Imagine it’s April and your tax preparer has just sent you a copy of your tax return to sign for e-filing. They probably include something for you to sign saying “I have carefully reviewed this return.” But what do you look for when you review? Many taxpayers find these forms very confusing and don’t know where to begin to confirm that the tax preparer has captured everything. Over the years I have become more comfortable with the forms and have learned a lot by checking them and asking questions. Here is a list of a few things to check before signing.
(This is not meant to be a comprehensive list, and your tax situation may include unique information that is not reflected here. This is meant to be a starting point.)
The Basics:
- Is your name spelled correctly?
- Is your address correct?
- Are your tax ID numbers correct?
Income:
- Does the amount of employment income in Box 1a look correct? Are all W-2s captured?
- If you have a taxable investment account (not an IRA or a Roth), or a bank account that paid interest, that income will be reflected on lines 2 and 3.
- If you took IRA distributions, those will be reflected in line 4. If you converted all or part of an IRA to Roth, that amount will be here as well.
- Make sure pension income appears on line 5 and social security income on line 6.
- Again, if you have a taxable investment account, or if you sold property, you may have capital gains and losses to report. Those should be on line 7.
- If you received taxable alimony, unemployment benefits, self-employment income or income from a business or a rental property or income from other sources that will be on Schedule 1 and listed on line 8 of the 1040. More details are below on some of these.
Deductions:
- Line 10 is important for anyone who has self-employment income or whose health insurance premiums, HSA contributions and IRA contributions are not reflected on a W-2. Part 2 of Schedule 1 is where you will see these listed, and then the total is brought to line 10 on the front of the return. Make sure that if you contributed to an HSA or a retirement plan outside of your employer that those amounts are included here as an adjustment to income.
- If you paid taxable alimony, that will be listed on Schedule 1 Part 2 and reflected in the total on line 10 as well.
- The standard deduction is high enough now that many taxpayers will use it instead of itemizing. In 2023, it is $27,700 for married couples, $20,800 for heads of household, and $13,850 for single filers and married filing separately. Taxpayers over age 65 get a larger standard deduction. If you see this amount on line 12, there is nothing to check (unless you think you had deductions that would total more than that amount, in which case, ask your preparer what deductions you can take).
- If you itemize deductions, check schedule A. This is where you will see taxes you paid (state income taxes and property taxes, currently capped at $10,000), charitable donations, and interest expense. Make sure everything is captured here.
Credits:
- Check for the Child Tax Credits on line 19. For 2023, the child tax credit is worth $2,000 per qualifying dependent child if your modified adjusted gross income is $400,000 or below (married filing jointly) or $200,000 or below (all other filers). The refundable portion, also known as the additional child tax credit, is worth up to $1,600. If your MAGI exceeds the above limits, your credit gets reduced by $50 for each $1,000 that your income exceeds the threshold.
- Clean or Electric vehicles: On Schedule 3 of Form 1040 (Additional Credits) there are three lines relating to Clean Vehicles, Electric Vehicles, and Previously Owned Clean Vehicles. There are income restrictions on who can claim these credits, but if you purchased a clean vehicle in 2023, take that information to your tax preparer.
- Residential Clean Energy: If you added solar panels, a solar water heater, a qualified geothermal heat pump, or even a small wind energy unit, those costs qualify for a credit using Form 5695 and reported on Schedule 3.
- Energy efficient home improvements: Certain energy star certified appliances such as water heaters, furnaces and air conditioners also qualify for credits. You can find which models qualify at https://www.energystar.gov/
about/federal_tax_credits.
If you own a business or have partnership income:
- Schedule C is where you will find the details of the income and expenses related to your business. If you have provided all your business financial information to your preparer, they will probably have captured everything here, but give it a quick look to make sure it looks correct. Expenses related to using your home and auto for business are deductible from your business income, so be sure and discuss these with your preparer to be sure you have provided all the necessary documentation to deduct them.
- Form 8995-A calculates the Qualified Business Income (QBI) deduction that you may qualify for if you have business income and your taxable income falls below $232,100 if you’re single, and $464,200 if you’re married filing jointly. If you have business income, you should see this worksheet in your return.
If you own rental property:
- Schedule E is where you will find the details relating to income and expenses for your rental properties. Mortgage interest, property taxes, repairs, capital improvements, any utilities paid by you, and your mileage to and from the properties are deductible from the income. Also, you can depreciate the property, meaning you expense a portion of the value each year. Take a few minutes to see how your tax preparer has reflected all of that on Schedule E.
Alternative minimum tax:
- Certain taxpayers are subject to the “Alternative Minimum Tax,” which limits the benefit of certain favorable tax treatments for high-income individuals. You may see Form 6521 included in your tax package if you are one of these taxpayers.
Again, this is not exhaustive, and many of the items on this list won’t apply to you. I hope it helps you quickly check the main components of your return and feel confident that it accurately reflects your income, deductions, and credits.
We are always here to help, contact us if you have any questions.
Your Together Planning Team
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations may vary. Therefore, this information should be relied upon when coordinated with individual professional advice.
