Recipe For Saving – April 2017

The most important item of financial housekeeping falls in April – Tax time!

I came to the USA in 1997 and in my previous 20 years of working in the UK, I had never filled out a tax return as all taxes were collected through my employers. Therefore when April 1998 came around and I looked at the daunting form, I immediately went to H&R block and had them complete my tax form! Since then, I have been using a tax preparation company every year. When I look back, the first year was simple, just income from my company, therefore I could have filed a 1040EZ form. Now I have rental income, K1 income, dividends, stock, mortgage, etc.. to consider and it makes the amount of work required to complete the tax document a significant task. It cost $750 this year for the tax service, and as I account for this with my annual budget I am ok with the cost even though I can be a frugal person most of the time. This allows me to only have to put all the relevant documents in a file when they arrive in the mail, or print them from the relevant web site; my broker sends all the dividend and K1 forms the tax expert. I sit with him for 45 minutes while he inputs the numbers I bring to him, and then the job is done. I write a check for his service, and receive the information I need to either receive or send a check to/from the state and fed IRS. Very simple, and no stress.

Here is what I do over the year to make tax season work for me:

  1. Keep all paperwork such as DMV, mortgage, bank interest, W2 etc…..
  2. Document all rental income and expenses
  3. Transfer money from regular IRA to ROTH IRA such that taxes are minimized (work with CPA for this)
  4. Minimize capital gains (work with CPA for this)

Here is my additional story for 2016 tax season. This year my son (21) worked as an intern over the year and had generated significant income, therefore he needed to file his own taxes. During spring break I decided to help him complete his own form by filling out the 1040EZ document. He is a student with income and tax as shown on his W2 – it should be simple correct? We spent hours trying to understand what numbers to use, see if he could claim for his rent. Once we completed this for the fed tax, we had to do the same for state tax and this was even harder! I was shocked by how complicated the system is for a simple tax case. I am so glad that I am able to have an expert prepare my tax every year.

My taxes are prepared by Andy Malkin at Coast Cities Tax, (858) 560-1040.


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