Avoid These Mistakes When You File Your Tax Return

According to the IRS, taxpayers continue to make the same mistakes every year when they file their tax returns. These mistakes lead to at best a delay in receiving your refund and at worse, closer scrutiny of your return by the IRS examiners. All of the following common mistakes are easily avoidable by exercising due diligence.

Using and verifying one’s proper social security or taxpayer identification number seems to be more difficult than one would expect. While entering a taxpayer’s proper number on the return is easy enough, problems can and do arise when a third party reports income and deductions to IRS using the wrong number. Pay careful attention to 1099’s. For example, reporters sometimes use your number on your child’s account or vice versa. Divorced taxpayers sometimes have their home mortgage interest deduction reported on form 1098 under their ex-spouse’s social security number Also, be careful to enter the correct social security number of your dependent child or your return will bounce.

Some taxpayers, at least according to IRS, have difficulty in determining their proper filing status. This mistake is especially common among taxpayers whose marital status is in flux. With respect to the tax code, you are either married or not on the last day of the year. If you are married, you can choose between filing a joint return with your legal spouse or choose to file as married filing separately. You cannot file as a single taxpayer. For most taxpayers, filing a joint return will result in lower taxes, but can subject an “innocent” taxpayer to the tax liabilities of their spouse. When in doubt, use the married filing separately status because you can later amend your return and file jointly with your spouse. You cannot initially file a joint return and later amend to file married filing separately. Single and certain married but legally separated taxpayers who maintain the household of certain dependents may qualify for the head of household filing status, which is better than single or married filing separately. According to IRS, this option is either frequently overlooked or wrongfully used.

Failing to claim or wrongfully claiming the Earned Income Credit is another common error. The rules are extremely complex but if not addressed you can cost yourself a lot of money by failing to claim or subject yourself to substantial penalties by wrongfully claiming the credit.

The IRS seems to have developed a form for every issue and strongly prefers that you use their forms. For example, if you claim unreimbursed employee business expenses as a deduction, be sure to use form 2106 or you return may bounce. Similarly, non cash charitable contributions over $500 will be disallowed unless IRS Form 8283 is attached to the tax return.

An error that is increasingly becoming more common is the failure to compute and pay the Alternative Minimum TAX (AMT). The AMT is a tax that parallels the income tax and is payable to the extent it exceeds the regular income tax. Taxpayers with income greater than the AMT exemption of $46,700 ($70,950 for joint returns) must consider this tax or IRS may do it for them. As usual. IRS has a form (6251) to help compute this tax.

Finally, be sure to sign and date your tax return.