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10 tax mistakes
March 10, 2003
By Larry Burkett, Chairman, Crown Financial Ministries
Most taxpayers submit tax returns or extension applications by April 15, but not all taxpayers submit error-free tax returns. Thirty-five 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. Although the mistakes taxpayers make on income tax returns are wide-ranging, 10 seem to be the most common:
1. Social Security numbers
This is the number one oversight. The Internal Revenue Service (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; failure to do so could delay refunds by months.
2. 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.
3. 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. Many taxpayers include their previous year's state and local income tax return as taxable income, 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.
4. 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 all numbers reported to the IRS are correct and that the same numbers are used on tax returns.
5. Personal property taxes
Personal property tax is a commonly overlooked deduction. These are legitimate deductions if the tax is charged on an annual basis. They include motor vehicle registration tax, auto environmental inspection fee, personal property assessment tax and easement assessment tax.
6. 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 physician, cost of lead-based paint removal, psychiatric care, the cost and care of guide dogs, and so on. For additional information, see IRS Publication 502.7.
7. 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 (cash or non-cash) or more will be allowed as a deduction without written confirmation 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.
9. 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 1099B forms for foreign tax credits paid on dividends from foreign owned stock.
10. Signature and date
Second only to failure to include accurate Social Security numbers is the mistake of forgetting to sign and date the tax return. Without a signature and date, the return is incomplete and could be returned for the signature and date, thus delaying any potential tax refund.
Of course, you wouldn't intentionally make any of these mistakes on your tax return. But if attention isn't paid to detail, mistakes do call attention to the return. This could result in additional tax liabilities or delay in receiving a tax refund, because the IRS doesn't ignore errors.
So, before sending your tax return to the IRS, go over it again to make sure you have made no obvious mistakes. (BP)