’s the interview.

Eric Rosenberg:

Hello everyone. I am so excited to be here with Edna. She is a serious tax expert, she is a volunteer tax preparer, as I mentioned just a moment ago. We’re going to dive, but first, I want to welcome you to the show. Welcome Edna. I’m so glad to have you here.

Edna Ferraro:

Thanks Eric. I’m happy to be here.

Eric Rosenberg:

Yeah, so we are really trying to help our listeners today figure out ways that they can save on taxes, and I know you have a lot of tax background and experience. Can you share for us a little bit about how you got into the tax world?

Edna Ferraro:

Oh, absolutely. Several years ago, way too many to mention, but I was a young military wife volunteering at one of the Naval bases in Virginia. At that time, I became involved with a lot of different programs in the area, but wound up working for what’s called the VIDA program on base, which is the Volunteer Income Tax Association. It’s a program that’s provided by the IRS.

Edna Ferraro:

So for several years, I’ve worked both as a volunteer, as a tax professional, as a tax instructor in not only those types of opportunities, providing free no-cost services to prepare taxes for people, both on base and off-base, but also in the paid space working for other tax preparation corporations. But that as well as my love of financial counseling has really provided me an opportunity to help others while they’re preparing their taxes.

Eric Rosenberg:

That’s awesome. I love how you’re able to help so many people. It sounds like you’ve been able to reach a lot of people, especially through those military connections and counseling a lot of people who really need help with their finances. I love that. I think it’s a great way to run your business and your life, it’s awesome. I’m giving you kudos.

Eric Rosenberg:

For our listeners out there, let’s dive in. So, I know you get a lot of tax questions through your volunteer tax preparation. What are the biggest issues people often have when they come to you or to your team?

Edna Ferraro:

Absolutely, thank you. This year it’s been a bit difficult, because there’s been a lot of changes. Not necessarily bad changes, but some really good changes with the Child Tax Credit and the Earned Income Tax Credit. So those credits that specifically involve children, this past year have been a little more challenging, because we’ve had some advanced payments made in 2021 because of COVID and just other issues. So now for this particular year, it’s determining how much you received last year and then figuring out what amount of that credit is left in order to provide some additional dollars for our clients.

Eric Rosenberg:

Yeah, actually, I went through that myself. I have three little kids and I automatically was enrolled in that advanced credit payment. I went at the end of the year and had to figure out the difference, and I did get a little bit more, which was great. So, that’s a good example of something that if you’re tracking your bank accounts, is that where you usually point people to look to see where they’ve gotten their past payments? How do you help people through that when they have questions around that?

Edna Ferraro:

That’s a really good question. There’s a couple different options for that. The IRS did send out some letters that provided information on how much you might have received between July and December for those advanced payments, but oftentimes if that letter wasn’t received or an address changed, then we can send our clients to their bank accounts to check deposits, but also to the IRS website and check their tax record to see what payments might have been sent out.

Eric Rosenberg:

That’s a great resource. As I’m doing my taxes, I’m a do-it-myself guy, I always go to the IRS website to make sure everything matches and it’s on track. As being self-employed, have to do some early payments. So it’s kind of a similar thing, you have to check what the IRS thinks you have paid or it has paid you, and then you’re looking for the difference. Is that pretty much what the process is?

Edna Ferraro:

Yes, it is. There’s some opportunities there unfortunately for clients to have those numbers, they may not match in other words. For some of our clients who might be married, they might have received two letters where that total payment that they received last year was split equally between themselves and their spouse. So if our clients didn’t receive both of those letters, then there’s potential for an error when they actually file that tax return if they don’t have the correct amount. So we like to check that bank account, as well as a [inaudible 00:05:48].

Eric Rosenberg:

That’s a great idea. Those bank accounts, that’s why we always say on this show it’s important to keep track of your finances and understand where you’re at. Having good records there, keeping those bank account statements handy, that will be very helpful at tax time it sounds like if you’re having questions here.

Eric Rosenberg:

So, another question. You mentioned the Earned Income Tax Credit. I know that one can be kind of confusing, there’s a lot of numbers and limits. Can you just explain a little about what that is and how it works and how someone might be able to take advantage?

Edna Ferraro:

Absolutely. So, the Earned Income Tax Credit or the EITC credit basically allows for families who are earning income, but may be below a certain level or a certain threshold to receive some additional credits to their tax return.

Edna Ferraro:

Now in general, this particular credit gives money to families that have children under the age of 17. Typically that’s where we see most families receiving that credit, but there are also ways for our single taxpayers to receive those funds too, but it’s a sliding scale. So the more money you make, the less of this credit that you earn, but it does require for you to have earned income, so having just unemployment wouldn’t allow for this credit to be available to you.

Eric Rosenberg:

So, what is the maximum value someone might be able to get from taking advantage of that credit?

Edna Ferraro:

So, that really depends on how much income they make. One of the new features this year was that for families who may have someone over the age of 65, it was very possible for you to get Earned Income Tax Credit this year. Whereas in the past, that was not an age that was allowed for that credit. So, we’ve seen some families get $4,000, $5,000, $6,000. It depends on how many children you have, as well as how much income you have coming in for the year.

Eric Rosenberg:

That’s a good chunk of change though. $4,000, $5,000, $6,000, that could be a game changer for some families at tax time, so it sounds like it’s something people definitely need to know about so they don’t miss out as they’re getting their taxes ready.

Edna Ferraro:

Great. Yes, it’s a great opportunity. One of the reasons I love tax time and the reason that I’ve done it for so many years is because it’s one moment in time where we really sit down, look at the finances that we have, look at the opportunities of what we’ve had over the year, see if we can apply those credits. Then if we can get a large refund, what can that refund be used for, and how can that financially impact your family or yourself even to make something positive happen? Perhaps a down payment on a vehicle or down payment on a home that you might have been getting ready to purchase or paying off bills.

Eric Rosenberg:

Yeah, just after college, I had a lot of student loans and I actually looked forward to getting my tax refund, because I’d put it all towards my student loans. That was part of my big debt payoff plan, it helped me get out of debt early. So that was where I used my big refunds early on in my career, and it was an important part of my financial plan. So, that’s definitely something I looked forward to is refund season.

Eric Rosenberg:

So speaking of refunds, we have to figure out what those refunds are. Most people with a job will have to file taxes. We all kind of know that, but there are a lot of different ways you can do your taxes. We see a lot of commercials on TV for different tax software, and we know we could take it into certain stores and businesses and pay them to do our taxes for us. So for someone who has let’s say relatively simple taxes, what is the most cost-effective way to prepare your tax return?

Edna Ferraro:

Well, I would say come visit us at VIDA, because they have centers all over the country and they’re often sponsored by nonprofit organizations such as United Way, but basically that particular program allows for really anyone under the income limit of about $68,000 to go into a location and have their taxes prepared for free. All of us who volunteer there have a wealth of knowledge. We’ve got CPAs, we’ve got EAs or what we would call enrolled agents or certified accountants, tax professionals that enjoy doing this, not only in the daytime, but in their spare time as well.

Edna Ferraro:

So my office alone, we have seven professionals that have volunteered their time to do taxes, and between us we have over 200 years of tax experience, so we’re a great place to visit. That’s one way to do that if you aren’t comfortable using the computer or aren’t comfortable using the software, but the IRS provides quite a few websites that are free for you to file your taxes. Many of the companies out there have the opportunity for you to file your taxes through those softwares online that you might be able to use even on your phone or on a computer.

Edna Ferraro:

But the idea being is that if you’re able to follow most basic instructions for the better part of 15, 20 minutes of just kind of walking through those steps, you’re able to enter in your W-2 information, your personal information, your social security, address, that type of information, and be able to file your taxes for free.

Eric Rosenberg:

Yeah, those are both great resources. So when you’re doing your taxes yourself, I always think it’s kind of fun that we used to think about having to sit over a table, think about your parents or your grandparents, with a paper and calculator figuring everything out. These days, you could literally be sitting on your couch watching your favorite show and do your taxes during commercial breaks. It’s such a fun way to do your taxes these days, but you have to pay attention, right? You don’t want to make any mistakes.

Edna Ferraro:

No, absolutely. It’s so easy now, because you can upload your W-2 from a picture on your phone or from an email that you might have received from your employer. All of that information is accessible to your fingertips right there on your phone or your computer. So while it’s sometimes scary to think of doing your taxes, with just a little bit of work you’re able to do them very quickly, like you said, sitting from the couch.

Eric Rosenberg:

Yeah. Yeah, so it’s good to know, because I ran into this once myself, there’s two different ways you can use different tax software for free. One of those is the IRS Free File program, which you can go to the IRS website and find different tax providers who will let you use their software for free up to certain income limits and restrictions, but you may also find free versions directly going through those providers. So, it’s good to look at both to see which option you like better. But even better, sounds like coming in and working with an expert from one of the volunteer groups could be a really good way to learn about your money as you go.

Eric Rosenberg:

So when you’re in the center working with a volunteer, what does that normally look like? How long would you say it takes to do your taxes? Are you sitting next to the person or do you just hand over your forms? What does it look like when you go in and work with a volunteer?

Edna Ferraro:

So, it’s looked very different over the last few years. I mean, one of the things that we enjoy is having clients come in and talking about what their year has been like, how their kids are. We have clients who’ve come to our centers for seven or eight years, and so we’ve seen them grow from their basic job coming out of high school to their now professional job because they finished college. So, that’s been really neat to watch that transition.

Edna Ferraro:

But when you come in now, you’re able to come in and sit down with a preparer and they’ll walk you through what they’re doing on the tax return, and talk to you about opportunities for ways to save, things that you might have had different on the previous years. Last year, we talked about being somewhat like a fast food service. Because of COVID, we couldn’t let our clients in the door, so we would literally walk out to their cars, fill out information, take their tax return information and bring it into the office, prepare it and then bring it out to them to their car.

Edna Ferraro:

So, we really work to find the best way for our clients to feel comfortable and for them to do their tax return and learn as they go, because that’s the best way to really understand your finance, right? It’s personal and tax time is the same. So, learning how to complete those taxes helps you understand the best way to get your refund even larger as you go along.

Eric Rosenberg:

Yeah, that sounds like such a useful process and it sounds like also, somebody even if they’ve been doing their taxes on their own for a long time, coming in one year and working with a volunteer, they could learn a lot about their financial situation, maybe get a little advice on something they don’t know about and kind of graduate back to doing their own taxes. Do you see that ever happen? Do you often see people come in and then kind of move out to working on their own after they’ve worked with your team?

Edna Ferraro:

We’ve had that. We’ve had clients who’ve gone to work with paid preparers before and then will come back and work with us, because they either didn’t the process or they didn’t understand what was going on. But I think that definitely there’s so many opportunities to learn how to do taxes on your own, and always have those opportunities to come in and speak with someone too.

Eric Rosenberg:

Yeah, well, this has been a very useful conversation. I’m so excited to have had the time to talk a with you today and that you were able to carve time out of your busy schedule during tax season to give us some of these tips. So, I want to end up with one last question. If you were to pick out one place that you think someone might not be looking on their taxes, outside of what we’ve already talked about, that would be a good place that they could focus on to either learn something or maybe find a new credit or deduction they didn’t know about, what is that secret place they should be looking?

Edna Ferraro:

Oh, there’s so many, I could talk for days. It really is one of my favorite topics, as funny as that may sound, but really. The Child Tax Credit, definitely we talked about that, we talked about Earned Income Tax Credit. For our families that have daycare expenses, those expense amounts have been expanded this year, and we often find that that’s a credit that people forget about.

Edna Ferraro:

They might have paid for after school care, might have paid a neighbor, might have paid a Boys & Girls Club or another childcare provider and have forgotten to add that information. So, you can gather that information and be able to present that for potentially a credit of up to about 50% of what you’ve spent, depending on your total income and your total expenses.

Eric Rosenberg:

Yeah, it’s funny. With kids, we look at them, they can be very expensive, but when it comes to tax time, I’m thankful I have them. It gets me a little back in my pocket.

Edna Ferraro:

I read somewhere that to raise a child from the age of birth to age 18 is a quarter of a million dollars. I have four children, so I say I’m a millionaire every day.

Eric Rosenberg:

That’s great. I couldn’t imagine living without my kids, they’re wonderful.

Edna Ferraro:

Yeah.

Eric Rosenberg:

Well, thank you so, so much Edna for talking with us today, we were honored to have you on the show and we’ll hopefully have you back again sometime in the future. Thank you so much.

Edna Ferraro:

Thanks so much and enjoy tax time.

Eric Rosenberg:

Wow, what a great interview. I learned so much and my favorite and biggest takeaway is most people probably don’t have to pay money to get their taxes done. With the help of a volunteer tax assistant site, someone will help you through the entire process and it doesn’t cost a penny, and you can take that experience these professional tax preparers have and put it to use for free. What’s better than that?

Eric Rosenberg:

Also remember those tax credits and deductions, and if you want to do your taxes yourself, those free options to do so with the computer. At Payactiv, we also have a deal for members to get a discount when doing their taxes with TurboTax, so head to the Payactiv app to check out how much you can save there. Thanks so much for sticking with us till the end, now get on out there and live the life you’ve earned.