How Long Should I Hold My Tax Returns? Forever If You Live in Missouri!

Missouri State Line

Photo by Jimmy Emerson at

Forever!  That’s what I said.  I realize that I’ve made posts about keeping your tax returns before and I’ve said ten years, or even less, but I’ve changed my mind.  Keep your tax returns forever!  Keep your W-2s also.


Why am I going all crazy about this?  Because it seems the state of Missouri doesn’t care how old your old tax issues are.  If they think you owe back taxes, there is no statute of limitations.  Let me repeat that—NO STATUTE OF LIMITATIONS!


Over the past few months I’ve seen them go after people for back taxes from 2000, 1999, 1995, and my favorite:  1987.  Yes, 1987, that’s 26 years ago.  If you were asked to produce your tax returns from 26 years ago, could you?  I couldn’t.


Here’s the thing—if Missouri believes that you have not filed, or that you perhaps filed but still owe, you’re going to need to provide some sort of proof of payment or filing.  If you didn’t keep your tax returns, how can you prove it?


Here’s how it works:  Let’s say you filed your federal taxes back in 2000 but for whatever reason your Missouri return was never received by the state.  If you had a state tax liability of $1,000 back then, with penalties and interest added, you’d owe $1902 today  (May 2013).  That’s almost double your tax liability.  But it’s not just the fact that your tax liability doubled—Missouri has no record of the withholding you paid.  It’s quite possible that you already paid all of your taxes with your withholding, but since Missouri doesn’t track that information, they have no record that you already paid those taxes.  Unless you’ve held onto your W2s from back then, you can’t prove you’ve already paid and Missouri is going to want their money.


So, I have officially changed my position.  From now on, I say keep all of your tax returns and your W-2s forever.  It’s okay if they are digital copies, but it’s absolutely essential that you retain those copies.  Hopefully, you won’t need them.  But if you do, you’ll be glad you’ve got ‘em.

How To Claim a Youth Opportunities Program Tax Credit for Missouri

Kids In The Middle® (KITM) is a 501 (c) 3 nonprofit organization that helps children, parents and families thrive during and after divorce through counseling, education and support.


I was recently at a gala fundraising event for an organization called Kids in the Middle.  Kids in the Middle is a not for profit group that helps children cope with the issue of their parents divorcing.   It’s an awesome organization and here’s a link if you want to learn more about them:


One of the cool things about Kids In the Middle is that a donation to their organization can qualify you for a Missouri Youth Opportunity Tax Credit (YOP). If you live in Missouri, donating to a Missouri Tax Credit Organization is a really sweet deal.


Let me tell you about how it works.  Let’s say you want to donate $1000 to Kids in the Middle.  (The minimum donation for the tax credit is $100.)  When you donate money to an organization that qualifies for a YOP tax credit, you get a credit of 50% of what you donated against your Missouri taxes.  So if you donate $1000 to Kids in the Middle, you get $500 taken off of your Missouri income tax return next April.   That’s a pretty good bang for the buck right there isn’t it?


But, it’s even better than that.  If you itemize your deductions, your donation also counts as a charitable contribution as well.  So if you’re in the 25% tax bracket, then you’re saving another $250 on your federal taxes, plus another $60 off of your Missouri taxes on top of the $500 you’ve already saved.   So if you’re in the 25% tax bracket, your $1,000 donation really only cost you $160!  If you’re in a higher tax bracket, your donation will cost you even less!  How cool is that?


Full disclosure, (I’m a tax geek can‘t help it) because you’re going to pay lower state taxes for doing this in 2013, you’re going to have a lower state tax deduction on your 2014 federal tax return.  That means your federal taxes will be $125 higher in 2014.  You’re still coming out way ahead, but I just needed to point that part out.


When I was at the gala, people were donating left and right–mostly because the charity is such a good organization, but I think the YOP tax credit really sweetens the pot.  And afterwards, people were asking how do you claim the tax credit anyway?  That’s something I can help you with.


Claiming the Missouri tax credit isn’t difficult at all!  The important thing is that you’re going to need the form that you’re mailed authorizing the tax credit.  You’ve got to have that form so once it’s mailed to you, don’t lose it.  You need the code on there and you need to mail it in with your tax return.  With Kids in the Middle, it’s going to be a two step process.


First, after you make your donation, you’ll receive a notification letter and an application for the tax credit.  You’ll have to fill out that form and mail it back to Kids in the Middle.  Then you’ll receive your Certification letter from the Missouri Department of Economic Development.  That’s the form you’ll need for your tax return.  Don’t lose that.  Your regular receipt from Kids in the Middle won’t work on your tax return.  You must have the Certification letter for the tax credit.


When tax time rolls around, you’re going to fill out form MO-TC.  Here’s a link to see what it looks like: As you can see, there’s not much to it.  The amount of the tax credit will get carried over to line 37 of your Missouri 1040 tax return.


You will have to mail your Missouri return instead of e-filing because you’ll have to attach the certification letter along with the tax credit form to your tax return.  But that’s about all there is to it; get a form, complete the MO-TC document, claim the deduction, attach the paperwork to your tax return, and mail.  It’s that easy to do a really good thing.

State of Missouri Refund Debit Card


This year, the state of Missouri is offering you the option of getting your refund from your 2012 Missouri tax return on a refund debit card. You can qualify if you’re getting a refund on your individual MO-1040 or on a Property Tax Credit Claim.


To get the debit card, all you have to do is mark the “debit” card box on the refund line of your 2012 Missouri income tax return. How easy is that?


You don’t pay any extra charge to get the card. You don’t have to have a bank account. And once you activate your card you’ll have 24 hour access to your cash.


You’ll receive your refund card in the mail and you’ll have to activate it by phone or online. You’ll need to create a personal identification number to use it.


You’ll be able to use the card anywhere a VISA is accepted.


Here’s a video about the debit card and how it works:   Missouri Debit Card Video


It’s important to know that having your refund direct deposited into your checking or savings account is still the fastest way to get your refund. But if that’s not an option for you, then this refund card is a really cool alternative.


Two State Tax Returns: Live in One State, Work in Another

Photo by Jimmy Emerson on

I get a lot of questions from people about working in one state and living in another. That’s pretty common here in Saint Louis where we have lots of folks living in Illinois that come over the river to work here and vice versa. Today I’m going to talk about doing your tax return when you have two states to deal with.

First, the technical words you need to know:

The state you live in is called your resident state. There will probably be a check box or something like that in your computer program. If you live in Illinois, then your resident state is Illinois.

The state you work in (but don’t live in) is called the non-resident state. In this example, Missouri is the non-resident state.

Tax liability: This is not your refund or the amount of money that was withheld on your W2. Tax liability is a number computed when you prepare the state tax return. It will say “tax liability” on your state income tax form. This is the dollar amount the state says that you owe them for taxes before they take into account what you’ve already paid through your withholding or estimated payments.

That’s not so hard, right? Next, you need to make sure you do your tax returns in the right order:

Always do the federal return first. Make sure that it’s done and that it’s right before you start your state returns. If you finish, and then go back in to make changes to the federal, you’ll have to go back and double check everything on the state returns and that can be a pain in the back, so finish the federal first.

Next, do the non-resident state—that’s the state you work in. That one’s easiest. You only pay tax in that state for the wages you earn in that state. Usually, when preparing a non-resident state return, there will be a check box that says “non-resident” somewhere in your software. Be sure to check it. You’ll want to make note of your “tax liability” for the non-resident state. You’ll need that number for your resident state return.

After you’ve finished the non-resident state, then you can prepare your resident state return. You resident state is going to tax all of your income (including the wages you earned in the other state.) The resident state will include your wages, interest, dividends, stock trades, retirement income, and basically everything else that’s taxable.

Things to know about the resident state return:

Even though you pay tax on all of the income you earn to your resident state, you will get a credit for taxes paid to another state. For example: using our Illinois/Missouri return again—since you paid income tax to Missouri for the wages you earned while working there, Illinois will give you a credit for those taxes paid so you won’t end up having to pay twice for working in another state.

The form you need to complete will have different names depending on the state, but it will basically be called a Credit for Taxes Paid to Another State. Sometimes it will be listed as an NR Credit. Depending on which software you use, you might have to dig for it. Some software programs are really easy and it will just pop up automatically when it recognizes that you have multiple states.

Remember the tax liability number I told you to remember? Well that’s going to go on your NR Credit form. Some software is really good at automatically plugging it in for you. In some other programs, you’ll have to manually enter it. The important thing is that you know that number needs to be there and that you know to look for it.

I’m getting a really big refund from my resident state, can that be right? Most likely not. When you see an unusually large state refund, it’s always a good idea to take a closer look. Check to make sure that the income numbers match up to the federal return and that the Credit for Taxes paid to another state was computed properly. It’s rare to get a big refund to your resident state unless you’ve had some other income that had withholding. The credit for taxes paid to another state usually will almost never be more than what you would have paid for taxes in your own state.

I’m showing that I owe a whole lot of money to my home state, can that be right? Maybe yes, but maybe no. The first thing you want to check is that you’ve taken your credit for taxes paid to another state. That’s the most common problem when you owe a lot. Other factors could be working in a no-tax state while you’re living in a taxing state. For example, let’s say you live in Louisianna but work across the border in Texas. You won’t pay taxes in Texas so there’ll be no credit for taxes paid there. In a case like that, you’ll definitely owe. Also, you could have a big difference because the states have different tax rates. For example: Missouri’s tax rate used to be twice as much as Illinois. If you lived in Missouri and worked in Illinois (opposite of our example earlier), you’d still owe Missouri about as much again as what you paid Illinois. (Now the rates are much closer, but people who live in Missouri and work in Illinois will still wind up owing extra for their Missouri taxes.)

What if I live in a reciprocal state? Some states have arrangements with their neighboring states to share tax information and tax revenues. In a situation like that, you’ll just pay taxes in your home state. The states will actually sort out who gets how much of your tax money. Usually, it’s simply a matter of checking the “reciprocal state” button in the software.
For most people, if your federal return is fairly simple, preparing two states is not that difficult. Use a good software program, follow these directions, and you should be fine.


Missouri Seniors May Want to File Separately

If you’re married and receiving a public pension or social security in Missouri, it may make sense for you to file your tax return as married filing separately instead of jointly.  It sort of defies the conventional wisdom of tax preparation, but it’s worth checking out.

Usually, as in 99.5% of the time, a married couple is better off filing a joint return, at least as far as their federal tax return is concerned.  But often times, especially when there are no dependents claimed on the return, the difference is negligible if anything.   It’s just natural to file a tax return jointly because it’s easier and usually cost effective.  But most tax software programs that do a “married filing jointly (MFJ) vs married filing separately (MFS)” comparison analysis usually don’t include the state results in the analysis. 

If you live in Missouri, and you both have a public pension, you’ll want to take a closer look at the potential difference.  Here’s why:  If you’re married and your combined income exceeds $100,000, your public pension exemption becomes limited.  If you change your status to MFS, you each are allowed income of $85,000 before any limitations kick in.    The higher your income, the more you’re going to want to consider splitting your return.  Now remember, this works for public pensions and social security, if you have a private pension, the rules are different and there’s no tax benefit to filing separately.

Public pensions are pensions from government organizations such as the military, the postal service, or state or local governments.  Teacher pensions are considered to be public pensions.  Private pensions are from corporations like Boeing or Nestle.  If you’re not sure what kind of pension you have, call your plan administrator. 

Let’s say for example that you and your wife are retired school teachers–meaning that you both have public pensions.  Your income is $70,000 and your wifes’ is $74,000.  Combined, you’re well above the $100,000 limitation.  Because you’ve exceeded the income limitation, your pension exemption is limited to $23,406.  If you filed separately, the income limitation would be $85,000–which you’d both be under, and you’d each get a pension exemption for $33,703 (or a total of $67,406.)  That’s a difference of $44,000!  Compute that out at the 6% tax rate for Missouri and you’ll have saved $2,610. 

That’s a big difference.  Using the standard “MFJ vs MFS” calculator for the federal return, I showed that with the married filing separately status, you’d owe an extra $12.  I’ll gladly pay $12 to save $2600.  But without doing the extra work, I wouldn’t have known there was that huge difference.

While the take home tax software products are really good, this is one of those situations where you can miss out on a major tax savings.  You have to know about the public pension exemption.  You have to know about the different income limitations.  And most importantly, you have to actively set up and do the work to make sure you don’t miss this opportunity.  If you think you might be missing out on important deductions like this one, maybe it’s time to set up an appointment with a professional.

Missouri Health Insurance Deduction

Missouri has a tax deduction for health insurance premiums


When you live in a state that has an income tax, like Missouri, you need to be aware of the state’s little deductions that aren’t automatically on your federal tax return.  One of these is the Health Insurance deduction.


It’s very difficult to claim any medical deductions on your federal income tax return because you have to meet the requirement that your medical expenses exceed 10% of your adjusted gross income.  In Missouri, you don’t have that.  If your health insurance isn’t already exempt from taxes, you can claim your health insurance as a deduction on your Missouri State income tax return.


You’ll find the deduction on line 12 of the Missouri schedule A.  For most people, its just a straight, direct entry on the form.  If you happen to have been able to claim your health insurance on your federal schedule A, or had medicare payments withheld from your Social Security, there’s a worksheet to determine just how much of a deduction you’ll get to claim on your Missouri return.  (For some people, your computer software will automatically calculate the amount of medicare insurance you can deduct, but you need to watch out if you’re adding additional insurance payments that you don’t delete the medicare payments.)


The health insurance deduction is especially valuable to senior citizens who may qualify for the Missouri Property Tax Credit.  It not only reduces their taxable Missouri income, but by reducing the income, it can increase the amount of property tax credit they receive.  Many seniors who qualify for the property tax credit don’t have any Missouri taxable income so the preparers don’t bother to look for deductions and that’s a mistake.


If you’d like to take a look at the worksheet for the qualified health insurance deduction, click on this link:

Missouri Health Insurance Worksheet


Also, if you happen to be self employed, be sure to check my post about the Missouri Self-Employed Health Insurance Tax Credit.  If you qualify for that, it’s even better for your taxes than the deduction.



Missouri Tax Credit for Self-Employed Health Insurance

MO self-employed health insurance tax credit


One of the really fun parts of my job is finding cool tax deductions or tax credits that most people don’t know about that can really benefit people.  Here’s a cool one:  The Missouri Self-Employed Health Insurance Tax Credit.


The thing about Missouri Tax Credits is that most of them won’t just pop up on your computer software.  You have to actually know about them and specifically request the forms to come up.  Major things, like the Missouri Property Tax Credit will usually have a pop-up reminding you to apply for it if you meet the criteria, but most other tax credits just hide in the corner.  The Self-Employed Health Insurance Tax Credit is one of the sneaky, hide in the corner credits.


How sneaky is it?  To tell you the truth, I called the Missouri Department of Revenue to ask a few questions and the person on the other end of the phone had never even heard of it.  She had to go hunt down someone who knew about the Self-Employed Health Insurance tax credit before she could answer my question.  I’ve never had that happen before.  The Missouri Department of Revenue front line folks are pretty knowledgeable and quick with answers.  While I tend to stump the IRS on a regular basis (I think if they had caller ID they’d never answer my phone calls,) I’ve never stumped a Missouri DOR employee before.


Here’s how it works:  Let’s say you own your own company and you also pay for your own health insurance.  Normally, on your federal tax return, you can claim a deduction for your health insurance up to the amount of your business profit.  But what if your business didn’t have a profit?  Or if your business profit was less than what you paid for your health insurance?  That’s where the Missouri Self-Employed Health Insurance Tax Credit kicks in.  Whatever tax savings you lost on your federal income tax return because you couldn’t claim your self-employed health insurance will become a tax credit to you in Missouri.


I know that sounds pretty confusing so here’s an example:  Let’s say your federal taxable income on your 1040 was $100,000 (I like to use round numbers.)  But you couldn’t claim your self-employed health insurance because your business actually had a loss (we’ll assume the $100,000 is from your spouse’s wages and other income.)  Your health insurance cost you $6,000 for the year.  If you could have claimed that as a deduction, it would have saved you $1,500 on your federal tax return.  With the Missouri Self-Employed Health Insurance Tax Credit, you get to take that $1,500 as a credit against your Missouri state income tax liability.  How cool is that?


Now that was a pretty drastic example, but even so, claiming a dollar for dollar tax credit against what you missed out on from your federal income tax return is a great deal.  Here’s a link to take a look at the form:

Missouri Self-Employed Health Insurance Tax Credit


So you want to know the best part?  Many of the Missouri tax credits have limitations that, if missed, you don’t get a second chance to claim them.  But with the Self-Employed Health Insurance Tax Credit, if you happened to miss out on claiming this credit last year, you can go back and amend your prior Missouri tax return and still get the refund.



Last Minute Tax Tips: Missouri Food Pantry Credit



Did you know that if you donate money to a local food pantry in Missouri, you may be eligible for a Food  Tax Credit worth 50% of what you donate?  Let’s say for example that you gave $500 to your local food pantry.  You would get a receipt (or have the food pantry sign a special form) and then you’d use that to take $250 off of your Missouri state tax liability.  But that’s not all!  It’s a charitable donation so if you file a Schedule A to itemize your deductions, you’d reduce your federal taxable income by $500.  So if you’re in the 25% tax bracket, that would be another $125 you’d get back on your taxes.  That’s like paying $125 to have $500 worth of value.

But it’s even better than that.  I read on one of the food pantry websites that for every $1 of cash donated to the pantry, $20 worth of food is generated for the hungry.  It’s a gift that just multiplies.

You can’t claim a credit for over $2,500 (that would be a $5,000 donation.)  The credit is non-refndable, that means you can’t get a credit for more than the amount of your tax liability. Remember, since you’re getting a tax credit for the donation, you don’t get to claim the donation as a deduction on your Missouri return-it’s an adjustment you’ll have to make on the return.

The state of Missouri has only allocated $2,000,000 for the tax credit.  What happens is that all the credits are held until April 15th before they are allocated.  If there are over $2,000,000 of credits applied for, they will be allocated among the applicants.  In that situation, the credits that you weren’t able to use can be carried forward to next year.

This is one of the those few tax credits that normal, everyday kind of folks can use.  There’s no dollar minimums but I recommend donating at least $100 to make it payoff.  Most tax companies charge an extra fee for preparing Missouri Tax Credits.  It doesn’t make sense to claim a credit for less than the amount of the charge to prepare the form.

For more information about the Food Pantry Tax credit, click here to go to the Missouri Department of Revenue web site:

The food pantry shelves are low and the need is at an all time high.   Even if you don’t want or need a Missouri tax credit, this is a charity that’s worthy of your support.