8 Tax Moves You Should Never Hide From Your Advisor

Photo: Flickr via doc_for_matt

Not to be pessimistic or anything, but it’s probably safe to assume not every taxpayer out there has been 100 per cent truthful to their tax advisor this year.In a recent IRS report, twice as many Americans (8%) said a little fibbing on tax returns is fine compared to the same survey issued in 2010.

Other than begging the IRS over for a visit, you could be cheating yourself out of an even bigger tax return by leaving out some financial details. 

“Clearly, being transparent with your accountant or tax advisor about financial actions you’ve taken and communicating more instead of less can – in the long run – reduce the overall taxes paid,” says Tim Steffen, CPA and director of financial planning at Baird. 

Here are 8 confessions Steffen recommends making if you haven’t already:

I made a nondeductible contribution to a Traditional IRA. Nondeductible contributions don’t affect your tax liability in the year they are made, but “by not reporting these contributions on your return, it’s more difficult to claim these same amounts are not taxable when they’re later withdrawn from the IRA, usually many years later.” 

I took after-tax money from my IRA. If true, you’ll want to be sure your advisor reports that portion of your IRA withdrawals as tax-free.

I converted my IRA to a Roth in 2010. Americans are ditching the traditional IRA model in droves and turning to other savings vehicles instead, such as a Roth IRA. If you switched to a Roth in 2010, don’t forget that half that conversion is taxable in 2011and the other half in 2012. “This is especially important if you’re using a different accountant or tax advisor this year,” Steffen says.

I exercised Incentive Stock Options. Per Steffen: These types of stock options are often thought of as “tax free” because there is no tax withholding at the time of exercise (unlike with other types of stock awards). However, they can create problems under the Alternative Minimum Tax. The difference between the exercise price and market value needs to be reported for AMT purposes.

I exercised employer stock options (or received restricted stock) and then sold the shares right away. Even if the sale didn’t net any profit for yourself, the IRS will still want to see it reported on your tax return this year, Steffen says. Your broker should issue a 1099-B form with that information included.

I sold stock that came from an old incentive stock option exercise. AMT is incredibly complicated and if you don’t report this to your advisor, it could lead to overstating your taxes.

I received interest income from municipal bonds. More often than not, that interest is off-limits to the IRS, but that doesn’t mean the same for your state. 

I have AMT credit carryovers. Per Steffen: “Normally tax credits from having paid AMT in a previous year are difficult to recover, especially if you’re consistently subject to AMT year after year. However, for 2011 and 2012, taxpayers can recover AMT credits that are more than three years old, even if they’re still paying AMT that year. After 2012 this opportunity goes away.”

Now see 9 easy ways to spot a tax preparer scam >

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