Beware of These 10 Common Tax Filing Mistakes
The American Institute of Certified Public Accountants (AICPA) has identified 10 common and avoidable errors taxpayers make on their federal tax returns that can affect their tax bill, delay processing of their return and even draw the attention of the Internal Revenue Service (IRS).
|Low Cost Accounting Software Support
Provider of low cost support, consulting, training and custom report writing for MAS 90, MAS 200 and MAS 500 accounting software systems. Call us toll free at 1-866-762-3990 to learn how we can help. http://www.saveonsupport.com
The 10 common mistakes are:
- Leaving Off Attachments Attach all required schedules and forms to Form 1040 using the “Attachment Sequence Number” shown in the upper right corner of each schedule or form. Other statements and schedules can be attached at the end of the return even if they relate to another form or schedule. It’s also a good idea to include the taxpayer’s name and Social security number on every page of each form submitted.
- Forgetting About Carry-forwards from Prior Years Be sure to check returns from prior years to see if there are any items, such as capital losses or charitable deductions that exceeded the deductible amount for previous years, to be carried forward to the current year.
- Reporting Investment Income in the Wrong Place Earnings from money market funds are considered dividends by the IRS, although they are often mistakenly reported as “interest income”.
- Overpaying Your Social Security Taxes Individuals working two or more jobs during 2005 and whose total earning exceeded $90,000, may have overpaid Social Security taxes. See the instructions accompanying Form 1040 for information on how to claim a credit.
- Unnecessarily Declaring Your State Tax Refund as Income State tax refunds should not be declared as income on federal tax returns if the taxpayer did not receive a tax benefit from deducting the taxes. If the taxpayer took the standard deduction instead of itemizing in 2004, they do not have to show their state tax refund as income for 2005.
- Failing to Document Charitable Donations Written acknowledgement from the charity is required for monetary donations of $250 or more. If the gift was property valued at less than $500, the written acknowledgement must describe the property, while taxpayers are required to file IRS Form 8283, Noncash Charitable Contributions for contributions of property valued at more than $500.
- Omitting social Security Numbers of Dependents The Social Security number of all dependents MUST be included on the taxpayers’ federal tax return. Taxpayers claiming a child or dependent care credit should also complete IRS Form 2441 and indicate the caregiver’s name, address and taxpayer identification or social Security number.
- Making Math Miscalculations All calculations should be reviewed to be sure they are correct. Since some calculations affect other figures, mistakes can cascade and all the affected calculations should be reviewed.
- Failing to Calculate the Alternative Minimum Tax (AMT) As many as 16 million taxpayers are predicted to become subject to the AMT for the first time during the next two years. Many will not complete the AMT form 6251 because they don’t realize it applies to them, resulting in a nasty note from the IRS informing them that they owe more in taxes, as well as interest on the underpayment.
- Assuming Itemizing Deductions will Reduce the Tax Bite the Most Many taxpayers assume that itemizing deductions will result in the lowest federal tax bill, however, this may not be true. Taxpayers who have paid down most of the interest on their home mortgage, for instance, may be better off taking the standard deduction. For 2005, the standard deduction for a single taxpayer is $5,000 and $10,000 for married taxpayers filing jointly.