Tax season is just around the corner folks, and here are some great ideas to consider when filing your tax return. Even if you are using TurboTax or your own CPA, make sure you cover all your bases.
1. Consider the Tax Implications of Refinancing and/or Reducing Your Property Taxes
A lot of people have refinanced over the past few years to save some money on their monthly mortgage payments. I mean, who wouldn't have refinanced their 8% loan to a loan at 4.5%? Also, people are looking to save a little money on their property taxes by getting their home re-assessed because they were likely to have lost some home value over the past three years. Remember, come tax season, the mortgage interest and property taxes you're trying to reduce, are also the greatest tax benefits you have as a homeowner. Don't get me wrong, refinancing and re-assessing your home is one of the best things you can do to save on your monthly payments; however, make sure that those savings don't wipe out some of your best deductions. Consult with your CPA when considering your options.
2. A Large Portion of Closing Costs are Tax Deductible
If you took advantage of the low interest rates and abundant inventory in 2010 by buying a home, a good portion of your closing costs are deductible. Discount points or any origination fees that were paid to your lender at closing are deductible. This hold true even if the seller paid your closing costs! To find your deductible costs, simply pull out your HUD-1 settlement statement, and if you can't find it, your Realtor should still have a copy.
3. You Need to Itemize Your Return to Claim Your Deductions
Believe it or not, about 40% of homeowners fail to itemize their return, and therefore get no credit for their most major tax advantage. If you have a relatively simple return and think that taking the standard deduction will make your tax season a piece of cake, think again! You could be missing out on thousands of dollars of deductions from owning a home. If you have a simple return (i.e. simple income, few investments, homeowner) TurboTax (and CPA's for that matter) will do all the math for you to determine which option is best for you, and it won't cost any more either way. So, take the time to save yourself a little extra money, and weigh your options.
Lastly, I'm not a seasoned tax professional, and if you don't claim to be super tax-savvy, then save yourself the time, effort, and late night calculator crunch sessions, and get professional help. The costs associated with hiring a CPA or going to a professional Tax Preparer will pay for itself when they find a big deduction that you missed. Happy tax season!
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