10 tax mistakes you don't want to make
Pay attention and avoid perennial errors like bad math. Plus, be aware of some specific pitfalls and changes for 2012 returns.
This post is by Kay Bell at Bankrate.com.
Thanks to tax preparation software, more of us are making fewer mistakes on our annual tax returns. But just one slip in entering information on your computer could end up costing you, either in the form of a larger tax bill or a smaller refund.
And even if a mistake -- either on your computer or paper forms -- doesn't cost you cash, it could delay the receipt of any refund you're expecting.
To get exactly what you should from the Internal Revenue Service as quickly as possible, look out for these tax-filing pitfalls.
A few are new, thanks to recent changes in the law. Others are perennial problems taxpayers face each filing season. With a little care, you can avoid them all.
Roth conversion taxes
A lot of taxpayers have taken advantage of the tax law change that now allows anyone, regardless of income, to convert a traditional individual retirement account to a Roth IRA. But if you made such a change in 2010 when this conversion was first allowed, you have a tax task to take care of on your 2012 return. A special provision allowed individuals who moved their money into a Roth IRA in 2010 to spread the taxes due on converted amounts equally over the 2011 and 2012 tax years. The first half of those conversion taxes was due with your 2011 tax return. Make sure you pay the rest of the taxes with your 2012 return.
Homebuyer tax credit complications
Since its creation, the first-time homebuyer credit went through significant changes. It started as a $7,500 interest-free loan from Uncle Sam, changed into a true tax credit of up to $8,000 for a first-time buyer and added a $6,500 tax credit for a previous homeowner moving up to another house.
All the revisions to eligible buyer guidelines, purchase time frames, income thresholds, home price restrictions and payback requirements are a tax-filing minefield. If you're not careful, a mistake here could end up costing you the credit or at least slowing down the processing of your return.
If you're paying back the original $7,500 tax credit, the IRS has made the repayment process a bit simpler by eliminating in many cases the requirement that taxpayers file Form 5405. Now some individuals who are repaying the credit can just write the repayment amount they are including with their taxes directly on Form 1040.
The most common error on tax returns, year after year, is bad math. Mistakes in arithmetic or in transferring figures from one schedule to another will get you an immediate correction notice. Math mistakes also can reduce your tax refund or result in you owing more tax than you thought.
Using a tax software program to file your return can help reduce math errors. The built-in calculators do the work for you, adding, subtracting and inserting numbers on additional forms as needed. But you still have to make sure your initial numbers are correct. Entering $3,500 when the real figure is $5,300 makes a lot of tax difference. Getting the numbers right is crucial because you can be sure the IRS will be double-checking numerical entries against its copies of your tax statements (W-2, 1099s and the like). When IRS examiners find a discrepancy, they'll definitely let you know and, in many cases, will correct your mistake and refigure your taxes for you. Don't give them the chance. Make sure your math entries are right.
Taxpayers can have a refund directly deposited into multiple bank accounts. This option is a great way to save your refund money, but the more numbers you enter on a tax form, the more chances you have to enter them incorrectly. A wrong account or routing number could cause you to lose your refund entirely.
You can divide your refund into three accounts by filing Form 8888 along with your individual return. It's not a difficult document to complete, but if you put in wrong account numbers, your refund could end up in someone else's account or be sent back to the IRS. Either way, you might not be able to retrieve your refund because there is no IRS procedure for replacing lost electronically transferred funds.
Incorrect account numbers aren't just a problem when a refund is split multiple ways. Even if your refund is going to just one account, make very sure you enter your account and bank routing numbers correctly.
Did you have a side job this year? If so, as a contractor you probably received a Form 1099-MISC detailing the extra earnings.
What about savings and investment accounts? For these, you should have received Form 1099-INT and Form 1099 DIV statements.
In each 1099 instance, the IRS knows precisely how much extra money, either as wages or unearned investment income, you made as soon as you did, thanks to the copies of your 1099 forms that went to the tax agency.
If you forget to include any of these earnings on your return, the IRS examiners will let you know you owe taxes on it, too. And depending on when your oversight is discovered, you also could owe penalties and interest on the unreported earnings.
Make sure you choose the correct filing status for your situation. You have five options, and each could make a difference in your ultimate tax bill.
If this is the first tax-filing season you've been divorced and you are now a single parent, head-of-household status probably will be more beneficial.
Make sure you know what each tax-filing status entails, and choose the one that best fits your personal and tax situation.
Because the IRS stopped putting taxpayer Social Security numbers on tax package labels in response to privacy concerns, some taxpayers forget to write in their identification numbers. Your tax ID number is crucial because there are so many transactions -- income statements, savings account interest, retirement plan contributions -- keyed to this number.
The nine-digit sequence also is vital to claim several tax credits, such as the child tax and additional child tax credits as well as ones for educational expenses and dependent care costs.
Make sure the names associated with the Social Security numbers match Social Security Administration records. A difference here will cause the IRS to kick out or slow down your return.
Did you give to charitable groups last year? All types of donations, from cash to cars, could be valuable tax deductions, so make sure you count them all when you file. Be sure to follow the donation tax rules, the most important being that you give to a qualified organization -- that is, one that has tax-exempt status with the IRS. Also, be careful when calculating any gifts of clothing and household items. Tax law now requires that these donations be in good or better condition or the deduction is disallowed.
Sign and date your return. The IRS won't process it if it's missing a John Hancock, and that means on e-filed returns, too. Taxpayers filing electronically must sign the return electronically using a personal identification number, or PIN. To verify your identity, you'll have to provide the PIN you used last year or your adjusted gross income from your previous year's tax return.
Your tax software should walk you through the e-signature process, but if you're still mailing your return, don't be in such a hurry that you stuff your 1040 in the preaddressed IRS envelope without signing it. If it's a joint filing, both you and your spouse must sign.
Don't miss the impending April 15 tax deadline. If the reason you're thinking of not filing is that you owe the IRS, it's a bad idea. If you don't file a return, you'll face even stiffer penalties. So send in the paperwork, pay what you can and talk with the IRS or your tax professional about the next steps.
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VIDEO ON MSN MONEY
Perhaps the government could borrow some money from the government employee pension fund to help with the . . . . . oh no, wait! Too late! They already did!
Our elected officials stole from their own employees, and it's money they will never pay back.
I love it! Got a small fire going and a glass of wine. Sort of gives you the same warm and cuddly feeling you get when Cirque du Soleil lays off 10% of their employees. The magic is everywhere!!!!!
"Render unto Caesar the things which are Caesar's, and unto God the things that are God's"
The problem today is that OUR Caesar thinks he is god and demands ALL things from ALL subjects.
To compound the problem there are more followers of Caesar then non- followers. There are more of them then us.
For now.......shut up.... eat ^ and wait.......
FAIR TAX as it was explained to me; EVERYBODY would get a pre-bate to pay taxes on anything they bought , up to the poverty level after which they would get nothing. This would be a monthly check deposited into your bank account as a way of protecting to poor , ( ME ). The rich would pay taxes on their large purchases thus paying a greater percentage than me and supporting or nation in the process. THINK , NO I.R.S. that cost us so much to comply with all their rules , funnels billions into pet government projects , makes politicians filthy rich , giving our money to foreign governments , and the list is endless because Washington D.C. will always find ways to spend more as it gives them an opportunity to skim more off for themselves and give it to people that they want to support.
THINK, We would save BILLIONS just by getting rid of the useless egg heads in the I.R.S. , the necessary brick and mortar, the forms, and all the rest of their cost to the citizen.
It's time to flush the D.C. toilet ! ! !
Its simple. Everybody pays taxes. Period.
Then let's see how many people will be voting for tax increases.
What it's about is the RICH vs the not rich!
Many of you are just whining about the pittance that you have to pay in taxes, but you're probably
also among those that sat back (or didn't understand) and let the RICH manipulate the banks, wall street, the media and the government in order to steal your 401K and other investments and, in many cases, to steal your home through foreclosure.
If you get taxed and screwed into poverty, don't you just get what you deserve?
Howe about a flat out it 15 % with NO deductions after the first $20,000 and start paying down the national debt?
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