3 Tax Mistakes I Saw This Year [video]

transcript

Here are 3 tax mistakes that I saw this year.

#1 Missing expenses on the Schedule E, the form that tracks income and expenses related to a rental property.

I knew that this client was paying HOA fees for his rental because I saw it on the expense sheet. But when I looked at his Schedule E, he didn't have anything listed there for the HOA fees.

We had him go ahead and amend previous returns and he was able to get over $1,000 back.

#2 The wrong name listed on the Schedule C.

The Schedule C is for self-employed people to document their income and expenses related to their business. When you look at your 1040, so that first page of the tax return, the first name listed, that's the primary tax person.

So let's say it was the husband in this case, that is the name that automatically gets filled into the Schedule C's in many tax software. It wasn't the husband's business, it was the wife's business. But because the default was the husband, it wasn't checked, it wasn't updated. That was filed incorrectly.

#3 Not understanding the pro-rata rule for backdoor Roth conversions.

This is not necessarily a mistake, but people do come to me and say, "I made a mistake with my backdoor Roth conversion because, oops, I owe taxes. What did I do wrong?"

You did it correctly. You just don't understand why you owe the taxes. So let's go through that.

The rule is that if you have traditional IRA money, such as from an IRA rollover, when you do the conversion, you can't just convert that after-tax money. The conversion will be taxed proportionate to your pre-tax and after-tax percentages. This is how you may end up paying more tax than you thought you should have on that conversion.

What tax mistakes have you made that you've learned from?

My name is Linda Rogers, Owner Planning Within Reach.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.