Between now and April 15, millions of Americans will scramble to pull together receipts, bank statements, and a host of other documents in order to complete their annual tax returns on time.
Avoiding mistakes can make tax time less stressful and help ensure more savings on taxes. H&R Block’s National Tax Advice Day, is all about providing unique, free advice to help taxpayers find the most deductions possible and get more money back—faster than ever!
Even the most organized among us can overlook important tax details in the rush to complete our tax returns. And these mistakes can be costly. That’s why it’s important to be wary of five common filing mistakes:
Mistake #1: Failing to Claim Above-the-Line Deductions and Credits
Sometimes taxpayers don’t realize that they qualify for tax credits and deductions that can help lower taxable income. As a result, they can miss out on potentially significant savings. The Earned Income Tax Credit, Child Care Tax Credit, various education tax deductions, and IRA-contribution deductions are all available even if the taxpayer doesn’t itemize. Once the allowable items have been identified, it’s important to calculate and enter the credit and deduction amounts correctly on the return.
Mistake #2: Not Itemizing Deductions
Some people automatically take the standard deduction instead of looking closely to see if it’s more advantageous to itemize. According to the General Accounting Office (GAO), more than two million taxpayers use the standard deduction even though they could save more in taxes by itemizing. For example, nearly one million people fail to itemize mortgage interest. This results in an overpayment of more than $470 million in taxes, according to a 2002 GAO report.
In addition to mortgage interest, taxpayers should consider itemizing the following deductions:
- Medical expenses (health insurance premiums, prescriptions and other qualified medical expenses)
- State and local income tax and personal property tax
- Charitable contributions (to churches and other non-profit organizations)
- Out-of-pocket job expenses not reimbursed by employers
Mistake #3: Missing Out on Last-Minute Tax Breaks
Taxpayers have until April 15 of the following year to make a tax deductible contribution to a traditional IRA. For tax year 2005, the maximum IRA contribution that can be deducted is $4,000 ($4,500 if you’re at least 50 years old). Not only do contributions help taxpayers save on taxes today, but they also move them closer to a comfortable retirement. So if you’re looking for a last-minute tax tip, opening a traditional IRA is an attractive move between year-end and April 15. (Note: The maximum contribution amount for 2006 and 2007 is also $4,000; in 2008, the maximum will increase to $5,000 and will be adjusted for inflation thereafter.)
Mistake #4: Omitting Key Documents
Taxpayers must remember to attach to their returns copies of supporting documents, such as W-2s, 1099s, various schedules, and forms and any other relevant information to validate reported income. Otherwise, there may be a delay in processing their return if the IRS requests clarification.
In addition, the IRS may modify a refund if they can’t verify the amount of taxes paid through withholding. For example, if a W-2 is not attached and the return indicates there is a refund, the IRS can simply reduce the refund by the amount of withholding not verified. So take an extra minute to be sure all supporting paperwork is attached to the return.
Mistake #5: Making Simple Errors
According to the Internal Revenue Service, numerical errors (such as miscalculations or typographical errors) and incorrect Social Security numbers are the two most common mistakes on tax returns. These simple errors often lead to delays, notices from the IRS and other problems that can be avoided by taking a few minutes to double-check all the numbers. Here are a few key points to pay attention to:
- Check that the correct marital status and number of exemptions is entered
- Make sure the correct Social Security number is entered and that each Social Security number corresponds with the respective taxpayer and any dependents
- Verify all income that is reported. Make sure the total amount is entered and that numbers aren’t transposed
- Double-check calculations to ensure that refund amounts are entered accurately. If a tax payment is due, be sure to enter the correct amount in the proper place and attach a check to the return.
- Finally, sign and date the return, affix the correct postage and mail by midnight on April 15 to avoid any penalties
Convenient, Accurate Filing
On average, taxpayers overpay Uncle Sam each year by about $400 per return due to missed tax breaks and savings incentives. It may, therefore, make sense to seek the assistance of a tax professional to ensure you claim every tax break you’re entitled to receive. In addition, most tax preparers e-file returns to the IRS, which is another safety net to ensure the accuracy of your return and reduce the time it takes for you to receive any refund you’re due. For more information about the ease and convenience of electronic tax filing and more useful tax advice, visit NationalTaxAdviceDay.