Originally appeared on Forbes.com
Most of the time, I’m the one who teaches people about the ins and outs of tax filing. After all, I started out as a tax attorney — and, don’t laugh, I love tax season. The whole process of organizing numbers, following rules and finding solutions really excites me. But nearly every season, I also find out things from my clients, as they encounter new, interesting scenarios that keep me on toes and keep me learning.
This current tax season is no different. Clients have again come to me with questions and misperceptions that have opened up new opportunities for tax planning. As we close in on the last couple weeks of the first filing deadline, I wanted to highlight eight tax insights that came from working with my clients.
1. Checking the Presidential Campaign Fund box doesn’t cost you anything.
Almost no one checks this box — in fact, only about 4% of all filers opt in according to some estimates. But this year a client wanted to. I emailed her back just to make sure, and her response was, “I think so, right? It’s a good thing if I recall.”
Well, yes, it is. Since its implementation in 1976, the Presidential Election Fund has created a common pool of money that matches fund raising of eligible presidential candidates in primary and general elections.
Most people don’t check the box, because they think $3 will be deducted from their refund (or added to their bill), but that’s not actually true. The $3 comes from government tax revenue. You’re just designating that $3 has to go into that fund. The lack of participation in the program and fewer candidates accepting public funding seems to have really limited the benefit of this program. But it’s still a way to make your voice heard when it comes to campaign funding.
2. You’ll need your kids’ social security numbers.
Kids are a lot of work and often take the brain space from many other things. But around this time of year, you get to see some financial benefit for all of the money you’re spending on your little monsters. Among other things, children can provide an additional exemption, deductions for child care expenses and credits for adoption and simply having the child.
The problem is that you can’t take advantage of these tax breaks without your child ‘s social security number (SSN). Often you can apply for an SSN on the birth registration form at the hospital. But if you miss that window you apply for one directly at your local social security office. Keep in mind, your application can take a few weeks to process, so don’t leave it to the last minute.
3. Your housekeeper might be an employee — which has some tax implications.
If you pay someone else to clean or take care of your kids at your home, you may have an employee and not even know it . It’s important to find out because if you have an employee, you’ll need to withhold employment taxes and file a schedule H. Anyone you’ve hired to do household work, you’ve paid over $2,000 (for 2017) and you can control what work is done and how it’s done could be a household employee. This determination can get a bit complicated based on your particular facts and circumstances. But generally someone is not an employee when:
- The worker can control how the work is done, provides his or her own tools and offers services to the general public in an independent business, or
- An agency provides the work and controls what work is done and how its done.
See Publication 926 for more details. And as always when in doubt, run your particular circumstance by your tax preparer.
4. You need to calculate your married tax return both ways every year
By far the most common tax question I get from couples is whether they should file Married Filing Jointly (MFJ) or Married Filing Separately (MFS). And while I can go on about the marriage bonus and marriage penalty or explain circumstances where it makes sense to file separately, the best strategy is to calculate both and see which is more favorable.
Most tax preparation programs and preparers can optimize your return by comparing the results of filing both MFJ and MFS . You’ll want to do this every year, too, since your situation can change. A word of caution though: your filing status also has implications for your overall financial picture including your ability to contribute to an IRA and how much you pay on income-based student loan repayments. So make sure to consider your overall situation when you’re trying to decide your filing status.
5. You can change your filing status after you file
One other tricky thing with MFS and MFJ that you may have overlooked is your ability to amend your return. One of my couples realized they would much rather keep their ability to contribute to their Roth IRA rather than save $100 in tax liability by filing separately.
The rules for changing filing status are tricky and don’t make much sense. For instance, you can change your status from MFS to MFJ any time in the three years after your filing deadline. Want to go the other way? You’ll have to act before the filing deadline. This makes it even more important to make sure you understand the implications of filing your return both ways both for your taxes and your overall situation.
6. If you’re on a board, you may be able to deduct additional charitable donations
For those of you who itemize your deductions, you’ve likely taken advantage of being able to deduct your charitable contributions — both cash and non-cash contributions like clothing, gently used household items or even a car. But did you know you can also take a deduction for out-of-pocket expenses paid as a board member of a qualifying charity? Publication 526 outlines deductions related to out-of-pocket expenses in giving services. These deductions include car expenses, the cost of attending conventions and other travel expenses (including the cost of lodging and meals). They have to be unreimbursed expenses, directly connected with the service, only incurred because of the service you gave and not personal expenses. Additionally, you can’t deduct the cost of your time (in other words, your hourly work rate). But keeping track of these expenses can help you make the most of the service work you do.
7. Know the difference between a bonus and reimbursement for moving costs
A couple I work with moved cross-country for a job this year and got a bonus to cover some of their expenses. They thought that meant they couldn’t deduct moving expenses, but it turns out they were wrong. There’s a key distinction between a bonus (which will likely show up in Box 1 of your W-2) and reimbursements, which will show up in box 12. If you’re like my clients and got a bonus that will be included in income, you can still claim all allowable moving expenses. However, if the reimbursement shows up in box 12, you can only deduct those moving expenses that are above the amount that was reimbursed. It’s best to keep track of all of your expenses and ask your preparer what is and what’s not deductible. If you’re preparing your return yourself, you can try using this handy tool from the IRS to help you determine what’s deductible. Publication 521 provides more details.
8. Review your return
Last but not least make sure to take the time to review your return. I review the last couple years of new clients’ returns, and I’m surprised how often I find mistakes or common things that were overlooked. And while all preparers are human and can make mistakes, severe mistakes or fraudulent misstatements can cost you thousands of dollars in penalties. No matter who prepares your return, you’re ultimately responsible for its contents. So make sure to take the time to look over your return and ask your prepare about anything you don’t understand. Don’t let any inflated deductions go and make sure that if you’re paying someone to prepare your return that they have to sign it as well.
Best of luck with these final two weeks of tax season. I would love to hear about and share any surprises or lessons you learned this season. Contact me at the links below.