A recent questionnaire directed to a group of tax professionals revealed that some of the most overlooked tax deductions are moving expenses, non-reimbursed employee expenses, medical miles driven to the doctor, job hunting expenses, sales tax on new vehicle purchases and the various credits given to tax payers each year such as the earned income credit, residential energy credit, and the child and dependent care credit. In addition, each year brings new tax regulations or changes to existing regulations.
For example, the 2009 tax season brought about three specific new credits which many have never heard of:
-The Making Work Pay Credit
-The American Opportunity Credit
-The Plug-In Electric Vehicle Credit
If this is your first time learning of these tax credits, you probably shouldn’t be doing your taxes without the help of a professional. Ricky Pritchard, an Enrolled Agent (EA) licensed to practice before all divisions of the IRS in all 50 states, estimates that roughly 2% of his clients ask him to file amendments to previous years tax returns.
In 2009, Ricky was contacted by a man who had prepared his own tax return in 2007 and two years later received a letter from the IRS saying he owed an additional $1,400. Unintentionally, the man had failed to report the sale of stocks. “He told me that his software failed to ask him the correct questions, so he left them off,” says Ricky. After refiling the return, reporting the stocks and the basis the client had paid for them, “the amount owed dropped from $1,400 to $200.”
Another client of Mr. Pritchard prepared his own 2008 return and had Ricky look at it before filing. There was “self-employed income for both he and his wife, but they failed to take deductions for assets purchased for the business. I had him use Sec. 179 to write off the costs of these items in lieu of depreciation. His tax owed went from $14,000 to $12,500, a savings of $1500.”
During the first couple months of 2010, Mr. Pritchard reviewed a 2008 return for another client who felt that she had not prepared it correctly. “I found errors and omissions in which the client failed to take deductions for charitable contributions to Goodwill and hurricane damages from Hurricane Ike in 2008. After filing an amended return for the 2008 tax year, I got her an additional $867 back. She then asked me to prepare her 2009 return.”
Even though the IRS allows you to amend tax filings going back three years, most people want and need their money immediately. Unless you’ve devoted your life and career to reading tax codes, the only way to ensure that you don’t overpay on taxes is to have a professional prepare your return for you. It’s equally important to consult with a CPA or EA before the end of the tax year to ensure that your withholdings are setup properly on any W-4’s and adjustments can be made before being surprised by how much is owed at the end of the year.
The cardinal rule of business is to focus on what you’re good at, while delegating or outsourcing the rest. The same principle should apply when preparing your taxes.