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My Particular Utterance writes: 1040, 1040A, 1040EZ, Schedule C, Schedule B, 1099, W-2…doing taxes is
like trying to speak a foreign language that you've never taken a course
in. Given how complicated the tax code is, it's not surprising that
people mess up when filing their returns—and those mistakes can cost people thousands .
As a Certified Public Accountant with his own boutique firm, Gary Craig
has seen it all. He shares some of the most common tax blunders that he
witnesses to ensure that your own filing goes smoothly.
1) Shopping for the Biggest Refund / Craig
says that perhaps the biggest mistake is trying to find someone who
will give you the largest refund without making sure that it's accurate.
"I got a guy last year who came in at the very last minute on April
10," says Craig. "He and his wife filed separately to take more
exemptions, and the tax preparer he'd initially used was really
aggressive about reimbursing. The guy was flabbergasted by how much he
still owed and came to me ‘refund shopping' to see if I could lower his
tax liability, and I had to tell him, ‘You actually owe more,' because
the other preparer was so aggressive with the deductions."
2) Not Making Sure That Your Tax Preparer Signs the Return / If
your tax preparer is confident in the accuracy of the return that he's
prepared for you, then he'll have no trouble putting his name on it. But
if he doesn't sign the return, it could be a sign that he's done
something shady. In fact, Craig says, "If [the mistakes on your return
are] serious and seem intentional, you can report him to the IRS. That's
grounds for losing one's license."
3) Being Too Aggressive With Unreimbursed Business Expenses / This
mistake has an easy solution: In addition to keeping those receipts for
unreimbursed business expenses, always keep a record of your company's
reimbursement policy—even for past years. This is the only document that
will save you in an audit. Without it, the IRS won't recognize those
expenses.
4) Taking Inappropriate Real Estate Deductions / If
you're not a real estate professional, and you make more than $150,000,
you can't take losses on any rental properties that you own against
your normal working wages in order to lower your taxable income. Take it
from Craig: "I had a client making $300,000, and taking $160,000 in
real estate losses"—none of which was allowed. His bill? A cool $50,000
in back taxes and penalties.
5) Inflating the Value of a Car That You Donate / "This has
been really popular the last few years," says Craig, "but IRS
regulations around that have become more stringent in terms of
documenting the value. If you've got a 1985 Toyota Corolla sitting in
your garage, and you donate that vehicle to charity, claiming it's worth
$1,500, you'd better have good documentation to support that value."
His recommendation: Start with the Kelley Blue Book value. And if you make any improvements to the car, keep the receipts so you can prove their worth.
6) Being Too Aggressive With Home Office Deductions / This
year, the IRS changed the requirements on the home office deduction for
the 2013 tax year (to be filed in 2014). Under the new rule, taxpayers
have the option to take a "standard" home office deduction of $5 for
every square foot of office space up to 300 square feet. In the interim,
the home office deduction could trip up those filing for it in the 2012
tax year, so make sure to measure your square footage correctly.
7) Misunderstanding the Stock Transactional Wash Sale Rule / Let's
say you buy a few shares of Facebook stock, and then you later sell
them at a small loss. Normally, you could deduct that loss against any
other capital gains you made that year in order to lower your taxes. But
if you bought more stock 30 days after selling (or 30 days before
selling), then the first sale is disregarded. "It's like you never sold
the stock in the first place," says Craig. And you won't get the tax
benefit.
8) Not Taking Advantage of Traditional IRA Deductions / Here's
a "mistake" that you can retroactively use to lower your taxes in the
previous year. Plus, it also boosts your retirement savings! If you have
a 401(k) at work, you can also contribute to your retirement savings in
a traditional IRA and get a tax deduction if your income falls under
the income limits. (For 2012, singles making $58,000 or below and those
married filing jointly making $92,000 or below can contribute the full
$5,000 to their IRAs; singles with income between $58,000 and $68,000
and married couples with income between $92,000 and $112,000 can make
partial contributions.) So let's say that it's 2013, and you realize
that you didn't contribute the full amount allowed to you for your IRA
for 2012. You can still make a contribution now that will count for
2012, lowering your taxes for that year.
9) Neglecting to Tell Your Tax Preparer About Life Changes / Although
things that happen in your family life or your job may seem unrelated
to your taxes—and therefore none of your CPA's business—they can affect
how much you owe. "Maybe your mother has moved in and is dependent on
you, or your kids are now old enough to be in daycare," says Craig.
"Tell your CPA what's going on in your life instead of just bringing him
a bundle of forms." For instance, if you've changed jobs, your CPA
could help you structure your compensation to maximize tax savings.
10) Settling for a CPA Who Just Goes Through the Motions / "Find
a tax preparer who knows and cares about what makes you you," says
Craig. Your CPA should know what brings you pleasure in life, what kind
of family you have and what your values are. This way, for instance, he
or she can help you make sure you're meeting your retirement goals with
smart tax planning. Also, according to Craig, "the CPA can look out for
opportunities to bring you during the year."
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