Taxes are confusing, intimidating and generally infuriating. That's why we all try to be done with them as quickly as possible.
But don't be in such a hurry that you make preventable mistakes.
Before you send your Form 1040 (or 1040A or 1040EZ) off to the IRS, be it by tomorrow's impending extended filing deadline or next April, use this checklist to help you avoid a dozen common tax filing errors.
1. Math mistakes: The number one tax mistake year in and year out. Tax preparation software has helped here, but remember the adage "garbage in, garbage out." If you enter the wrong income or deduction amount, the computer calculator will use that figure. So double check your entries.
2. Incorrect Social Security numbers: Just like with math errors, a transpose tax ID number will not be caught by your software. But you can be sure the IRS will find it and kick back your return and/or disallow some deductions or credits, usually child-related ones, that depend on these nine digits.
3. Dependent issues: Speaking of kids, make sure you are properly claiming them. A qualifying child has to meet five tests. There are other requirements for a qualifying relative you wish to claim as a dependent on your 1040. Follow the rules, or you'll lose the tax breaks these dependent claims provide.
4. Wrong deduction method: You've always claimed the standard deduction. This year, though, you had some serious medical bills because you and your spouse had a baby, you gave a lot more to charity and your home's property taxes went through the roof. Add up those numbers and see if you should itemize instead. You can change your deduction method each year, always selecting standard or itemized depending on which method will get you a better -- that is, less of your money going to Uncle Sam -- tax result.
5. Overlooked interest and dividends: Make sure you entered all the information from the 1099 statements you got from your investment managers. The IRS gets copies of these documents, too, and if you miss one, the tax man will let you know and charge you interest for the oversight. Trust me. This happened to me one year.
6. Miscalculated investment basis: This is a cousin of overlooking investment income. In this case, if you've used the wrong basis in figuring any capital gains tax you owe, you could be costing yourself a higher tax bill. Recheck your basis in the securities that you sold, particularly shares of mutual fund. Income and capital gains dividends that were automatically reinvested in the fund over the years increase your basis in the mutual fund and thus reduce a gain or increase a loss that you have to report.
7. Forgotten charitable donations: Double check your check register, credit card receipts and other financial records to make sure you count all your donated goods on Schedule A. And don't forget about some uncommon charitable gifts that you can deduct.
8. Wrong Form 1040: It's always tempting to use the easiest tax form and you should do just that. But don't opt for ease at the expense of tax savings. The most tax breaks are available only on the longest return, Form 1040. Check it out to make sure that you've not giving up tax benefits just so you can fill in a few less lines.
9. Wrong filing status: There are five filing statuses and they seem pretty self-explanatory. but in some cases, you might qualify for another status that could get you a better tax result. And remember married couples, sometimes you love your husband or wife, but you really hate his or her tax habits, so look into whether filing separately is warranted.
10. Missed tax credits: For the 2010 tax year, be sure to check out the Making Work Pay and home energy efficiency tax credits. The MWP credit is no longer in effect and most home energy tax breaks are not nearly as generous in 2011. There also are perennial tax breaks you should check into, such as the child and dependent care credit and the Earned Income Tax Credit (EITC). Because of the recession, many more folks might find they now qualify for the EITC.
11. Direct deposit account errors: If you're getting a refund, and yes, some last-minute filers do get money back, and you're having it directly deposited, make sure you enter the financial institution's correct account and routing numbers.
12. Wrong tax table: I'm again revealing my tax filing age experience with this tip since it's something that tends to be taken care of by tax software. But some folks still file the old-fashioned, mail in a paper return way. And since I actually made this mistake one year, I feel compelled to point it out.
I entered the amount of tax due a single taxpayer one year instead of the tax due from the married filing jointly tax table. It temporarily cost the hubby and me some cash until the IRS found my mistake, corrected it and sent us a check for our overpayment.
Learn from my mistake. Don't shortchange yourself, even if only for a few weeks.
Speaking of filing by hand, check out Joe Kristan's Three Important Filling Tips for Luddites. Joe, who writes his own Tax Update Blog but offered this last-minute filing advice for Going Concern, details the importance of "a cheap little postmark [that] is all that stands between a taxpayer and tax catastrophe."
Special tax situations: The IRS also has a few more tips for taxpayers who have some special concerns.
Eligible small businesses should check out the new small business health care tax credit. It is available for the first time on 2010 returns and designed to encourage small employers (fewer than 25 full-time equivalent employees and who employ low- and moderate-income workers), to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers, including sole proprietors who file Schedule C.
The IRS also reminds small businesses, including farmers and self-employed individuals that operated at a loss during 2010, that they can often get an immediate tax benefit by carrying unused losses back to prior tax years. Details are in Publication 536.
If some of your income comes from outside-the-U.S. payers, remember that federal law requires you to report income from all sources, both foreign and domestic. This includes income from foreign trusts and foreign bank and securities accounts. In most cases, you'll also need to fill out Part III of Schedule B, including reporting the country or countries in which the accounts are located. Find more information on this on the IRS' International Taxpayer page.
And if you've been affected by recent natural disasters, check out the possible relief you could claim on your return as well as adjusted tax deadlines. Currently, parts of nine states and Puerto Rico are covered by federal disaster declarations. Individuals and businesses in these areas have until Oct. 31 to file.
With all these errors to avoid, you probably shouldn't wait until tomorrow's deadline to finish your return. I'll let you get to work!
Final tax-filing tips: Did you miss any of the previously posted last-minute filing tips? You can find them at the special Countdown to Oct. 17, 2011, blog page.
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