For many years, I spent four months each year working crazy hours preparing tax returns for clients who hoped for the best and expected the worst. In the earliest of those years, there were no computers and no client questionnaires populated with prior year information. Correcting mistakes or re-doing the return because of new information was no fun. Even less fun was telling the administrative assistant in charge of typing the larger, more important returns. It wasn’t a matter of making an entry to a computer screen; it involved re-typing the entire return. A second mistake could involve dodging a typewriter hurled at the staff accountant. Nevertheless, tax season is here again. The February 1-2, 2014 edition of the Wall Street Journal had an article with suggestions for avoiding common tax mistakes. For 2013 returns, taxpayers will have new taxes on investment income, new limits on deductions and a new phase-out of exemptions. According to this article, there have been over 4,800 changes to the tax law since 2001—more than one per day. One result of this complexity is the expenditure of six billion hours per year by individuals and business complying with the tax code and the related filing requirements. In dollars and cents, that comes to about $168 billion.
Here are some of the common errors listed in this article. Each dependent is worth $3,900; in general, if you provide more than half his or her support, you have a dependent. Don’t overlook a child who graduated from college last Spring, because you may meet the criteria for claiming the graduate. Make sure you don’t qualify for itemized deductions. However, in your quest for deductions, don’t overstate charitable gifts. You have to subtract the value of any goods or services received from the cost of the donation. You must also have a letter for gifts of more than $250. The new 3.8% tax on net investment income takes effect for 2013 if you have adjusted gross income of more than $250,000 (joint return). You are helping fund the ACA. Regulations have been issued, but there are clarifications pending. Be really careful reporting cost basis when reporting capital gains or losses. This is one of the most error prone areas of the tax return according to the article. Ask for help if you are not sure of the rules or have incomplete records. In recent years, revised Form 1099’s have become more commonplace. They tend to come out later in the filing season and can cause problems for you. Take time to check your income reports from banks, brokerage houses and mutual fund companies. If you took a withdrawal from your 401k or IRA before you turn 59.5, you may be subject to a 10% penalty plus income tax on the distribution. Be careful not to overlook this item. This is interesting: if you don’t sign your return, the IRS will withhold your refund; however, if you owe taxes, they will cash your check while waiting for your signature. These are just a few of many problem areas. Simplification of the code should be at the top of the list for reform issues in Washington, D.C., but it never seems to make the list. If you have any doubts about the preparation of your return, don’t hesitate to engage a qualified tax professional to help you. This information is not intended to be a substitute for specific individualized tax advice.
I transitioned from the tax and accounting career over 27 years ago. It was and is an important and challenging workplace, but I am pleased that I was offered the opportunity to work as a financial advisor. Psalm 40 has verses that relate: “I waited patiently upon the Lord; he stooped to me and heard my cry. He put a new song in my mouth, a song of praise to our God; many shall see, and stand in awe, and put their trust in the Lord. They do not resort to evil spirits or turn to false gods. Happy are they who trust in the Lord! Let your love and faithfulness keep me safe forever.” Have you turned to the Psalms lately in your study? There are some amazing passages. Almost every day I find peace and solace in my reading.
Securities, insurance and investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment advisor 3416 North Blvd, Alexandria, LA 71301, (318) 448-3201. The views expressed are not necessarily the opinion of FSC Securities Corporation.