October 5, 2016

Speaking Of Tax Returns…Never Sign A Tax Return You Haven’t Read

Many women don't want to admit that they never read their tax return before signing it. Here's why you should!
Dawn Doebler, CPA, CFP®, CDFA®

The political debate this elections season has been hard for many to stomach, but the recent focus on tax returns is an opportune time to talk about a situation that many women don’t want to admit – they never read their tax return before signing it.

While I haven’t taken a scientific poll, I have encountered many women who sign their tax return year-after-year without ever taking the time to examine the information. If this is you—you are not alone.

Many of us have been trained to think it’s our CPA’s job to understand what's shown on our return.  Or, we may sign it without asking any questions trusting that our spouse has taken care of preparing the return and that it is correct.

As specialists in taxes and divorce financial planning, we've seen numerous cases where women are completely unaware of their financial situation. They have years of jointly-filed tax returns, yet lack any real knowledge of the total amount of income their spouse earns or the overall net worth of their family.

If you’ve blindly signed your tax returns in years past, we encourage you to dig out this year’s return and review it. If you filed an extension, then now is your opportunity to look at your return before signing it.

In many cases, your federal tax return is the single best document to understand your total financial picture. 

Use your return and the supporting documents to answer the following financial questions:

  • ‍What is our total income?
  • Are we maximizing contributions to retirement plans or IRAs?
  • What accounts provide interest and dividend income?
  • Are there brokerage accounts with securities and how are the accounts titled?
  • Are we avoiding IRS penalties by withholding the proper amount for taxes?
  • How much is our mortgage loan and is it a fixed or variable rate loan?
  • What is the amount of income or loss generated by businesses we own?
  • What are the fees we pay to our accountant and financial advisor?

The answers should give you the facts necessary to understand the basics of your family's overall level of income and assets. Use this as a baseline to monitor changes from year to year, and consider it your ‘canary in the coal mine’ for early warning signals of trends that could impact your future financial health.

Your tax return is an vital tool when going through a divorce

Your tax return is also a great investigative tool to use in the event of divorce. It’s a critical source of information if you suspect there may be accounts hidden from your view, or if your spouse is not forthcoming if you are going through a divorce.  For example, bank accounts held in your spouse's sole name can be found by examining Schedule C while brokerage accounts holding securities might be discovered by examining Schedule D.  

Bottom line, the return is a legal document, and all information on it is tied to your social security number. If you sign a return without reviewing the details, you're taking responsibility for what's reported, and you can be held legally responsible for anything on the return.  

I encourage you to start now by reviewing your tax return if it’s already been filed or looking at it before you sign it this year. It’s the best step you can take to knowing the financial details of your family and getting engaged in securing your financial future.  

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Dawn Doebler, CPA, CFP®, CDFA®

Dawn’s experience spans more that 25 years providing wealth management, financial planning and corporate finance solutions for clients. As an MBA, CPA, Certified Financial Planner (CFP®), and a Certified Divorce Financial Analyst (CDFA®), she is uniquely qualified to understand the challenges and financial needs of clients from executives to entrepreneurs, as well as single breadwinner parents.