Standard and recurring tax mistakes!
When you file your income tax return, there is a standard set of mistakes which you are likely to make. They cost you time, stress, and of course money!
It is the experience of IRS that people make the same mistakes again and again. Here is a list of top 10 mistakes
1. Incorrect filing status
Actually you don’t have a choice to file single or married. Your status is decided as on December 31. Anything happening before that date is irrelevant for tax purposes. Based on that, you can file jointly or separately. You can also file as the head of household but then you’ll need to satisfy certain requirements. Just because you consider yourself as the head of the household does not entitle you to file your return under that category!
Making mistake in deciding appropriate status can affect your eligibility in many ways. There are many things including the child tax credit, and many exemptions which are available for dependents. You can lose them if your status was incorrect. Please check out all the instructions in form 1040 to select appropriate filing status.
2. Incorrect social security number
The IRS computers can reject many deductions, exemptions or earned income credits if the social security numbers you enter are incorrect.
If you are preparing your return by hand then you should pay more attention to this aspect. You’ll have to ensure that the figures you write are legible and there is no doubt in interpretation.
3. Incorrect forms and schedules
Remember, you are going to submit to the IRS computer. If you enter details under incorrect schedules, the computer is going to raise a red flag. And then there is a chance of getting audited. So you’ll need to be fair with the computer!
4. Forgetting to sign and putting appropriate date
It is crystal clear that if you don’t sign your have not filed. If you are filing jointly, both of you must sign that joint return. If you are forgetting to do that, you will be subject to all kinds of penalties and interest.
If you do your own return and don’t sign then IRS makes a presumption that the numbers you have written in the return would constitute perjury!
5. Making claims for dependents not eligible
In the past, when IRS started investigating the social security numbers of dependents from the returns, millions of dependents disappeared. People say most of them went back to their doghouses, or to their cages or jumped back in the aquariums!
There are very specific criteria for claiming somebody as a dependent. You’ll need to follow them all before claiming anybody as dependent.
6. Claiming incorrect earned income credit
It is a very common mistake of taxpayer that he/she fails to claim the earned income credit in the appropriate column. Instead of claiming it at No. 6 top it is claimed at No. 7
And many taxpayers try to claim the credit illegally.
Remember, any play with the earned income credit is seriously viewed by IRS and it is going to be a premier reason for tax audit.
7. Failing to attach the receipts
When you claim a tax deduction, support it with the receipts and vouchers. So you’ll need to collect all the receipts for charitable contributions as well as medical expenses which you are claiming as deductions. The receipts must be showing at least the name, the date and the amount on them! Remember no receipt means no deduction.
The same rule applies for claiming property tax and mortgage deductions.
8. Mistake in reporting details of domestic workers
You need to pay the payroll taxes on the wage of your house cleaner or the caregiver. That’s the law. So if you are paying $1600 or more two in 2008 to your household employee, then you are required to withhold and match the Social Security Tax and Medicaid tax. You are also required to file schedule H for computing and reporting the liability.
You are required to pay unemployment taxes if you pay wages over $1000 in any one calendar quarter to your household employees. You are also required to pay the state employment tax and the disability tax.
9. Mistakes in reporting your income
It’s not correct that you should skip your income just because you don’t have Form W-2 or 1099 with you when preparing the return of income. This is not at all a valid excuse for not paying tax on it. If you don’t report to the IRS, they can audit your receipts and cross check your bank deposits with your reported income and may make an audit query. Under-reported income may lead to a criminal prosecution. Certainly, the consequences are not worth the risk.
10. Mistake of not checking the alternative minimum tax (AMT) liability
The AMT is created to bring high income taxpayers claiming innumerable deductions and credits to wipe out their tax liability. You need to see whether you are coming under the clutches of AMT. If you are unable to check your liability under the AMT, then the entire calculations of your tax would go wrong and you are obviously making false declarations before the IRS.
As per the projections of IRS, the AMT is likely to hit about 20 million families in 2008 who usually earn in the range of $100,000-$200,000. The IRS has kept an AMT estimation calculator on its website and you’ll need to check it out before you file your return.
Remember, simple looking mistakes end up with deadly consequences so you need to be very sure about all the correctness of the details before filing your return.