If you’re caught in a last minute rush to finish your income tax return, here are some money saving tips

Published 3:35 pm Wednesday, March 24, 2010

As you read this month’s article we are down to the wire as the April 15th tax deadline approaches. The premise of this month’s column is that I see numerous items that come across my desk each tax season that are common errors taxpayers are making. There are many individuals who do their own taxes where this information could be useful. For those who have someone prepare their taxes there is also some helpful information.

Dependent errors

Many times I start preparing the parent’s return and they proceed to tell me that Mary at college already has done her taxes and received a nice refund. This always sparks my interest as many times Mary took the standard deduction but also the exemption.

This means that if the return is not amended then the parents can’t claim their college student daughter on their 1040 form. Perhaps more importantly they can’t take any college tuition tax credits or deductions.

In most cases the student didn’t even need the extra deduction anyway since their income is under the standard deduction amounts. Talk with your kids before W-2s come out to prevent that extra paperwork.

Sales tax deduction

Remember you have 2 choices to make with this ever more popular deduction. You can take actual sales tax paid in the year or if you are like many of my clients you can use the IRS table to calculate the amount of deduction based on your income and number of members in the household. The error occurs when the taxpayer is unaware that if you use the IRS table you are also allowed to add in the sales tax paid on major purchases such as purchasing a car, RV, motorcycle, and or boat as well as major home improvements and even building your own home which would allow a much greater deduction in some years.

Review your previous year’s tax return

This is something I do with all my clients before I finalize the tax return. I am looking to make sure that I am not missing any deductions that were carried forward. The biggest example is capital losses that are only deductible to the extent of capital gains in the tax year and the $3,000 per year deduction limit. Other items can be passive loss and investment interest amounts.

Refinance points

I have seen clients treat the refinance loan fees as if they were deductible in the current year just like you can when you purchase your personal home. All other points have to be written-off over the life of the loan or when the loan is paid off. If a few years ago you started taking the fees little by little on Schedule A or E and in 2009 you refinanced the previous loan you are now able to deduct in full the remaining loan fees as well as start the calculation over with the new fees.

Energy credits

As I always remind people, I said credits not deductions. A credit of $1 lowers the tax by the same amount, not a percentage. Many things, such as insulation, windows, and buying energy efficient furnaces, are now able to lower your 2009 tax burden by up to $1500.

Sold stocks and mutual funds in 2009

Remember you need to calculate you investment basis, which includes the original purchase price of the stock or fund and the amount of dividends and/or capital gain distributions that you paid tax on but the funds were actually reinvested back into the investment by purchasing additional shares. This is also an example of why you shouldn’t throw away previous years’ tax returns.

Double check the details

Check Social Security numbers and bank information if you are having the tax refund direct deposited in your account. This is a common error that the IRS lists each year that slows down the processing of your return and refund.

These are samples of what I have seen this tax season and ones before. The final point is that if you aren’t quite ready by April 15th you can file an automatic six-month extension by using Form 4868.

Remember that the extension is only for filing, not filing and paying. If you think you are going to owe you should send in an estimated payment with your extension. This will help avoid unwanted IRS penalties plus interest expenses.

David Rumsey is the owner of Pettis Rumsey Inc., a Marysville accounting firm that works with small business owners to increase financial performance, tax planning and preparation. He can be reached at 360-659-8502 or at david@pettisrumseycpa.com.