|Now’s the time to review your tax return
Tax season is over, and most people have filed their taxes. But how many people actually review their return?
I have clients that do not. I know they don’t, because I had one client notice his child born three years earlier was not listed as a dependent. He never told me he had a new son.
Pull out the tax return and look it over. Errors can be fixed by filing an amended return up to three years after the return is filed. It is also a good idea to review just how much you are making and how much the government is taking out of your pocket.
On the 1040, lines 7 through 21 show the income you earned during the year. Most of these lines have schedules or other forms that show the details. Compare each line to the previous year’s return. This gives you a good idea of how the last year compared with the previous year. If there is a large discrepancy between the years, do you know why there is a difference?
Lines 23 through 36 are called above-the-line adjustments. These are deductions taken before adjusted gross income (AGI) is calculated. AGI is used by some calculations to determine how much is deductible, such as medical expenses. It is also used to determine your audit risk. The higher the AGI, the higher the audit risk.
Line 40 is the itemized or standard deduction, whichever is higher. Schedule A is a detail of the itemized deductions. Again, I suggest you compare the previous year’s return with the current return to see if anything has changed drastically.
Line 43 is your taxable income. This is what Uncle Sam taxes for most people. It determines your tax bracket. You can Google “tax brackets” to find out what the current tax brackets are to figure out which bracket you are in.
Line 45 is the hated Alternative Minimum Tax. More and more middle class taxpayers are being hit with this tax, because it is not indexed to inflation. Congress has attempted to patch this every year for the past 15 years, but it is still not just for the rich.
Lines 47 through 54 are tax credits, which are very beneficial. Tax credits are better than deduction, because a credit will reduce your taxes dollar for dollar.
Line 61 is the most important line on the return. It is the total tax paid. Most people look at lines 73 or 76, which tells them whether they owe money or are getting a refund. Is it better to pay $5,000 in taxes and get $1,000 back or pay $3,000 in taxes even if you have to write a check on April 15? Many people do not even look at line 61. If more people realized how much they are actually paying to the government, they may think differently when they go to the voting booth.
Tim Mayclin is a CPA with over 30 years of experience. He can be reached at email@example.com or 707-584-1040.