10/27/2010 1:00 PM ET|
10 tax goofs many of us keep making
Year after year, the IRS sees Americans committing the same sorts of mistakes on their returns. Many of these errors are easy to avoid; some are more complicated.
Your income-tax return can inflict a special kind of pain when you make a mistake. Even a simple error can cost you time, aggravation, stress and, yes, money. So doing your return dispassionately and carefully is a must.
The Internal Revenue Service says taxpayers make some mistakes again and again. (I see them a lot, too.) If you can keep from making them, you'll avoid much of that lost time, aggravation, stress and lost cash.
Here, according to the IRS, are the 10 most common taxpayer mistakes:
1. 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.
2. 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. Although to be fair, I suspect that many of these mistakes attributed to taxpayer error actually result from bad inputting by the IRS.
3. 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Think of the IRS as a vast bureaucracy that responds to the dictates of an outdated computer system for audit direction.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.
4. 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?
5. Claiming ineligible dependents
When the IRS started requiring Social Security numbers for claimed dependents, millions of dependents disappeared. I suspect most of them skulked 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.
6. 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.
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. That's why this is one of the most audited items on your tax return. But if you qualify, it's money in your pocket, so don't fail to claim it.
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