Even when we get a refund, few of us actually like filing ourtax returns.
First off, the process of collecting all the necessary filinginfo takes up our precious time. Then there's the actual filling out offorms. Finally, there's the worry -- sometimes warranted, sometimes not-- that we're going to get "caught" by the Internal Revenue Service.
But perhaps the worst part of tax filing is that the wholeprocess tends to make most of us feel like fools! People with advancededucational degrees tremble when confronted by 1040s, depreciationformulas and deductibility guidelines. In fact, during tax season mostof us become adopted brothers and sisters (minus the tax credit!) ofhapless Homer Simpson. We find ourselves making silly tax mistakes,slapping our foreheads and muttering "D'oh!"
Unfortunately, when it comes to taxes, that "D'oh!" can costdough. Sometimes an error means we have to pay more in taxes. Othertimes it delays our refunds. To help make sure your return is perfect,here are 15 common tax-filing errors that you can avoid.
1. Making math errors
Every year, the most common mistake on tax returns is badmath. Mistakes in arithmetic or in transferring figures from oneschedule to another will get you an immediate correction notice. Matherrors also can reduce your tax refund or result in you owing more taxthan you thought.
Using a taxsoftware program to file your return can help reduce matherrors. The built-in calculators do the work for you, adding,subtracting and inserting numbers on additional forms as needed. Butyou still have to make sure that your initial numbers are correct.Entering $3,500 when the real figure is $5,300 makes a lot of taxdifference. And you can be sure that the IRS will be double checkingnumerical entries against its copies of your tax statements (W-2, 1099sand the like). When IRS examiners find a discrepancy, they'lldefinitely let you know and in many cases will correct your mistake andrefigure your taxes for you. Don't give them the chance. Make sure yourmath entries are right. 2. Not including Social Security numbersSince the IRS stopped putting taxpayer Social Security numberson tax package labels in response to privacy concerns, many taxpayersforget to write in their identification numbers. Your tax ID number iscrucial because there are so many transactions -- income statements,savings account interest, retirement plan contributions -- keyed tothis number. The number also is vital to claim tax credits you applyfor, like the Child Tax and Additional Child Tax credits and ones foreducational expenses and dependent care costs. Without the numbers, orwith wrong ones, the tax man could disallow these tax breaks.
3. Not signing and dating your returnSign and date your return. For legal purposes, the IRS won'tprocess a return if it doesn't have a "John Hancock." If you prefer,file electronically using your own privately selected personalidentification number. That way, you don't have to worryabout any paper signature at all.4. Not using the preprinted label and envelope fromthe tax packageUse the preprinted label and envelope for your tax return, sothe folks at the IRS will be able to easily and accurately read yourpersonal information. It's not a way for the agency to more easilytrack and audit you -- honest! The agency has other ways to determineif it should take a closer look at your return. In fact, if you'reexpecting a refund, you'll probably get it sooner if you use the label.5. Forgetting about interest and dividendsThanks to your Social Security number on bank and investmentaccounts, the IRS pretty much knows how much unearned income you madeas soon as you do. If you forget to include this info on your return,the IRS examiners will let you know that you owe taxes on it, too. Sodon't give the IRS the chance to send you a notice about absent income,or it could cost you penalty and interest charges. Plus, reporting thismoney is now easier, since you can makeup to $1,500 before you have to file Schedule B.
6. Forgetting to claim charitable donationsDid you give to charitable groups last year? All types ofdonations -- cash, clothing, household items and even cars -- could bevaluable tax deductions, so make sure you count them all when you file.Be sure to follow the donationtax rules, the most important being that you give to aqualified organization, that is, one that has tax-exempt status withthe IRS. And if you didn't get around to dropping off your excess goodsat your favorite charity in time to claim them on your current return,don't despair. Do it now and file away your contribution records so youcan use them when you file next year.7. Not including all your formsDon't forget to attach your W-2 form, so the IRS can confirmthe wage amount you report on your return. If it was a complicated taxyear requiring a lot of additional forms to support your 1040, makesure that extra work isn't wasted and get those forms in with yourreturn, too.8. Not properly tracking your investment basisCalculating capital gains on stocks and funds involves severalcomplicated steps, but one you can't afford to mess up is figuring whatyour stocks cost you -- their basis -- before you sold them. If yourinvestment paid dividends or capital gains distributions that youreinvested in the stock or fund, you paid tax on them in the year theywere earned. These amounts should be added to your costbasis to ensure that you don't double pay Uncle Sam tax moneywhen you sell them.
9. Using the EZ form when a longer form could cutyour taxesIf you opt for the 1040EZ way when filing your return, youcould pay more taxes than you should. If your tax life is not thatcomplicated, filling out a longer form might not take much time at all.You don't have to fill out every line, just the ones that apply to you.And the longer 1040A and 1040 forms give you several opportunities tocut your taxable income -- such as subtracting student loan interest,contributions to a deductible IRA, alimony payments made -- meaningless taxes to pay. So take a few extra minutes to see whichform fits your filing needs and could help you pocket moretax cash.10. Making the check out incorrectly -- andforgetting to sign it!If you owe money to Uncle Sam and you choose to pay by check,make it payable to the United States Treasury, not the IRS. This changesafeguards your check a bit more. Otherwise, a few pen strokes couldturn "IRS" into "I.R. Smith" and your check could end up being cashedby a thief. And don't forget to sign it. That payment-delayingtechnique won't wash with the taxman and it could cost you more. If thetax collector has to send your check back to you for signature, youcould miss the filing deadline and end up owing penalties and interest.
11. Forgetting to bunch your deductionsMany deductions -- medical costs, miscellaneous expenses --are allowed only if you reach a certain amount, so you might need toshift, or bunch, some of those costs into one tax year to takeadvantage. This can be as simple as prepaying professional magazinesubscriptions or opting for an elective medical procedure in a tax yearwhen you're near the deductibility requirements.12. Not taking all the credits you're eligible forDon't pass any opportunities for getting a taxcredit. It could mean money in your pocket. Credits are morevaluable than deductions because you claim them after you figure justhow much tax you owe; credits then can directly reduce your tax billand a few can even get you a refund when you owe no tax at all. Themany available credits include ones for education costs, child anddependent care expenses and the earned income credit designed to helpout lower-salaried taxpayers. So take a few minutes to review thevarious credits and see if you qualify for the any of their tax savings.13. Using the wrong tax tableAre you positive that the amount of tax you believe you owe isright? It's easy to make a mistake reading the tax tables found in thetax return instruction booklets. The print is small, and there's a lotof data crammed on the pages. Make sure you use the correct column foryour filingstatus. Each status owes a different tax amount in everytaxable income range, and it could make a big difference in your taxbill or refund.
Using any tax table could be an even costlier mistake for sometaxpayers. Were all of your long-term capital gains from mutual funddistributions, letting you simply report them directly on your form1040 or 1040A? Sure, this means you have no extra forms to file, butyou do have some additional figuring to ensure you don't overpay yourtaxes. Compute your tax using the worksheet in your return'sinstruction booklet. It will let you benefit from the lower long-termcapital-gains rate, now 15 percent for most filers. If you don't figureyour IRS bill this way, you'll end up paying taxes on your investmentearnings at your regular income-tax rate, which for some files could beas high as 35 percent.14. Missing the deadline to request an extensionMissing the April deadline for filing your return isn't theend of the world, but it may mean paying a late filing penalty andinterest fees. If you just can't finish your tax paperwork this spring,buy four extra months by askingfor more time. Just make sure you submit Form 4868,Application for Automatic Extension of Time to File U.S. IndividualIncome Tax Return, by the April 15 deadline. Remember, though, that theextension is only for the forms; you still have to pay any tax you mayowe on time.15. Not putting the proper postage on your returnpackage
Despite the growing popularity of computer tax preparation andelectronic filing, most people still do their taxes on paper forms anddepend on the post office to get them to Uncle Sam. If you're in thisfiling majority, don't be in such a hurry to get your return in underthe wire that you overlook the postage. Without enough stamps, theenvelope will come back to you instead of going to the taxman. If thathappens, you could end up paying a late-filing penalty (and interest ifyou had tax due) or spend extra time waiting for that much-neededrefund.Here's hoping you didn't make any of these mistakes and thatyou get through tax season with your bank account and good humor stillintact! Bankrate.comis the Web's leading aggregator of information on financial productsincluding mortgages, credit cards, new and used automobile loans, moneymarket accounts, certificates of deposit, checking and ATM fees, homeequity loans and online banking fees. Visit Bankrate.comto get the tools and information that can help you make the bestfinancial decisions.
Source: Money & Work
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