I sat with a family last night preparing to buy a home. I sifted through the documents needed for the loan approval process, paystubs, bank statements, 401k account statements, credit report. Finally I came to the clients’ tax returns.
Mom and Dad have their annual returns prepared by the same tax professional they have used for more than twenty years. I reviewed the documents and thought the returns were adequately prepared.
Then I reached for the Son’s tax returns. HoooBoy. There as I reached across their dining room table was that infamous “green and white” folder. I won’t mention the name of the national service (well-advertised on television and elsewhere), only will I state that when I see that infamous folder, a shiver runs down my spine (the kind you get when you read a really scary Stephen King story late at night).
What followed was some stern talking to by me to the Son. “First thing you’re going to do when you buy your home is meet with your Mom and Dad’s accountant. You will no longer visit the folks who gave you that green and white folder.”
I went on to advise him to bring his previous three years’ returns to Mom and Dad’s accountant when he goes there in a few weeks to have his 2008 returns prepared. The IRS allows us taxpayers to revise our returns up to three years back if we feel we missed some deductions and may be entitled to a larger refund than was originally issued.
Having seen many returns stapled into those green and white folders over the years, I knew there was a REALLY good chance my client could amend one or several of his previous three years’ returns and get some more money back from Uncle Sam.
I also told him, since they are soon to buy a home, that he needs to consult with the accountant in the area of getting a lower refund after he buys a home. Instead of waiting for a refund, he should lower the tax deductions from his weekly paycheck thus enabling him to bring home more money. Uncle Sam still gets his fair share (the IRS allows us to change our withholding as many times throughout the year as we feel is necessary as long as we are meeting our tax liability), and my clients—soon to be Homeowners—get more liquid cash every month to help make the experience of buying their first home a happier one.
More money in your pocket every month when you own a home seems to be a pretty good path to happiness to me, no?
The advice I gave these clients is important as you learn to watch out for your money. Use tax time to get in touch with your money; you can get more of it in your pocket by working with a competent tax professional and by knowing the fundamentals of IRS regulations.