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Simple Tax Errors That Can Cost A Lot
While taxes may seem overwhelmingly complicated, many people end up losing a significant amount of money not from the complicated issues, but due to simple mistakes. These mistakes can easily be avoided by taking a few extra minutes to check your tax return to make sure you haven't forgotten important points and taken all the tax credits that are available to you. Here are some issues to make special note of as you are filling out your tax return this season:
1. Math Errors: Believe it or not, simple math errors are the most common mistake on tax returns. The IRS says that for 2001 tax returns, miscalculation in tax owed (789,000), Earned Income Tax Credit (514,000), Child Tax Credit (496,000) and refund amount/balance due (330,000) made up the bulk of math errors. This either means you are short changing yourself of money that is rightfully yours or you aren't paying enough to the government which can come back to sting you with additional penalty and late payment charges. Take out those calculators and double check your arithmetic. Better yet, use tax software that will automatically do the calculations for you.
2. Incorrect Address: If the government doesn't know where you live, they can't give you your refund check. Tens of thousands of refund checks sent out by the IRS every year end up back at the IRS due to people providing the wrong address or moving before their check arrives without giving a proper forwarding address. Double check to make sure that your address is correct on your tax return and to have all your mail forwarded if you make a move.
3. Filing A 1040EZ Form: The EZ form is easy because it skips over all those deductions and credits that you may be entitled to take. Taking the extra time to fill out the longer 1040 form will ensure you receive the proper tax deductions and credits for such items as your deductible IRA contributions, student loan interest and alimony payments. Now that you know that EZ doesn't equal savings, skip the EZ form to ensure you are getting all the deductions and credits you're entitled to.
4. IRA Deductions: If you have a deductible Individual Retirement Account (IRA), make sure that you claim the credit for it. Did you forget to make a contribution in 2003? It isn't too late. You can still make a contribution until April 15th 2004 and have it qualify for your 2003 taxes. The maximum that can be contributed annually is $3,000. If you're 50 or older, you're entitled to make an additional "catch-up" contribution of $500 bringing your total allowable contribution to $3,500.
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If you contribute to a nondeductible IRA, be sure you file Form 8606. Many people don't because they assume since their IRA contribution isn't deductible, they don't have to do any tax paperwork. Form 8606 is essential, however, since it will record the amount of your IRA as of Dec. 31, 2003. This tells the IRS that you aren't claiming a tax break meaning you're entitled to take the money out tax-free when you retire. If you fail to fill out the 8606 Form every year, not only do you make contributions to a nondeductible IRA, you risk paying taxes after retirement on the money once again.
5. Social Security Numbers: The IRS no longer prints social security numbers on the labels of the tax booklets it sends to you in the mail due to privacy concerns. This means that you need to place your social security number at the top of each page. While this may seem simple enough, it was the single largest error recorded on tax returns in 2001 with some 1.16 million people getting it wrong. Since your wages earned are often tracked by this number, providing the wrong one can cause all kinds of confusion and result in you being assessed taxes that you really don't owe. Getting your spouse's and kid's social security numbers wrong may result in you losing tax breaks since the IRS will think you really don't qualify for them when the information doesn't match up.
6. Mortgage Deduction: With interest rates at record lows, many people refinanced their home loan in 2003. If you were one of them and paid points to do so, you can write off the refinancing points over the life of the loan. If your home refinance was for a second time, you're allowed to write off the remaining points from your original home refinancing.
7. Earned Income Credit: While many people assume this tax credit is for those with low incomes, married couples with one child can make up to $34,000 and still qualify. Many people who do qualify don't apply because they don't know about this tax credit or never thought they would qualify. You can get more information on this tax credit from IRS Publication 596.
8.Tax Tables: Getting the correct number from the IRS tax tables (or using the correct table for that matter) isn't as easy as it might seem. The print tends to be small with columns close together which aggravates the problem. Take the time to make sure you find the correct column for your filing status since the same income yields different tax amounts depending on your tax status. Copy down the wrong column and it could cost you a large amount on your taxes.
9. Sign & Date Return: In the rush to get tax returns out on time, tens of thousands of people simple forget to sign and date their return. If you don't sign it, the IRS won't process your return. The delay could trigger late penalties if you are unable to get it back in before the April 15 deadline.
10. Postage: As with number 9, tens of thousands of people send out their tax returns only to find them back in their own mailbox a few days later. Take the time to make sure you have placed enough postage on the envelope, especially if you have added extra schedules and forms to your return. Again, not placing enough postage can result in late penalties and interest if you aren't able to get your tax return back in the mail before the April 15th deadline.
While taxes may seem overwhelmingly complicated, many people end up losing a significant amount of money not from the complicated issues, but due to simple mistakes. These mistakes can easily be avoided by taking a few extra minutes to check your tax return to make sure you haven't forgotten important points and taken all the tax credits that are available to you. Here are some issues to make special note of as you are filling out your tax return this season:
1. Math Errors: Believe it or not, simple math errors are the most common mistake on tax returns. The IRS says that for 2001 tax returns, miscalculation in tax owed (789,000), Earned Income Tax Credit (514,000), Child Tax Credit (496,000) and refund amount/balance due (330,000) made up the bulk of math errors. This either means you are short changing yourself of money that is rightfully yours or you aren't paying enough to the government which can come back to sting you with additional penalty and late payment charges. Take out those calculators and double check your arithmetic. Better yet, use tax software that will automatically do the calculations for you.
2. Incorrect Address: If the government doesn't know where you live, they can't give you your refund check. Tens of thousands of refund checks sent out by the IRS every year end up back at the IRS due to people providing the wrong address or moving before their check arrives without giving a proper forwarding address. Double check to make sure that your address is correct on your tax return and to have all your mail forwarded if you make a move.
3. Filing A 1040EZ Form: The EZ form is easy because it skips over all those deductions and credits that you may be entitled to take. Taking the extra time to fill out the longer 1040 form will ensure you receive the proper tax deductions and credits for such items as your deductible IRA contributions, student loan interest and alimony payments. Now that you know that EZ doesn't equal savings, skip the EZ form to ensure you are getting all the deductions and credits you're entitled to.
4. IRA Deductions: If you have a deductible Individual Retirement Account (IRA), make sure that you claim the credit for it. Did you forget to make a contribution in 2003? It isn't too late. You can still make a contribution until April 15th 2004 and have it qualify for your 2003 taxes. The maximum that can be contributed annually is $3,000. If you're 50 or older, you're entitled to make an additional "catch-up" contribution of $500 bringing your total allowable contribution to $3,500.
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If you contribute to a nondeductible IRA, be sure you file Form 8606. Many people don't because they assume since their IRA contribution isn't deductible, they don't have to do any tax paperwork. Form 8606 is essential, however, since it will record the amount of your IRA as of Dec. 31, 2003. This tells the IRS that you aren't claiming a tax break meaning you're entitled to take the money out tax-free when you retire. If you fail to fill out the 8606 Form every year, not only do you make contributions to a nondeductible IRA, you risk paying taxes after retirement on the money once again.
5. Social Security Numbers: The IRS no longer prints social security numbers on the labels of the tax booklets it sends to you in the mail due to privacy concerns. This means that you need to place your social security number at the top of each page. While this may seem simple enough, it was the single largest error recorded on tax returns in 2001 with some 1.16 million people getting it wrong. Since your wages earned are often tracked by this number, providing the wrong one can cause all kinds of confusion and result in you being assessed taxes that you really don't owe. Getting your spouse's and kid's social security numbers wrong may result in you losing tax breaks since the IRS will think you really don't qualify for them when the information doesn't match up.
6. Mortgage Deduction: With interest rates at record lows, many people refinanced their home loan in 2003. If you were one of them and paid points to do so, you can write off the refinancing points over the life of the loan. If your home refinance was for a second time, you're allowed to write off the remaining points from your original home refinancing.
7. Earned Income Credit: While many people assume this tax credit is for those with low incomes, married couples with one child can make up to $34,000 and still qualify. Many people who do qualify don't apply because they don't know about this tax credit or never thought they would qualify. You can get more information on this tax credit from IRS Publication 596.
8.Tax Tables: Getting the correct number from the IRS tax tables (or using the correct table for that matter) isn't as easy as it might seem. The print tends to be small with columns close together which aggravates the problem. Take the time to make sure you find the correct column for your filing status since the same income yields different tax amounts depending on your tax status. Copy down the wrong column and it could cost you a large amount on your taxes.
9. Sign & Date Return: In the rush to get tax returns out on time, tens of thousands of people simple forget to sign and date their return. If you don't sign it, the IRS won't process your return. The delay could trigger late penalties if you are unable to get it back in before the April 15 deadline.
10. Postage: As with number 9, tens of thousands of people send out their tax returns only to find them back in their own mailbox a few days later. Take the time to make sure you have placed enough postage on the envelope, especially if you have added extra schedules and forms to your return. Again, not placing enough postage can result in late penalties and interest if you aren't able to get your tax return back in the mail before the April 15th deadline.