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.
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