It’s the time of year that few people look forward to, unless you are a certified public accountant. That’s right! Its tax season. For most people taxes are stressful and confusing especially if you file your taxes without the help of a professional.
If you purchased a new home last year tax season can be a bit more overwhelming than before with all the new forms to fill out. More forms can lead to more confusion and a greater chance to make a mistake. There is good news if you purchased a home recently as you are eligible for more tax breaks than someone who rents a home.
Here are five common mistakes made by new home owners when filing a tax return. Avoid these mistakes and tax season will be a lot less stressful, but before we get started please note we are not tax professionals and this is unofficial advice, all official tax advice should be discussed with a certified public accountant.
Not Tracking Home Expenses
If you purchased a home in need of repair, hopefully you have kept a detailed log of the improvements you have made to your home and how much everything has cost. If you haven’t kept a log now is the time to start. Some home improvements, for example installing energy efficient fixtures, might just get you a tax deduction. If some of the improvements made don’t earn you a deduction now, they might be beneficial upon selling the home.
With the home sale tax exemption, home improvements increase basis in your home and lower the taxable amount on the sale price. The home sale exemption will save you money only if you have the receipts and records to prove you made the improvements to your home.
Using Home Office Deduction Wrong
The home office deduction is complicated and can grab the attention of the IRS leading to an audit.
The best way to avoid mistakes with this deduction is by hiring a tax professional or use the new simplified home office deduction. The new simplified deduction allows you to skip complicated details like calculating space which is needed with the original home office deduction.
Filing For the Wrong Year
It is easy to get dates mixed up when filing taxes. When you file in 2015 you are actually filing for finances that occurred in the year 2014. Be careful not to get dates mixed up. Anything that happened in January to present date in 2015 will be filed on next year’s claim. If you choose the wrong year you may end up with incorrect amounts leading to an audit.
Not all of the funds in escrow are used to pay taxes, so if you have been putting money into escrow be careful not to just deduct the whole escrow balance. Always contact your escrow account manager to find the exact amount of escrow that has been paid in taxes and list only that amount.
Neglecting to Itemize
If you rented a home and worked only one job you may be used to filing the simplest tax form available which is the 1040EZ. If you use this form now that you are a homeowner you could miss out on a lot of deductions. The longer tax form will enable you to take advantage of the deductions and benefits of owning a home.
As always the best way to know you are getting all of the deductions and benefits possible to get a larger tax return is to consult a tax professional. If you need some help finding a tax professional in the area Mary Pong and Associates is willing to help. Mary and her team are knowledgeable in many aspects of homeownership in Seattle and the Eastside.
Want to buy or sell a home on the Eastside? Mary Pong and Associates are ready to help you find the perfect home in Bellevue, Kirkland, Redmond, and Seattle or sell your Eastside home at the best price.