WASHINGTON — Do you remember the Volkswagen “Sign Then Drive commercial,” where would-be buyers are careening all over the road as they attempt to sign the lease while driving the car?
Signing your tax return without reading it is a lot like that. When you don’t know what’s in it, you’re really driving blind when it comes to your finances.
Chances are, year after year, you’ve signed your tax return without ever taking the time to examine the information. Many of us have been trained to think that it’s our CPA’s job to understand what’s reported on our return. We may have blindly trusted our spouse, who asks us to sign the return without asking any questions.
As specialists in taxes and financial planning for women and couples, we’ve seen numerous cases where women are completely unaware of their financial situation. They have years of jointly filed tax returns, yet don’t know the total amount of income their spouse earns or the overall net worth of their family.
Your federal tax return is one of the best documents for understanding your total financial picture. Reviewing and then signing the return can and should be used as an opportunity to open conversations about your financial life. Your tax return is also a great investigative tool in the event of divorce.
If you’ve signed your tax returns without reviewing them in years past, we encourage you to use this tax season as an opportunity to ask some important questions before you pick up a pen and sign your name.
To get a better handle on your financial picture, review 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?
These questions should provide the facts necessary to understand the basics of your family’s overall level of income and assets. Once you understand the facts of your finances, monitoring changes from year to year can give you early warning signals of trends that could impact your future financial health.
Your tax return is also a critical source of information if you suspect there may be accounts hidden from your view. For example, bank accounts held in your spouse’s sole name can be found by examining Schedule B and brokerage accounts holding securities might be discovered by examining Schedule D. This information can become important if you encounter a spouse who is not forthcoming or in the event of divorce proceedings.
One note about divorce proceedings: you will need to make decisions that will affect your taxes, like whether to continue to file jointly or to file separately before the divorce becomes final. If you choose to continue to file jointly, obtain a copy of all returns well before the filing deadline to allow enough time for your CPA or attorney to review the information with you before you sign the return. In addition, any divorce agreements should address the division of current and prior year underpayments or tax refunds.
There are numerous decisions that will affect your taxes after your divorce. Be sure to review the most common ones in my article.
Read Then Sign
This tax season, we encourage you to start your own “Read Then Sign” event. Bottom line, your tax return is a legal document, and all information on it is tied to your social security number. No matter your marital status, if you sign a joint return without reviewing the details, you’re taking responsibility for what it contains and you can be held responsible for anything on the return. Use this year’s tax return filing as a window into your finances. Understanding the details on your return is a big step toward securing your financial future.
Editor’s note: This story has been updated to reflect a Schedule B is where accounts held in your spouse’s sole name can be found.
Dawn Doebler is a Senior Wealth Advisor at Bridgewater Wealth in Bethesda, MD and Co-Founder of Her Wealth™.
