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Tax time tips

It’s that time of the year again. And no, I’m not talking about spring, but about filing your taxes.

 While some people may be getting a tax refund, others may end up owing Uncle Sam.

Chris Bernal — whose Bakersfield income tax and consulting firm focuses mainly on clients with businesses and investments — said it’s common for people to show up to the first appointment, only to find out they’re missing documents or information and need to get those items before moving forward.

But then, clients sometimes get busy with other things and before they know it, the deadline is right around the corner, Bernal said.

Typically, the last week prior to the filing deadline is usually the busiest one, he said.

In an interview with MÁS, Bernal discusses some of the most important questions people should know when filing their taxes. However, the following responses are not intended to be all inclusive, but rather, general in nature. Bernal, a professional accountant, recommends you consult with your tax adviser for individual questions regarding your specific tax filing needs:

Q: What do you think is behind the psychology of tax procrastination?

A: Most people put off doing things that are unpleasant. Let’s face it, most people dread having anything to do with taxes, for fear of having to pay additional taxes on April 15 (this year, the filing deadline is April 17, due to April 15 falling on a Sunday and April 16 being a holiday for some states).

Q: What are some of the most common mistakes people make when filing their taxes?

A: We have all seen publications outlining common mistakes people make when filing their taxes. Examples I’ve seen, when reviewing prior year tax returns of new clients are:

• Not taking all allowable deductions on their business or rental schedules, either because the taxpayer did not give the information to the tax preparer or the tax preparer did not ask the right questions.

• Not reporting stock sales because the taxpayer believed they had a loss on the sale.

• Filing head of household and claiming the spouse as a dependent because she did not work.

• Not claiming children who are over 18 as dependents, even though they still are going to school or did not work.

• Treating earnings from S-corporations as partnership earnings.

Q: What are the benefits of owning a house? Are there any limits on real estate tax deductions?

A: I’ll answer this question from an income tax perspective. Generally, taxpayers who do not itemize their deductions are entitled to what is referred to as a standard deduction. For 2006, those deductions are as follows:

Married individuals, filing a joint return — $10,300

Married individuals, filing separate — $5,150

Head of household — $7,550

Single — $5,150

As eluded to above, taxpayers may also itemize their deductions. In other words, if taxpayers have allowable deductions that exceed their respective standard deductions, (referred to above), they are entitled to use the greater deduction on their tax returns, thereby potentially reducing their tax liability.

One of the most common allowable deductions is the home mortgage deduction. So, if your home mortgage deduction — along with your other allowable deductions, such as charitable contributions, real estate and personal property taxes — exceeds the standard deduction, there can be a tax benefit in owning a house.

In addition, generally, if you live in your home for two of the past five years, you may be able to exclude the profit on the sale of the home of up to $500,000 for married taxpayers ($250,000 for single individuals or married individuals filing separate returns).

Limitations on deducting real estate deductions on tax returns can be a little complex.

I’ll give a general answer to this: First of all, we are limited in the amount of acquisition indebtedness (that is the amount of money borrowed to buy our principal residence) to $1 million. In addition to that, we are also limited in the amount equity indebtedness (in general, borrowing on the equity built up in our home) to $100,000.

Q: What are the three most important new tax laws taxpayers should be aware of?

A: In terms of my clients: The provisions the Internal Revenue Service has imposed on charitable deductions. In a nutshell, if you don’t have a cancelled check and receipt, you don’t get a deduction. More stringent tests for claiming a dependent. Although not technically a new tax law, the increase in the amount a business can deduct, in the current year, for assets purchased.

Q: What happens if it turns out that you owe Uncle Sam? Any payment plans?

A: In general, if you owe taxes when you file your tax return and are unable to pay the tax, you may be eligible to request payment arrangements. This can be done by completing IRS Form 9465.  However, penalties and interest continue to accrue on the amount due until payment is made in full.

Who should file a tax return?

Chris Bernal: This is not as easy a question as one might think. There are different filing requirements for federal and state.

In general, the requirements for filing a tax return depend on the type of income, filing status and age of taxpayers. 

For ease of answering this question, I will focus my answers on federal.

For federal income tax purposes, taxpayers must file a tax return if their gross income equals or exceeds the following:

Single individual — $ 8,450

 Single individual 65 or older — $9,700

 Married individual filing a separate return — $3,300

 Married couple filing a joint return — $16,900

 Married couple filing a joint return (one spouse 65 or older) — $17,900

 Married couple filing a joint return (both spouses 65 or older) — $18,900

 Head of household — $10,850

 Head of household 65 or older — $12,100

 Qualifying widow(er) — $13,600

 Qualifying widow(er) 65 or older — $14,600

(The above table was derived from the IRS Publication 17 that can be downloaded at the IRS Web site: www.irs.gov)

In addition to the above filing requirements, there may be other requirements for having to file, including:

 Single individuals who do not or are not able to claim their personal exemption, the filing requirement differs, depending on the type of income they receive.

Taxpayers who have sold investments during the year.  Even though the transaction(s) may have generated a loss, the Internal Revenue Service will only receive information on the gross amount of the sale, not the actual profit or loss generated.  In this instance, a tax return should be filed, so that the Internal Revenue Services does not attempt to assess tax on the amount of sale rather than the actual profit or loss.

 Taxpayers who own a business should also file a tax return, regardless if the business showed a profit or a loss. This should be done because if the business showed a profit, even if it is under the filing threshold amount, the income is (generally) subject to self-employment tax on profits in excess of $400.
If your income threshold is below that amount, and you have federal income taxes withheld, you may be entitled to receive those taxes back.

Man on the street
It’s tax season — so are you getting a refund and what will you do with it?

“I’m getting $250 back from federal and zero from the state. I need to pay my bill, which is going to take all of it.”
Erik Guzman

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“As always, we have to pay, so that’s why we always do it at the last minute. I’m planning to file April 6.”
Hector Mariona


“We are going to get money back, but we are going to pay some money that we owe.”
Lazaro Arteaga


“I’m planning to spend it on buying clothes, a trip and food — just that because it’s not much.”
Jerry Burgos


“I already filed them, and I paid off my debt.”
Gloria Arvayo