Author: Tyler Martin, CPA
Copyright: 2004
Given the time of year, you would expect a Certified Public
Accountant to have stacks of tax return information. Well, I do
have stacks of tax returns and client information. As I dig
through the info I am noticing common errors with prior returns
of new clients. These errors are leading to missed deductions
and overpaid taxes. Yuck! Why overpay your taxes? Hopefully
this article will help you avoid making the same errors and
losing money.
1) If you own a home, I commonly see real estate taxes missed
completely or partially deducted. These taxes are deducted on
Schedule A (itemized deductions). If you refinanced, it is
especially important to review the settlement statement (also
known as a closing statement) to see if real estate taxes were
paid out of escrow.
TIP: In Santa Clara County and I am sure other counties too, you
can call the assessor to find out how much you paid in 2003.
2) If you refinanced your home mortgage in 2003 (and who
didn't?), make sure you fully deduct points from past refinances
(Note: there is a recent IRS position on this. If you refinance
with the same lender the points may not be fully deductible in
the year of the refinance.) The rules here can be complicated so
I highly recommend you go to www.google.com and do a search to
understand the complexities or use a professional that is
qualified.
3) Selecting the right filing status. If you are married or
single with no dependents you can select your filing status
easily but if you have a child or dependent you may qualify for
head of household status. This can be a real money saver so make
sure you review this status before filing your return.
4) Computing basis for stock or mutual funds correctly. I
routinely see new clients do this one wrong. If you sell mutual
funds, make sure you include reinvested dividends to the basis.
By doing this correctly, you lower the gain or raise the loss on
the sale and possibly lower your taxes. On the same note, if you
sold stock options, the basis computation can be very tricky.
For non-qualified stock options, your employer should have
included the gain in your W-2. This would still get reported as
a stock transaction but there typically is a small loss if it is
a same day sale.
5) It is possible you are eligible to contribute to a traditional
IRA or a Roth IRA. Frequently, clients are confused by these and
believe they are getting a deduction when in fact they are not.
As with all tax code, there are numerous rules to these so make
sure you understand them or work with someone that can explain at
a level that makes sense to you.
Well, that's it. I hope you made it through the article and put
in the effort so you avoid making the same mistakes. Please fee
free to stop by my site for more information and tips
(www.4cpa.biz).
Resource Box:
Tyler Martin is a Certified Public Accountant in San Jose,
California. He provides tax and QuickBooks guidance to
individuals and business owners. For more information about
Tyler and his services go to: www.4cpa.biz.