Tax return reveals more than you think
They may know more about you than some of your closest relatives do.
They're privy to such secrets as your political leanings, whether you're a procrastinator or compulsive organizer, altruistic or miserly, a risk-taker or ultraconservative.
No, they're not psychiatrists or psychologists or psychics. They're something much more prosaic: tax preparers.
If you're one of the millions of Americans who have engaged a professional preparer to complete your tax return by Tuesday, you may not be aware of just how much personal information you have disclosed.
'People can be very secretive about money, but by the time I finish with a return, I probably know more about my clients than most of their family and friends,' said one preparer.
This isn't to say that your financial secrets won't be safe with these professionals, typically accountants and CPAs. In fact, all the preparers interviewed for this column requested anonymity so that their clients wouldn't worry about them talking out of turn and revealing confidential information.
But it's hardly an overstatement to say a person's innermost secrets are on full display in his or her tax return.
'I can tell all about the individual's values' by analyzing several years of a person's tax returns, said one CPA who often appears as an expert witness in court to determine the amount of economic damages people have suffered in accidents.
He can, he says, glean subtleties beyond the obvious, such as what business or profession the person is in and how much money he makes.
'I can tell whether he is keeping up in his field, by whether he claims miscellaneous deductions for professional dues and publications,' he says. 'I can tell what sort of house he owns, by the size of his property tax deduction.
'I can tell what sort of investments he owns by looking at Schedules B and D (where interest and dividend income, as well as capital gains and losses, and the specific investments that gave rise to them, are reported). This tells me whether the person tends to own conservative investments, such as Treasury bills, bank CDs and blue-chip stocks, or speculative investments such as dot-com stocks and high-tech mutual funds.
'I can even tell whether a person is generous or stingy, by looking at his charitable contributions in terms of his income.'
Your friends and colleagues may not know whether you're a Republican or a Democrat, but chances are your preparer does. That's because if you have made contributions to political organizations, you must furnish their names in order to claim the state credit. And if you've made contributions to charitable organizations, you must similarly list their names on your federal return in order to claim a deduction. So your tax return indicates whether you support causes such as the National Rifle Association and Right to Life, or the Sierra Club and Planned Parenthood.
Your tax return can even reveal secret vices. For example, you may have a penchant for gambling that would surprise your closest associates. But your preparers will know because gambling winnings must be reported (on line 21 of the 1040), but can be offset by the amount of gambling losses (which must be reported on line 27 of Schedule A).
'Invariably, my clients have more losses than they have winnings,' said one preparer.
Preparers also get a sense of how organized people are. Some clients always come in well before the filing deadline, with everything on spreadsheets and expenses meticulously listed down to the last postage stamp. Others perennially come in on the eve of April 15, with a year's worth of receipts and records stuffed into shopping bags and missing crucial documents such as their W2 forms.
Sometimes, a simple question can reveal much more information than a preparer expects. Take the case of a husband who had his CPA prepare his ex-wife's return (he was paying for this service in an attempt to improve his child-visitation situation). When it came to charitable deductions, the preparer asked the man how much he should put down for his ex-wife's contributions. 'Just put down $22,000,' the man said. The preparer wondered how the woman could be so generous on an income of only $26,000.
Simple, replied the man. Wearing only a trench coat (with the emphasis on 'only') and carrying a tool to disable antitheft devices, his ex-wife was in the habit of visiting local department stores. She'd start in the lingerie section, roam throughout the store and eventually walk out wearing a totally new outfit Ñ without paying a dime. After wearing the new clothes for a bit, she would then donate them to charity and go off on another spree.
Once he recovered his aplomb, the tax preparer delivered the verdict: Sorry, but one cannot take a charitable deduction for stolen property.
It's situations like this that made another preparer moan, 'All I want to know is the numbers.'
Deborah Rankin, an award-winning former personal finance columnist for The New York Times, is based in Portland.