Lessons From the Tax Desk: Smart Moves and Costly Mistakes
As a volunteer tax preparer with AARP TaxAide, I’ve had the privilege of helping people navigate the complexities of tax season. They are very grateful for the help, and it's rewarding to help them. Every year, I see firsthand how some simple habits can make tax time much smoother - and how a few missteps can lead to costly surprises.
On the positive side, many taxpayers come prepared. They bring their prior year’s return, have all their necessary forms in order, and are ready to answer our questions. Some even carefully track potential itemized deductions like property taxes, medical expenses, and charitable donations. While the vast majority of taxpayers take the standard deduction these days, keeping an eye on itemized deductions is still a smart move. Tax laws change, and in some years, itemizing could mean real savings.
Another great habit I see - especially among senior citizens - is ensuring they’ve filed the necessary paperwork to receive property tax reductions where applicable.
Unfortunately, I’ve also seen some expensive mistakes. One taxpayer thought she was simply moving a CD from one bank to another but had unknowingly cashed out an IRA, triggering thousands in unexpected taxes. Another received short-term and long-term disability payments through a workplace benefit plan but didn’t realize they were taxable - since her employer had paid all the premiums. Worse, she had missed a letter from the insurance company asking if she wanted federal income tax withheld from her payments. Since no taxes were withheld all year, she faced a large, unplanned tax bill.
Another common issue? Cash sitting in low-yield bank accounts from Chase, Wells Fargo, or Bank of America earning in the neighborhood of 0.10% interest. In today’s environment, there are far better options for idle cash, yet many people don’t realize they have options.
I don’t share these stories to shame anyone - far from it. Rather, I hope they serve as reminders that small financial missteps can have big consequences, and a little awareness can go a long way to helping other people.
- Steven
