Turns out my poor tax planning hurt me more than I had expected. On Friday we went to pick up our returns in the best of moods because we assumed we would be getting a couple of thousand returned to us. We were already starting to plan the vacation we would take with the money we got back. Well….turns out we owe a couple of thousand. Both of us were dumbfounded when the tax preparer told us.
How could this be?
- Getting married hurt us- In 2009 I was able to file head of household and deduct more.
- Not owning a home- In 2010 we rented our home so we did not have home mortgage interest that we could deduct which both of us had in previous years.
- 401k rollover- I rolled over a 401k from a previous job into my Roth IRA. It was only about $6000, but that’s $6000 that I now needed to pay taxes on.
- Charitable contributions- We did a poor job keeping track of our charitable contributions. We both volunteer a lot outside of our nonprofit jobs and we could have deducted mileage and other expenses that we incur when volunteering. We also donated several loads of items to Goodwill, but never collected the receipts. You’d be surprised by how much you can deduct when you itemize these donations.
- Rental expenses- Though we do a good job of keeping track of the direct costs we put into repairs on the homes we rent out, we did not track the mileage for driving to and from the homes and smaller costs like paint brushes or cleaning supplies.
Though I know we were new clients and we came to the firm towards the end of the season I also felt that our return was rushed. If it had been brought to our attention that we were going to owe we could have worked to gather more of the documentations some of the charitable contributions or rental expenses. Also, we hosted an exchange student and were surprised when I asked what our deduction for that was and she said nothing. I came home and researched it and found that in there in fact was a deduction of at least $50 a month we could have taken.
So do I gather more information and pay them to restate it?
Last Friday I had my annual tax preparation appointment which meant we had to have all of our tax information gathered before the 2pm Friday appointment. I have never had such a hard time gathering my taxes before!
I imagine that based on my work in the financial education sector you would expect me to be fully prepared for my taxes. You might even think I’d do my own. Well, this year that was far from the truth. I stopped doing my own taxes several years ago when I decided the hours I spent and the unease of knowing if I was actually doing them correctly was not worth it and sought out a tax professional. I did what most of us do, asked around and got a referral. I blindly took the referral and brought him all of my financial information. I didn’t interview him or even question if he was right for me because I really didn’t know how to figure that out.
I wasn’t highly impressed by my CPA’s abilities since there were a couple of occasions where he made mistakes on my rental homes, but he always fixed the mistakes and it never financial affected me so I kept using him. I used him until the year of my divorce. You know how you get the packet from you tax preparer for you to fill out before they complete you taxes? Well, due to the stress of going through a divorce I decided for the first time in my life to file for an extension. A few months later when things calmed down I finally got around to opening the tax packet only to find a very sad letter informing me that my CPA had passed away. Boy did I feel stupid for not opening the packet sooner. I continued to use someone else at the firm until this year after I got remarried.
My husband utilized a firm down in California to do his taxes and I didn’t really have a connection or was really impressed by the firm doing my taxes so we decided to find a new CPA. Once again we asked around for a referral and took the recommendation of our financial advisor. And once again I had no idea what to ask or what would indicate if this person was right for us. I just handed over the financials, expect that I’ll get my returns and bill in a couple of weeks and then do the same thing again year after year.
It wasn’t until yesterday when I was talking with a supporter of Financial Beginnings, Nelson Rutherford from Alten, Sakai & Co, that I realized I really have been going about this all wrong. He is joining us as our tax and financial planning expert at our panel discussion, Unraveling the Mysteries of Your Money, this week and we were discussing some talking points. He told me how so many consumers wait until the last minute, throw everything together and take it to any CPA that will take them, but they forget one key aspect. PLANNING!
Now I did not admit to Nelson that I was one of those people and quite honestly always have been. You might be wondering why I didn’t go to Nelson since I know him and think highly enough to consider him an “expert” for my panel. I felt like it was mixing business and personal too much. Though I don’t imagine him seeing my nonprofit salary would scare him away from continuing to be a donor. I did however refer my grandmother to Nelson. She too had gone to the same tax preparer for 30 years and every year complained how she made mistakes, but never did anything about it until the tax preparer retired this year.
So I’m taking a new approach for the future! I’m going to try out this whole planning thing that Nelson was talking about. More to come on how I’ll go about it.