I recently had somebody come to me for help with their taxes. This person came to me because he knew he’d be making decisions in the next few years that could have significant tax implications.
In the previous few years, he’d had a very simple tax situation, so he’d chosen to use the Form 1040-EZ…a very simple tax form intended for people with very simple situations. Unfortunately, while this form is simple, it can prove quite costly.
While reviewing his prior returns, I noticed he’d missed a very simple credit that would have saved him a couple hundred dollars each year. (Fortunately I was able to amend his returns and get this money back for him.) Why did he miss this credit? Simple. The Form 1040-EZ doesn’t mention this credit, or many other credits and deductions.
The problem with 1040-EZ is it only mentions the very common items. Many other items are not terribly unusual — and most people will have at least one of them — but they aren’t mentioned on Form 1040-EZ or its instructions. As a result, people who have simple situations might completely miss an opportunity to save on their taxes.
Of course, most people want to keep their lives as simple as possible, so it’s easy to understand the appeal of filing with the simplest form possible. But think about the payoff. By spending an hour or two skimming the instructions of Form 1040, there’s a good chance you’ll find a deduction or credit that will save you hundreds, if not thousands, of dollars. That’s a pretty good return on an investment of a couple hours.
Don’t want to do all that reading? Or just afraid you won’t understand and wind up missing something anyway? Then shell out a little cash for a basic version of reputable tax software like TurboTax that will walk you through a whole slew of questions that should turn up any deduction or credit that you might have missed. Still sounds like too much trouble? Then spend a little more cash to have a professional at least review your return. If you do the legwork of preparing your return initially, many professionals will review it for a fairly nominal fee just to make sure you’re not missing any common credits or deductions like the one that was missed by the person who contacted me.
Everybody knows the tax code is riddled with loopholes and special exceptions. Don’t make the mistake of filing Form 1040-EZ and assuming there’s no benefits available to you. Spend a little time or a little money, and chances are your investment will pay off many times over with a significant tax savings.