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Track your carryforwards!

April 06, 2009

When somebody who has prepared their own returns hires a tax preparer, one of the most common ways the preparer will impress the new client is to obtain refunds because the client didn't keep track of tax benefit carryforwards.

The tax law has lots of limits on losses, expenses, and credits. If these are limited, the disallowed part usually carries forward. Sometimes you can find the number to carry forward for this year on last year's forms:

- Capital losses (2007 Schedule D, line 16 less line 21)
- Passive losses (2007 Form 8852, line 4 less line 16)
- Minimum Tax Credit (2007 Form 8801, line 28)

Other carryforwards have to be tracked off the return -- S corporation basis limitations, for example.

Home preparation tax software can track these carryforwards, but you have to watch carefully to be sure. If you do your return with pencil and paper, it's very easy to lose track of your carryforwards.

These carryforwards are why your preparer likes to see your old returns. They can get refunds going back three years, but if you are seeing your new preparer for the first time, bring at least seven years of returns, as carryforwards can arise even from otherwise closed years.

Come back for more 2009 filing season tips through April 15!

Tags: minimum tax credit.S corporations.Tips for filing 2008 returns.