4 Common and Costly Tax Prep Mistakes That Your Advisor Can Help You Avoid

The words “fun” and “taxes” probably don’t go together in your mind.

But, as I mention on today’s episode, they do at Keen Wealth!

Helping folks be good stewards of their money so that they can enjoy life to the fullest is one of the most rewarding parts of being a financial advisor. And as Tax Day approaches, I love seeing my team in action, working through our checklist-driven process to make sure folks aren’t overlooking any details or making any mistakes that might not be fixable.

Whether you’re working with professionals or preparing your taxes solo, make sure these four common filing errors are on your radar.

1. Not Reviewing Itemized Deductions

The 2017 Tax Cuts and Jobs Act aimed to simplify tax filings by raising the standard deduction each year based on the rate of inflation. For tax year 2024 (meaning the taxes you're preparing to file by April 15, 2025) the standard deduction for individuals is $14,600 and $29,200 for married couples. Those thresholds are high enough that nearly 90% of taxpayers now take the standard deduction.

However, it's still worth totaling up your itemized deductions to make sure you're not missing out on some savings. Eligible items include:

• Mortgage interest

• Charitable donations

• State and local taxes

• Medical expenses (including premiums)

So if, in the past year, you moved to a state with higher taxes, bought a new home, had some expensive health care issues, or made a large donation, make sure you bring documentation when you meet with your financial advisor and CPA. It’s possible itemizing might be more beneficial, if only for this year’s taxes.

2. Improperly Reporting Qualified Charitable Distributions (QCDs)

Once you reach age 70 1/2, you can give money directly from your IRA to a qualified charity. These QCDs are a tool that we use frequently at Keen Wealth to help seniors give back while also managing their tax liability, because they count against your required minimum distributions (RMD) but don't count as income.

If you do make a QCD, remember that you have to self-report that distribution to the IRS on your 1099-R. For example, if you withdrew $50,000 total from your IRA in 2024, but you directed $20,000 to charity, only the remaining $30,000 is considered taxable income. But if you don't report that $20,000 QCD, the IRS will tax you for the full $50,000.

Even folks who are working with a CPA or other tax preparer need to provide this information to your professionals or they will have no way of knowing about the contributions.

3. Overlooking the Advantages of a Donor-Advised Fund

If sustained charitable giving is one of your long-term financial goals, talk to your advisor about setting up a donor-advised fund. By planning out several years of donations and putting cash or other investments into the fund, you can maximize your itemized deductions for a given year. If you donate the value of an appreciated security that you've held for longer than one year you won't have to pay capital gains tax on the gain and will receive a deduction for the full amount. A professional advisor might also be able to use the advantages of a donor-advised fund in tandem with your other assets to create some major tax savings and investment opportunities.

4. Focusing Exclusively on This Year

When you file your tax return, you're reporting the financial history of your last year to the IRS. But as part of our comprehensive financial planning process, Keen Wealth always has an eye towards your lifetime tax liability as well. While we may focus a little more on taxes this time of year, our planning process is year-round, so we’re constantly evaluating how rule changes and market movements could affect your tax picture not only today but in the years to come. We want to make sure that all of your financial decisions are tied to a long-term strategy for minimizing taxes, maximizing assets, and securing the retirement you've worked so hard for.

It’s not too late to visit Keen Wealth and review your financial plan before Tax Day. Schedule an appointment and let’s close the book on 2024 so that you feel more confident about 2025 and beyond.

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About Bill

Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

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