Top Tips for Women at Tax Time

Women have made great advances at home and in the workplace over the last few decades, yet their struggle to achieve economic parity with men continues–even at tax time.

Thursday is International Women’s Day, and as Nada Zohdy notes in a comment for online news site PolicyMic, the poverty gap between American men and women is the highest of any Western country.

“For a woman, considerations of her compensation expand to touch on many aspects of her family life, which is all the more reason to be concerned when we know that a woman is still paid 70 cents for every dollar by a man,” said Aditi Mohapatra, a senior sustainability analyst at Calvert Investments, in a phone interview on Monday with AdvisorOne.

At tax time, that means women must educate themselves about how to find every credit and deduction that can help them stretch their income, according to Peggy Cabaniss, president of HC Financial Advisors, based in Lafayette, Calif.

“My advice to women with regard to taxes is that they understand not only their own tax return but that of their spouse,” says Cabaniss, who has worked for more than 25 years as an investment advisor and financial planner.

‘Here, Honey, Sign Here’

“I don’t ever want a woman to sign a tax return without knowing what the numbers are and where they come from,” Cabaniss says. “There have been way too many cases in the past where the man gets the tax return done, brings it home, and says, ‘Here, honey, sign here.’ I’ve met innumerable women who simply have no idea of what they signed or why.”

Fear prevents women from understanding what makes up a tax return, Cabaniss says, adding that the best way advisors can help their women clients fight fear is to give them a basic education on what the Internal Revenue Service expects to see when a tax return gets filed.

Tax returns are simpler than they seem, she says. So while a completed tax return may total as many as 50 pages, there are just five pages on an individual 1040 IRS tax form that Cabaniss considers really important:

1. Page 1, the statement of income, which includes salaries, IRA distributions and dividends. The bottom of this page totals up adjusted gross income.
2. Page 2, the summary of deductions as well as any credits a taxpayer is entitled to. Subtracting deductions and credits  from AGI results in an item called taxable income, “and that’s where your accountant looks up on a tax table to see how much tax is due,” Cabaniss says.
3. Schedule A, the “itemized deductions” page. This sums up interest deduction on a home mortgage, property tax, charitable contributions and medical expenses above a certain level including long-term-care insurance. Note: This total also is listed on Page 2.
4. Schedule B, the “interest and ordinary dividends” page. This totals income from investments such as CDs, stock dividends and bond interest. Note: This total also is listed on Page 1.
5. Schedule D, “capital gains and losses.” This form–one of the most complicated schedules in the IRS’ broad array of schedules–indicates whether the taxpayer must pay taxes on long-term and short-term gains from the sales of assets. Sales on losses listed here reduce taxable income. Note: The summary of gains or losses can be found on Page 1.

“Knowledge helps makes you a better taxpayer,” Cabaniss says. “When it comes down to it, it’s not really a 50-page return. People should understand those five important pages. Then when they sign their tax return, they know the numbers that were filled in by the tax preparer are correct and they don’t need to be afraid and blindly doing what people tell them. Women need to understand, especially if someone else came up with the numbers, how they came up with them.”

How Women Can Bring Home More Bacon

For women in the workplace, a few tax credits and deductions can make a big difference in how much money they take home, according to Barbara Kogen, a lawyer and certified public accountant at Miller, Kaplan, Arase & Co., a Los Angeles area accounting firm.

“In this changing economy, people are looking for new positions and going back to work, and there are a few items that are especially pertinent to women, because even if we have full-time jobs, women are still looked on as the primary caretaker of family and kids,” says Kogen (above).