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Um Did you hear about the guy who tried to pay his taxes with a smile? And fortunately for him, the IRS still prefers cash. Hi, I'm Rob West. All jokes aside, failing to file your taxes for several years is no small matter, but it's not the end of the road either. Kevin Cross joins us today with practical steps to help you get back on track.
And then it's on to your calls at 800-525-7000. That's 800-525-7000. This is Faith in Finance, biblical wisdom for your financial decisions.
Well, my good friend Kevin Cross is a seasoned CPA who's helped countless people navigate their finances and a good many of them who have fallen behind. Kevin, great to have you back.
Well, it's good to be back, especially on today's topic. Yeah, absolutely. We get so many questions on this. For someone who hasn't filed taxes in years and feels completely overwhelmed, where do they start? Yeah, the further you go behind, the more difficult it is to catch up.
So, what I suggest is that we come into compliance the past year.
Okay. We go ahead and figure out where you're at.
So, we're not showing the IRS that we're not going to file, that we just had a hiccup in our life. Yes, I think that's really key. And so, that may be news to some folks because the idea that I wouldn't go back to the first year I didn't file, but I'd get this year in compliance as a first step may be a new thought. What causes people to fall behind on their taxes, and how common is this?
Sometimes it's the gig workers. Yeah, they're getting at 1099 for the first time, and all of a sudden they went online, turbo tax, and they found out they owe thousands of dollars, and they say something must be wrong. And all of a sudden next year happens and the following year. Or sometimes people get divorced, death, disability, some type of maybe separation from the job. Maybe a lot of people, since COVID.
Have been struggling with filing tax returns. Yeah. Let's clear up an often misunderstood idea, and that is you always have to pay if you owe something, but you don't technically have to file if you don't owe anything. Is that right? That's correct.
And you don't get penalized if you're going to get a refund back.
So, you know, the April 15th deadline, you can file an extension to extend the actual. Filing of your return, but not the payment of any liability. If you have money coming back, you can file anytime up to three years later, or then you lose that refund.
Okay, but just to be clear, there is a difference between not filing and not paying what you owe. That's correct. That is correct.
Sometimes you don't know you don't owe until you file.
So there's some senior citizens who contact me, say, Hey, do I need to file? I take a look at their work, and they know there's not going to be any liability. You don't have to file. All right. If somebody's only income is their Social Security, can you just say automatically you don't have to file or not necessarily?
Absolutely. If that's the only source of income, I would say 100% of the time they do not have to file a tax return. All right. But as you said, a lot of times, and especially with the rise of gig workers, that's where this can really be problematic, right? Right, right.
Or some interest or dividends or some type of sale, a sale of a home. My goodness, that triggers. And if they don't file, and there's a wonderful opportunity for them not to pay capital gains on a sale of a primary. Residents, but if they don't show it to the IRS, they end up getting a letter from the IRS saying you owe several thousands of dollars. All right, let's get real practical.
What steps should someone take if they're ready to get started? Is there a recommended order or approach? Yes.
Okay, so usually it's like I'm not sure how many years behind I am, I haven't filed for a while, or I'm three years behind.
Well, they can go online. The IRS and get a wage and income transcript. Wage and income transcript. They can Google it and go right to the IRS website. They can download it.
At least they'll know what the IRS has on record for them.
Okay. All of their W-2s, all the 109Is, 1098s for their mortgage interest, things of that nature, 1099Rs from their retirement. They've got all that on there.
Social Security.
So you might need to start right there. Yeah, that's really helpful.
Now, do you recommend having somebody walking with you, a CPA or tax professional? Yeah, you can download your wage and income transcripts all you want, but you may not know what to do with them once you get them. They don't look like regular forms. You definitely need somebody who is savvy in the area of representation to help you to walk with you. And so there's people out there that haven't filed for years.
Where do they start?
Well, the internal revenue manual, it's like the IRIS Handbook. They say, we're only going to go back six years.
So don't start with 2000's return and try to file that. Let's go back. And then often I get a conference with the IRS and I say, hey, what do we got to do with this taxpayer? That's so helpful, Kevin.
Well, we've just scratched the surface on this. We're going to have to have you back and continue the conversation.
So thankful for you, my friend. It's good to be here. Folks, the IRS will work with you. They can do an offer and compromise or a payment plan.
So get started today. Find a trusted tax professional near you at findacka.com. Back with your questions after this. Stick around. We're grateful for support from Guidestone, whose diversified suite of investment solutions align with Christian values to create positive change in the world.
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Yeah. Great to have you with us today on Faith and Finance. We've got a few lines open. You can call right now with your financial questions: 800-525-7000. Out to Iowa.
David, go ahead, sir. Hi, Rob. Thank you for taking my call. Of course. Hopefully, I got a.
Quick and easy question. I have about eighteen thousand dollars in credit card debt for a number of different reasons. Um and um I have an opportunity To go to, I have some friends in Alaska, and if you've heard before, you can make a lot of money in a short period of time there during the fishing industry.
So I'm planning on yeah.
Well, and they've been begging me to come up, so I finally gave in. Um, so but my goal is to go up there and be able to pay that off and really then some if I stay maybe three months. My question is: I was considering Christian credit counseling before that and try and do it over time. Does it make sense to contact them before I go or see what I can get done in the next three months? and maybe I don't need them anymore.
Yeah. How how quickly would you be headed out to Alaska? Uh two weeks. Ah, okay. Yeah, I don't think it's going to make sense just because, you know, the real benefit of a credit counseling program comes through the reduction in the interest rate.
So, you, you know, an average rate of 20 to 25 percent is going to drop to somewhere between 0 and 10 percent. Generally, it just depends on the creditors that you have. And when you play out that reduction in interest rate over a typical repayment on a credit counseling program of three to five years, you can save a bundle in interest. But if you are going to have the ability to pay it off, you know, really quickly, I just don't think you're going to get enough savings over the next four months to be able to justify the time and the setup fees and so forth to get on a credit counseling program. I would just probably keep paying them as scheduled.
And then, as you start getting that additional income coming in, just really focus on reducing those principal balances. Yeah, well that and that's my goal is get those paid off, you know, by the end of August. And then start working on the emergency fund. And then start doing some savings. I've had a long pattern of just not.
Quite getting there financially. And I got to tell you, listening to you really helps, Rob, because. it's the godly perspective and that kind of convicts me. And I I need that because Um It's that important, I think. Yeah, I love that, David.
Yeah, the only potential change in that plan I would suggest is go ahead and set aside just $1,000 just so you've got something to fall back on if you don't have any savings. And then every additional dollar, let's focus on getting those credit cards paid off. And then, to your point, once that's done, you can get that emergency fund up to three to six months' expenses. But let's not deplete everything just so you don't get into a bind if you had something come up unexpected and you've got to wait for the next paycheck, that kind of thing. But I love the plan.
I think that's great. Hey, so are you a fishing guide? No, I'm a truck driver, and basically you go up there, and when the salmon are running, they're taking it from the docks. To where they packet the ship. Oh, cool.
And it pays. Huge money. They're long hours, but that's okay. The sun's up like. You know, 19 hours a day up there, you know, you don't really notice it from what I hear.
Um, it's going to be pretty much an adventure, and it's hard to leave for that long. But my wife said. Do it. Her exact words, do it.
So I'm gonna do it. That is awesome. And the change of scenery is going to be spectacular.
So I love it. That's going to be an incredible experience. And what a blessing to be able to come back after a 90-day stent. Time away, just time with the Lord, but also working hard, being able to get that debt paid off. That's going to feel great.
And then kind of get yourself on a different track moving forward.
So I love the plan, David.
Okay, I'm gonna call you when I get back and let you know how it worked. And hopefully, I have a good report. All right. I'm gonna hold you accountable to that, my friend.
So I'll be waiting for that call, all right?
Okay, I will do that. All right. Hey, Lord bless you, David. All the best to you. Enjoy your time out in Alaska.
To Ohio. Hi, John. How can I help? Yeah, hi. I um was ask asking a question about my thrift savings plan and rolling it over to IRA.
Okay. Would it benefit me to do that now? I'm getting ready to retire. within the next five years. I'm eligible now, but life, no retiring right now.
But so I was told that I could roll it over, it would stay fixed at that amount. And could only go up in that my I could still keep my thrift savings open. and still contribute to that? Would that be a wise move? I like the idea of rolling the TSP out to an IRA, but I'd love to know more about it can only go up.
What are you rolling it into, like an insurance product? You know that I'm not sure. I just was speaking with a guy last night And he was talking to me about it. I'm not sure. That's why I was cur why I was calling you because I'm not quite fully understanding what he's talking about to how would that be guaranteed that it wouldn't go down?
Yeah, it's probably an IRA annuity, which is a tax-deferred annuity, which nat would not be my first choice. How much have you accumulated in that TSP, John? It's Close to 300, I believe. Yeah, okay. And how far off is retirement?
I realize you said you're eligible to retire, but you need to continue to work for a season. How far off do you anticipate retiring, at least at this point? No more than five years.
Okay, got it. And what will you have in addition to this $300,000 and what it grows to over the next five years for retirement? Will you be eligible for Social Security? Yes.
I'm sixt I'm sixty right now.
Okay. And so, do you have a sense of what that will be just based on your benefit statement? My team my uh Social Security? Yes, sir. I think it was around eleven hundred or fourteen hundred a month, something like that.
Okay, got it. Yeah, so I mean, if let's say this grows to 350,000, I'd be comfortable with you pulling 4% a year just as a starting point.
So that'd be a little more than $1,000 a month.
So let's call it $1,100 a month. If you add that to $1,400 a month, we're talking about $2,500 a month. I think the question would be, is that enough? Do you have any other income sources in retirement? Or would you be trying to make it just on Social Security plus your TSP?
I'll have my retirement from the Postal Service also.
Okay, great. Yeah. So could it be that between the Postal Service retirement and Social Security, the goal might be that you don't even touch the the three hundred fifty thousand if that's what it grows to? That's my hopes. Yeah, okay, good.
Well, I think that puts you in a great position because if you can limit your lifestyle, live on your postal retirement plus Social Security, you know, that would be ideal. And then I'd be looking to roll that TSP over to an IRA and have an advisor manage it for you rather than putting it in an insurance company. There is something nice by transferring the risk away from the markets to an insurance company in the form of an annuity type product because there's a floor on it. To your point earlier, you can't lose money. The downside is, in exchange for that floor, there's always a cost for it.
And the cost is you're not going to get the full upside. And so, you know, the way we get the better, you know, annual average annual returns is we take the up with the down and we manage that risk through diversification and asset allocation.
So, you know, if you're retiring at 65, let's say. You know, we might put 40 to 45% in stocks, 55 to 60% in bonds, maybe a small portion of precious metals. We try to smooth it out, get a nice yield coming in. But the real benefit is, even though you're taking on some risk, you are getting 100% of the upside, and you have access to the money if you needed it for long-term care or some other event.
So I like rolling it to an IRA and finding a certified kingdom advisor to manage it. Let's finish up off the air. We'll be right back. Feeling burdened by credit card debt? As faithful stewards, we are called to manage our finances wisely.
Christian credit counselors can help with a debt management program that allows you to pay off debt up to 80% faster while honoring your commitments with integrity. Don't let debt hold you back from the life God has planned for you. Take the first step toward peace and financial freedom today. Visit faithfi.com slash CCC or call 800-557-1985. Faith in Finance is grateful for support from Sound Mind Investing.
For more than 30 years, they've offered financial wisdom for living well. SMI provides step-by-step guidance for do-it-yourself investors, from those just getting started to those getting ready for retirement. More information, including a short video webinar on profit and peace of mind no matter what's happening in the market, is available at soundmindinvesting.org. Great to have you with us today on Faith and Finance. Here in our final segment today, we're going to get to as many calls as we can.
We have some great questions lined up here. Let's go ahead and take one of those right now. Andrea in Louisiana. Go right ahead. Hi there, so I am 59.
I have a 401 with my company. I have been there for quite a few years. And it's always been in a traditional IRA where my company matches 50%. On the dollar. And I'm really questioning: should this money be in an IRA with that's traditional IRA or sh or 401k, or should it actually go into a Roth?
And I am at the highest amount that I'll ever make. Like I said, I'm at the end of my career. Yeah, yeah, great question, Andrea.
So here's the thing: because that's a traditional 401k and not a Roth 401k, which there is such a thing, but they're newer, they're not as common, although they, again, do exist. But if you've got all that money at a traditional IRA, you're right at the end of your working career, and as you said, at your peak income, your only option is to roll that to a traditional IRA. You would not be able to roll it to a Roth IRA.
Now, once it gets into the traditional IRA, you could begin converting some or all of it to Roth.
Now why would you want to do that?
Well, it all comes down to whether your tax rate will be higher or lower later.
Okay. So you know, as someone who approaches retirement, many like the flexibility of having both the traditional and the Roth, some taxable money, some tax-free Roth money. If you expect lower income in retirement, well, then a traditional IRA rollover makes sense. And you know, what you would do is you could leave it all right there and then just start drawing it out as you need it, paying tax on it.
Now, what some people will do between retirement and when they start taking Social Security is because they have a significant drop in income, or even if you are taking Social Security, but you're not yet to required minimum distributions, which you know would happen at 73, they will start converting a portion of it to Roth. And what they do is they use a strategy where they're filling up the lower tax bracket buckets, if you will.
So, let's say you're in the 22% bracket, okay, just for example. And let's say you connected with your CPA and you said, How much more income could I have in any given year? And again, this is not why you're working because you're already at the peak of your earnings.
So, this would be right after you retire, in all for all intents. and purposes. You could say to your CPA, how much more income could I have in this taxable year where I wouldn't push beyond the 22 into the next tax bracket? And you could use a strategy where you start to fill up that 22% bucket. And convert to Roth.
Why would you want to do that?
Well, that portion would be: number one, you're paying today's tax rates, and tax rates will likely go up in the future. We're probably on the low end of what future administrations will do with tax rates. Number one, number two is if you don't need the money because you have other income sources in retirement, then you're going to be required to take required minimum distribution starting at 73. And if you can get more of that money into Roth between now and then, it will just make those required minimums lower. And that has other implications, including, you know, with that required minimum, if you have a sizable retirement account, you could create something called IRMA, which is an additional premium on your Medicare because you have more income.
And so, if you were not required to take as much in a required minimum, you know, you could manage that a little bit more effectively.
So, I think the idea is probably you don't want to do anything now at the peak of your earnings. You do want to roll it all to traditional IRA when you retire, and then you'd want to find an advisor, perhaps a certified kingdom advisor, to manage it for you. And then, from that point until the required minimum age of 73, you're going to want to work with your CPA to determine whether you want to convert a portion of it each year to Roth. For the reasons I mentioned. But let me stop there.
I know that's a lot of information, so let me just see what your thoughts are. No, it makes total sense. And I think I'm hearing you say as well: right now, just sit tight. Go ahead and continue with the 401, your standard 401. Do not move it into a Roth for now.
Yeah, you really can. It's got to go into a traditional when that time comes when you separate from service. And you don't want to miss that matching of 50% on the dollar. The only thing you could do if you had additional money to put into retirement plans, start a new Roth that you start funding out of additional funds. Thanks for your call.
Let's go to Albuquerque, New Mexico. Hi, Ann. How can I help? Hello. I'm so very excited that I have the opportunity to ask you a very important question to me.
Now, I've been studying the Bible for just a little over a year. And I do now have the understanding that with respect of tithing, I must recognize its holiness and return it to God. And Rob, I'm embarrassed to admit that I just started to tithe, but I want to ensure that I'm doing it right. Who, according to the Bible, should be the recipient of my tithe? Yeah, it's a good question.
So here's my perspective on that, Anna. First of all, I appreciate the diligence with which you're thinking through this. Clearly, you want to be found as a faithful steward of God's resources. I think that's the heart posture that God certainly wants. What we see in the New Testament, because we're under the law of Christ, not the law of Moses, we see giving that Jesus references many times that's, I think, sacrificial.
We see that with the, you know, his recognition, if you will, of the widow that gave out of her poverty, the widow's might. We see that we're to give proportionately. It says to who much is given, much is required. We see that we're to give freely and cheerfully. The Bible says we should give cheerfully, not under compulsion.
And so we shouldn't do it out of a sense of obligation, but really, I believe, an overflow of our gratitude to God for what He's already provided for us before even the financial resources He's entrusted. To do us, He's given us the free gift of eternal life through the shed blood of Jesus and His death and resurrection. That and when we place our trust in Him, now we're then reconciled to the Father in a right relationship with Him.
Well, just out of gratitude for that, I think we should look to be giving to support the work of the Lord. And as we think about being a manager of what's God's, not 90% is ours and 10% is God's, 100% is God's.
So, with that understanding, I like the idea of using the guideline of the tithe from the Old Testament and referenced in the New. On our increase as a starting point, and I think that's what it should be. We should give beyond that, but using that as a starting point.
Now, we see reference to the storehouse. The Israelites had a storehouse in the temple where they kept the tithes of food for the priests and Levites. You know, we see that the storehouse was part of God's provision for the priests who served in the temple and the Levites who had no land of their own in Deuteronomy.
So, I think the best representation of that today is our local church. And I would say, at the end of all of this, that's where we ought to give our tithe and then look to give beyond that other places on the heart of God. Thanks for your call. Big thanks to my team today: Sandy, Devin, Jim, and everybody here at Faith Vi. Have a great weekend.
We'll see you next week. Bye-bye. Faith in Finance is provided by Faith Buy and listeners like you.
