The countdown to April 15th is underway. As we rush to complete our returns common errors are inevitable. A few extra minutes proofing your return can be invaluable. Todays Tax Tidbit discusses how to avoid typical tax return blunders.
1. Use correct social security numbers. Nowadays we commonly use our Social Security number for identification. We’re accustomed to regularly repeating the entire number or even the last four digits. Take your time when entering this number on your tax return. An error such as transposing numbers can cause massive delays in processing your returns.
2. Sign your returns. If you are not filing electronically, be sure to sign your tax returns. If you are filing electronically keep a copy of your e-file confirmation. If you’ve hired a tax professional, you’ll need to sign Form 8879 (e-file Authorization). Your preparer will keep that document on file in their office in case proof of your e-file authorization is required.
3. Mailing a hard copy? Use correct postage. Having your tax return mailed back to you for insufficient postage is frustrating. The USPS changes their postal rates frequently. Recently modified postage fees based on the size of the package you are sending. When in doubt, have a USPS representative calculate the postage for you. For added peace of mind, mail your returns certified mail with return receipt. This way an IRS representative will actually have to sign for the delivery of your package and you’ll receive written confirmation.
4. Including a payment with your tax return? Be sure to sign your check. Indicate “2007 Form 1040” in the memo field. Also putting your social security number on the check helps avoid confusion about which account to credit with the payment.
5. Do you have carryover expenses from 2006? Review your prior year returns carefully for carryover items. If you have carryover items make sure to take advantage of them on your 2007 tax return. Look for possible carryover expenses in charitable contributions (Schedule A) and capital losses (Schedule D).
6. Take a standard deduction or itemize? It may take longer to tally your receipts but this one is worth it. Below are the amounts for standard deductions. If there is any chance your itemized deductions exceed these amounts, add up your expenses. Taking the itemized deduction is often more beneficial than we imagine.
Single or married filing separate $5350
Married filing joint $10700
Head of Household $7850
7. Have you claimed all of your dependents? We are used to including our children as dependents but it is easy to overlook the dependent care we provide aging parents. Remember you can deduct care provided for elderly parents who may or may not live with you. For more information about this deduction visit IRS Tax Topic 500.
8. Keep hard copies of all documents you submit to the IRS. In these days of electronic filing many of us assume we can keep electronic copies of our documents. I advise my clients keep an actual paper copy in addition to electronic files of their tax returns. With technology changing rapidly, who’s to say if we will be able to open the electronic files down the road.
9. If you are expecting a refund, you can have a portion (or all) of your refund applied to your 2008 taxes. Simply indicate the amount you would like applied to next years taxes on line 75 (Form 1040). If you had an amount applied from 2006 make sure to include it on line 65 (Form 1040).
10. Avoid common typos. Check, check, and triple check your math!
Don’t proof your return when you are tired. Take a break before proofing your tax return — relax your eyes and mind. Put your return aside for one day. Don’t look at it or think about it. Then go back the following day with a fresh perspective. You just may see something you overlooked.
Check back for two more installments of Tax Tidbits. I’ll cover topics such as following the status of your refund and negotiating payment arrangements with the IRS. In the meantime, I wish you the best of luck finalizing your returns!