Tax Tidbit #12: Avoid Common Tax Return Errors

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, Read the rest of this entry »

Tax Tip #11: Billions of Dollars Are Waiting To Be Claimed From the 2004 Tax Year

There are 1.2 billion dollars in tax refunds waiting to be claimed from the 2004 tax year. This surplus exists because approximately 1.3 million people did not file a tax return for that period. And more than half of those tax payers will receive more than $500.

There is a three-year window to claim your refund. In order to collect a refund, a 2004 tax return must be filed by April 15th, 2008. If unclaimed, the funds become property of the U.S. Treasury.

Keep in mind, if you haven’t filed a return for 2005 or 2006, the IRS will hold your refund. The IRS may apply your refund to the amounts you owe for subsequent tax years.

Prior year forms are available on the IRS website or by calling 1-800-TAX-FORM (1-800-829-3676). For more information about filing prior year returns, send me an e-mail or contact your local tax professional.

Tax Tidbit #10: It is Alright to File an Extension

April 15th is around the corner–29 days and counting. Many of us haven’t started our tax returns yet. Don’t worry. It’s not too late. Just be careful because the most common tax return mistakes occur when we are rushed for time. Simple errors in calculation happen to the best of us. Double checking your numbers can be invaluable.

If you’d prefer to eliminate the stress of the impending date, consider filing a 6-month automatic extension. Use Form 4868 to request the extension. This is one of the simplest IRS forms, as is less than half a page in length.

You can also obtain an extension to file your taxes if you pay all (or part) or your estimated tax due with a credit card. The IRS states your payment must be at least one dollar and you can pay by phone or over the internet. Call 1-800-PAY-1040 (www.pay1040.com) or 1-800-2PAY-TAX (www.officialpayments.com). There will be a convenience fee for these options. However, it will be based on the amount of the payment you are making.

Please be aware that an extension of time to file is NOT an extension of time to pay. If you owe taxes they will begin to accrue huge penalties and interest April 16th! Read the rest of this entry »

Tax Tidbit #9: File a Tax Return to Receive Your Economic Stimulus Payment

By now you’ve probably heard of the Economic Stimulus Act, a $152 billion package to provide aid to the U.S. economy, signed into law last month. The new law provides for a credit on your 2008 tax return. Sounds great! But in reality the United States Treasury will be sending advanced payments on that credit. It won’t reduce the amount of tax you pay next year. When you file your 2008 return you won’t actually receive a credit. You’ll have to report that you already received the benefits.

The economic stimulus package has been highly controversial. Many people believe it won’t aid our faltering economy because the “credit” is not enough to offset the losses many of us incurred due to the declining housing marketing and plummeting stock market. Others think we will simply spend the money on items manufactured overseas further diverting the funds from our local economies. And I’ve yet to hear one single person say they won’t cash or spend the check!

It appears as though we can not do anything to prevent this additional debt from plaguing our future. The U.S. Treasury is not even offering the option to refuse this check and hold the credit until we file our tax return. That said, this tax tidbit discusses the basics of the rebate. To begin, it is based on four factors: Read the rest of this entry »

Tax Tidbit #8: Benefits of Electronic Filing (e-file)

This week’s Tax Tidbit is about electronic filing, or e-filing. There are many reasons and benefits to filing electronically. A Google search will pull hundreds of sites singing the praises of this tax filing alternative. Here are the need-to-know basics:

1. E-filed returns usually contain fewer mistakes. Using tax preparation software greatly reduces errors. They lead you through data entry and conclude with a comprehensive error check. Filing electronically eliminates more potential human error. When you submit a paper return, an IRS representative actually types your return into their system. It is just another possible pitfall.

2. Faster transmittal of your returns. No waiting for snail mail. Once you click the send button on the e-file software your return zips across the internet, directly to the IRS. You’ll also receive an e-mail from the IRS confirming their receipt of your return within 48 hours. This benefit is lost if you file a paper return. (Unless you add postage and mailing your documents “certified with return receipt”.)

3. Receive your refund quicker. Typical refunds from a paper filed return take about Read the rest of this entry »

Tax Tidbit #7: Double Check The Mailing Address Of Your Paper Return

Many taxpayers file their returns the old fashioned way, paper copies via the mail. In fact, 43% of people choose this route. While there are other options, something just feels great about putting postage on your return and dropping it in a mailbox.

This year the IRS is warning taxpayers to check the mailing address for their returns carefully. The mailing addresses have changed for several states. If you are filing a paper return (with or without a payment) check the address carefully. The nearest filing center may not be in your home state–it may be in a neighboring state. Read the rest of this entry »

Tax Tidbit #6: Deduct Un-reimbursed Business Expenses

Last weeks Tax Tidbit prompted a great question. Nina asked if there were any tax tips for those of us with un-reimbursed business expenses. If you spend your personal money for business expenses, and your employer does not reimburse you, you may be able to deduct those expenses on your personal tax return.

The IRS Publication 529 outlines details about un-reimbursed employee expenses. A few rules apply. First, you can only deduct expenses which you paid or incurred during your tax year. Second, the expense must be for carrying on your trade or business or being an employee. And finally, the expense must be “ordinary and necessary”. The IRS defines ordinary as being a common expense in your trade, business or profession. The expense is necessary if it is appropriate and helpful to your business. (The expense doesn’t need to be “required” to be considered necessary.)

Here are a few types you may be able to deduct: Read the rest of this entry »

Tax Tidbit #5: Deductible Business Travel Expenses

My Aunt and Uncle are in town for a business trip and we just spent a lovely day on the California coast. In the course of our conversations, I reminded them to save their receipts from this trip for their taxes. Which brings me to an easy tax tidbit for this week.

If you are traveling for business you can deduct the entire cost of travel transportation, from airfare to cab fare, and your hotel expense. You can also deduct any business related parking, telephone, and internet connection fees.

There are two commonly overlooked business travel deductions, tipping and dry cleaning. Tip your driver, bellhop, and housekeeping staff. Simply keep your receipts and take the deduction—especially if you paid cash. Having your dirty laundry cleaned while you are traveling might seem extravagant, it is 100% deductible. At that price, why not go home with a suitcase full of clean laundry! Read the rest of this entry »

Tax Tidbit #4: Keep All Your Tax Documents In One Place

I get more mail in January than any other month of the year. Post-holiday sale catalogs, political campaign material, year-end bank statements, and most important—tax documents. In an effort not to loose mail of importance, I’m diligent about checking each piece carefully. (Sometimes sneaky junk mail is disguised as real mail.)

This weeks tax tidbit is very simple but often overlooked. Keep all your tax related documents in one place.

Once I sort the junk mail to the recycle bin and bid it ado, I open the remaining pieces. Then I file them in their appropriate folders and baskets. Each January I label one folder with the current tax year and keep it by my computer. As various 1099s, interest income statements, charitable contribution summaries, and mortgage interest statements come they all find their way to one place. With the amount of mail coming through my office, I don’t want to loose these valuable pieces of information.

I open my tax related documents immediately and verify the amount matches what I logged in QuickBooks. If there is an error, Read the rest of this entry »

Tax Tidbit #3: How to Obtain a Copy of Your Tax Documents

As you gather information for your 2007 tax returns, you may need to refer to prior year returns. Do you know where your archive records are? Are they in the basement, or storage closet? Or perhaps they were they destroyed in a flood or disaster? Did you lose them during a move?

While I generally advise clients to keep their tax returns for seven years, it doesn’t always happen. If you can’t locate or retrieve your tax records don’t fret! The IRS can provide transcripts and copies of documents you’ve files and information about your account.

The IRS can provide two replacement documents, a tax return transcript and a tax account transcript. First determine which document you need, as they vary greatly. Read the rest of this entry »