A quick temperature check one month out from Tax Day: how are you all doing? Stressed? Tired? Bragging to your friends about how you finished your taxes ages ago? (Pro tip: stop doing that if you want friends around for Tax Day 2018!)
By now you might be deep into kicking yourself for being less-than-diligent about some things that are making your tax return more complicated than it needs to be. But don’t fret too much! After all, what you’re learning today is going to make next year a whole lot easier.
To get some expert advice, I chatted with John McCarthy, CPA, of McCarthy Tax Preparation in Cincinnati, OH. He works with clients all over the U.S. and is the biggest tax code nerd I know — which I mean in the nicest possible way (hi, John!). He walked me through a few common mistakes he sees clients make all the time.
Not Keeping Accurate Records
Tax time brings to mind those huge boxes of receipts your parents sorted through once a year while muttering curse words. But thanks to online receipts and scanning apps, it’s never been easier to hold onto receipts without having to dump a box full of papers onto your dining table.
If you itemize deductions, you’ll need records of deductible expenses — medical treatments, tuition, mortgage statements, charitable donations, and more. Save a copy to the cloud (someplace like Google Docs or Dropbox), which is more secure and easier to access than your computer’s hard drive.
Any time you get a receipt, scan it in or download it from your email and save it with an easy-to-understand file name. Taking a moment to save receipts as you get them over the course of the year will save you hours of combing through old emails at tax time.
John sees many clients struggle to itemize non-cash charitable donations, like clothing and furniture, because it can be hard to estimate the value of what you donated. He recommends taking pictures of every item you donate. You can deduct the resale value that the charitable organization can reasonably get for it second-hand, so having photo evidence makes it easier to estimate the item’s value.
Here’s a big benefit to staying organized: if you hire an accountant to do your taxes, they will like you more — and charge you less — if you keep accurate records of documents they need from you. “I don’t think you want to put your CPA in a position where they have to spend a lot of time putting together your expense records,” John said.
Ignoring Overseas Assets
Millennials are globetrotters, but when it comes to doing your taxes, you don’t want to make mistakes that can easily happen if you’ve worked abroad and opened bank accounts outside of the U.S.
“Any time taxpayers in the U.S. have any money that’s still sitting overseas, that’s something they have to disclose on their tax returns,” John said.
If you have $10,000 or more in your non-U.S. account at any time during the tax year, you must file a Report of Foreign Bank and Financial Accounts (FBAR) with the IRS. The penalty for failing to do this is a steep $10,000 per account.
U.S. citizens who work abroad must still file a tax return in the U.S. that reports their worldwide income. There are deductions and tax credits available, but you won’t be eligible for them if you don’t file.
Biting Off More Than You Can Chew
The older you get, the more complicated your taxes can become. What used to take you 15 minutes on TurboTax might be a confusing mess now that you’re a married 35-year-old homeowner with a kid and your own small business.
“I see people have fatigue when looking for all the credits and deductions available to them,” John said. “There are some good IRS publications out there. One is IRS Publication 17. That has a great overview of income taxes.”
Getting the Help You Need Is Never a Mistake
There might come a time when it’s 100% worth the expense to hire an accountant. The more complicated your tax situation is, the more you stand to benefit from the help of a knowledgeable tax professional.
Besides, IRS Publication 17 is nearly 300 pages long! I don’t know about you, but I don’t plan on reading all of that.