The First Lady Of Finance®

From my February 14th, 2010  column in the Sacramento Bee …

Tax time is one of my favorite times! No, I’m neither crazy nor an accountant but tax time in that special time of year when people—even the most disorganized—seem to get organized at least as far as what I need. They can put their hands right on those W-2s and the income tax returns which is often a problem for people later in the year when those things have found their way into the back of some shelf or drawer or worse yet…the shredder!

Here are some other things that you might be discussing with your tax preparer other than how can you get a Tax Credit which is also a wonderful thing to discuss.

1. If you are not a homeowner, then ask about the potential benefits to you personally of homeownership. There are many benefits to homeownership but depending on your income they may vary and you need to know what works best for you.
2. If you are a homeowner with equity of over 30 percent and have considered buying a second home for vacation home or for a rental home, now is a perfect time for those who are qualified. For vacation homes, remember that foreclosures and the declining market have created wonderful opportunities to buy in places like Palm Springs, the coast and the mountains. For investment properties, you can look right here in our area for some wonder opportunities. Your tax person can best advise you on how either of these might benefit you tax wise. A Real Estate Agent can tell you about where some good values might be and a Loan Consultant can tell you whether you qualify for a loan for such a property. Don’t forget too that a rental property might be where you plan to retire at a later date.
3. Are you a self employed buyer who writes off as much income as possible? This is most self employed people do to help them with their taxes. If you hope to buy something this year, though, be aware that lenders typically use your “adjusted gross income”. That’s the figure found on the bottom front page of your 1040. Previously many borrowers used “stated income” for self employed borrowers but those days are long gone and stated income loans are not too likely to reappear for anytime in the foreseeable future. The stated income loan was largely designed to help self employed borrowers but there was just too much abuse of the program. Ask you tax preparer if showing a little more income this year—despite the added taxes—might work out for you.
4. If you purchased a property or refinanced one, then be sure and take your closing papers into the tax preparer because you might be able to write off some things. The closing statement is the final breakdown of costs that the Title Company gave you when you closed escrow. This is usually referred to as the Settlement statement or the HUD I. You receive many estimates of costs when you are buying or refinancing but this is the final breakdown of costs and it will have the Title Company’s name on it.
5. This real estate market has led to many very unfortunate situations for homeowners in both our area and the country as a whole. Some have been forced into foreclosure or short sales. Still others are deciding whether they should go the short sale route or not. Short sales are where the homeowner owes more than the value of the property. Sometimes these homes are listed and when a buyer is found, the offer is presented to the lender holding the current mortgage to see whether they will settle for less. Whether you have taken that path or are considering it, perhaps you should ask your tax preparer if there would be any tax consequences involved.
6. And certainly if you are hoping to buy a home this year, ask your tax preparer about the current Tax Credit, what is involved and how it will help you. A Tax Credit works as a dollar to dollar credit against money owed the IRS. If for instance, you owe $10,000 and you have an $8,000 Tax Credit, then you would only owe $2,000. It was renewed for this year and is spurring a lot of people to buy this year!

What is most important is to understand where to get tax advice. Ask a professional because they are the ones who know the details and the tax regulations. Ask other people other people and you are dealing with opinion—”opinion” that may prove to be costly to you in the end. This is tax time and this is the time to ask your tax expert!