What do Warren Buffett and a lot of taxpaying straphangers have in common?
They both think they pay too little in taxes.
Or at least that seems to be the attitude of many taxpayers, according to several area tax professionals.
Many people, they say, overlook deductions or are afraid to take all their legitimate ones, exaggerating the potential for problems with the IRS.
“First of all, people need to relax and calmly review the deductions that are available,” says Lewis J. Altfest, a certified public accountant and adviser in Manhattan.
A good place to begin, Altfest says, is to review previous returns. “Often a client will take a deduction one year and then forget to take it in succeeding years,” he adds.
Some clients, tax pros say, just don’t understand the extent of deductions.
For example, if you contribute to a charity, that is obviously a deduction, but if you also help it raise money by traveling for it, the trips’ cost can be deductible as well.
Or how about when you send your children to a summer day camp? Deductible: Such a camp is viewed by the government as about the same as paying for day care.
“As long as it’s a day camp, not an overnight camp, and it is similar to an after-school program, and your child is under 13 years of age, it is something you can take,” Julius Green of the Philadelphia accounting firm ParenteBeard explains.
What else? Green says that some who qualify for a deductible IRA contribution either don’t make the contribution or fail to deduct it.
Timing of deductions can also be a cash-saver, Altfest says: “Say you use a tax preparation service in April, and you need more advice later. Try to pay for the advice [you get] the second time in December, and [both deductions] can stay in one tax year,” he adds.
Other deductions often missed, Green adds, are energy systems, home improvements, property taxes on a second home and education.
That last one is especially worth a look, according to another tax pro.
“People with kids in college and who have annual income below $100,000 should take the deduction,” says Bernard Kiely, a CPA with his own firm in Morristown, NJ. “Some people just aren’t thinking of it, because they think their income will preclude the deduction.”
Kiely adds that the many people who know little about tax changes and who don’t file their returns electronically should think seriously about using a tax preparer. He says that your best bet is usually an enrolled agent or a CPA.
“But no matter who prepares your tax return,” Kiely adds, “you the taxpayer are responsible. You should read over it and ask questions.”
But most preparers agree that people often fork over to the government cash that they have every right to keep.
According to ParenteBeard, these are some of the most often missed deductions:
• Job-related moving expenses
• Charitable activities
• Home offices
• Property taxes for second homes
• Credit for child and dependent-care expenses
• Fees for accounting service