Top Ten Tax Mistakes
- Monday, January 24, 2005
Most taxpayers submit tax returns or extension applications by April 15, but not all taxpayers submit error-free tax returns. The Internal Revenue Service tells us that about 35 percent of all personal tax returns have at least one mistake with a negative impact, and 17 percent have at least one mistake that affects the taxpayer positively. Electronic filing (e-filing) may help alleviate some of these errors.
Although the mistakes on income tax returns are wide-ranging, ten seem to be the most common.
1. Social Security numbers
This is the number one oversight. The IRS no longer preprints address labels that show the taxpayer's Social Security number. You must record your Social Security numbers in the spaces provided, and failure to do so could delay refunds by months.
2. Signature and date
Forgetting to sign and date the tax return (joint returns require both spouses to sign) is the second most common mistake. Without a signature and date, the return is incomplete and could be returned for the signature and date, thus delaying any potential tax refund.
3. Interest income
Many taxpayers include stock and mutual fund dividends or annuity disbursements in their gross income, but they forget to include interest earned in savings accounts or interest-bearing checking accounts. Failure to do so will result in a correction by the IRS.
4. State and local taxes
State and local tax refunds from the previous year must be included as taxable income for the current year. However, current state and local income taxes paid during the year are deductible. A new law gives taxpayers who itemize deductions a choice of claiming their state and local sales taxes instead of state and local income taxes (see IRS Publication 600 for tables for figuring sales tax deduction amounts).
Many taxpayers include their previous year's state and local income tax return as taxable income but then fail to deduct state and local income tax paid during the current year. Amounts withheld from wages for state disability benefit funds and state unemployment funds are deductible, but contributions to private disability plans are not deductible.
5. Matching securities transactions
If you own stock, mutual funds and bonds, you should receive 1099B forms that report dividends or interest earned or gains from the sale of securities. Be sure that all the numbers reported to the IRS are correct and that the same numbers are used on tax returns.
6. Personal property taxes
Personal property tax is a commonly overlooked deduction. These are legitimate deductions if the tax is charged on an annual basis and include motor vehicle registration tax, auto environmental inspection fee, personal property assessment tax, and easement assessment tax.
7. Medical expenses
Deductions for medical expenses have been dramatically reduced, so many taxpayers don't consider this as a possible tax-saving deduction. But even small deductions are better than none.
To qualify, deductible medical expenses must be more than 7.5 percent of adjusted gross income. Expenses include hospital, doctor, dentist, medicine, medical and hospital insurance premiums, transportation and auto expenses for medical reasons, wages for nursing services, stop-smoking programs, birth control if prescribed by a licensed doctor, psychiatric care, the cost and care of guide dogs, and so on (see IRS Publication 502).
8. Charitable contributions
Canceled checks don't qualify as authentication of charitable contributions. For the gift to qualify as a contribution, taxpayers must have a receipt or an itemized contribution record issued by the charitable organization. No single contribution of $250 or more (cash or non-cash) is allowed as a deduction without written proof from the charitable organization.
Many homeowners miss tax savings for points (fees charged for the privilege of borrowing) paid on money borrowed. The amount paid is deductible for the year the points were paid if the loan was made to buy or improve a primary residence.
10. Foreign tax credits
Foreign countries and U.S. possessions or its subdivisions may impose taxes. These taxes can either be deducted as an itemized deduction or claimed as a credit against any U.S. tax owed. Review your 1099B forms for foreign tax credits paid on dividends from foreign owned stock.
Of course, you wouldn't intentionally make any of these mistakes on your tax return. But if attention isn't paid to detail, errors do call attention to the return, and this could result in additional tax liabilities or delay in receiving a tax refund, because the IRS doesn't ignore errors.
So, whether you're an old-fashioned, hard copy, paper variety filer or an e-filer, it's not too early to take care of your tax business. But before sending your tax return to your Uncle Sam at the IRS, go over it again to make sure you've made no obvious mistakes.
Howard Dayton is CEO of Crown Financial Ministries. Dayton and the late Larry Burkett joined forces in 2000 when Crown Ministries led by Dayton merged with Christian Financial Concepts led by Burkett. The new organization became Crown Financial Ministries, on the Web at www.crown.org. *The bracketed text has been added for clarity.
© 2005 Baptist Press. Used with permission. All rights reserved.
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