Business
Nine Common Tax Mistakes
We all have to pay taxes and the laws change annually, which can mean learning the tax laws over and over again- and for some making costly mistakes year after year.
Here, according to the IRS, are the 9 most common taxpayer mistakes:
Claiming the wrong filing status
Sorry, you can’t just choose to file single or married. Your marital status is determined as of Dec. 31. Anything before that date really doesn’t matter for tax purposes. You file either jointly or married filing separately. You may qualify for “head of household,” but you have to satisfy all the requirements. You don’t qualify just because you consider yourself the head of your household. In fact, you can’t be head of household if you’re married unless you qualify as an abandoned spouse.
Claiming the wrong status could kill your eligibility for the child tax credit, the earned-income credit and exemptions for dependents. Check out the instructions for Form 1040 for detailed information to help you select your correct filing status.
Omitting or using wrong Social Security numbers
The Social Security numbers you list for your dependents, the earned-income credit and the child tax credit must match your dependents’ Social Security cards. Otherwise, the IRS computers will reject your credits and deductions.
If you’re still doing your return by hand, put down that stone tablet you’re reading and pay attention. Make sure your handwriting is legible, at least on your tax return.
Failing to use correct forms and schedules
Think of the IRS as a vast bureaucracy that responds to the dictates of an outdated computer system for audit direction. You don’t want to anger the computer gods.
If you file your employee business expenses on Schedule A without attaching Form 2106, the computer’s going to click. The more the computer clicks, the more likely that you will get audited.
So, be nice to the computer. Correctly file all of the appropriate forms.
Failing to sign and date the return
This one is easy. If you don’t sign the return, you haven’t filed. Both spouses must sign a joint return. If you haven’t filed, you’re going to be subject to all kinds of penalties, not to mention interest on any amounts not paid in full.
The only reason not to sign the return is if the numbers on it would constitute perjury. Do you think the IRS wouldn’t notice?
Claiming ineligible dependents
When the IRS started requiring Social Security numbers for claimed dependents, millions of dependents disappeared. I suspect most of them sulked back to their doghouses, flew to their bird cages or jumped back into their aquariums.
In any case, the qualification criteria to claim a dependent are technical and very specific. With nontraditional families, there are the exceptions, the exclusions to the exceptions, the exceptions when the exclusions don’t apply and the special rules for the third Wednesday each month.
You’ll have to meet each of at least four qualifications. Follow the flowchart in the instructions for your Form 1040. But it’s not simple.
Misusing — or not using — the earned-income credit
This one I blame on Congress. It’s a provision to help the poorest in our nation, but lawmakers designed it to be one of the most convoluted provisions in our tax code.
It’s so bad that the IRS reports failure to claim the earned-income credit as its No. 6 top taxpayer mistake and incorrectly claiming the credit as No. 7.
Lots of crooks — and unwitting but misinformed taxpayers — illegally claim the credit. Many of those whom the credit was designed to aid lack the tax sophistication or the dollars necessary to hire a professional to claim those dollars.
Losing receipts
Receipts can mean deductions and tax savings. So, hunt down all those charitable organizations to which you contributed and make them give you a receipt for the donation. If you made more than one donation, get a receipt for each one. The receipt needs the date, the amount, the name of the charity. No receipt means no deduction.
Under current law, you need some form of written documentation for all your charitable contributions. So, if you just put cash in a collection plate and don’t get a receipt, you’re making a contribution, but you won’t get a deduction. Bring a check or use an envelope where you can get a receipt from the charity.
We’re not done yet. Start hunting down receipts for medical expenses. Perhaps you spent enough on health care that your expenses exceed the 7.5% income threshold. The total expenses that exceed 7.5% of your adjusted gross income are deductible. And don’t forget: These can include health insurance premiums.
And don’t forget the paperwork to prove property tax and mortgage deductions.
With those mistakes in mind, go ahead! Put aside 6 hours of your weekend and get those taxes filed! Once it’s done it’s done!
