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10 Biggest Tax Mistakes
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10 Biggest Tax Mistakes

Between the complex forms, dense IRS rules and headache-inducing number crunching, tax time is hard to deal with -- and that's before you consider the prospect of making a mistake. Even a little misstep can lead to a bigger-than-necessary tax bill, a smaller-than-expected refund, pricey penalties and maybe even an audit. But it doesn’t have to be as dire as that. If you’re careful, tax experts say, at least 10 big tax mistakes can be avoided.

Math Errors
Math errors are more common among people who fill out their returns by hand, says Tim Gagnon, assistant academic specialist of accounting at Northeastern University’s D’Amore-McKim School of Business. No matter how you make the math error, that mistake could be enough to trigger an audit, especially if the error is substantially in your favor, or the details don’t match up with what employers and banks report to the IRS. In short, check your work.

Forgetting to Sign
“Believe it or not, people forget to sign the return,” says Michael Rozbruch, founder and chief executive of Tax Resolution Services Co. Yes, really. Double-check that your John Hancock is on the form before sending it in or risk delaying your refund.

Missing Deductible Items
It’s all too easy to miss eligible -- and valuable -- deductions, especially if you’re itemizing. For example, Gagnon says, people often forget to look for excise tax paid on a purchased or leased car, or a charitable deduction made through their employers that only shows up on a year-end pay stub. The best way around this one is to check IRS.gov’s lists of deductible items for itemized returns.

Not Getting Organized
Plenty of preparers charge by the hour, says Bill Norwalk, tax partner in charge at Northern California-based Sensiba San Filippo LLP. That means that walking in with a shoebox of receipts and other unorganized documents can add to your bill. Pull everything together before your appointment to shave off time and money.

Transposing SSNs
That nine-digit Social Security number is key to your return, but it’s all too easy to transpose digits, particularly when you're claiming dependents. This can delay your refund or result in the scary notification that a return for that SSN has already been filed (this can happen if the number swap turns out to be someone else’s ID).

Taking the Wrong Deduction
Should you take the standard deduction or itemize? The answer may not be the same every year. “You don’t take one and keep it forever,” Gagnon said. A change in circumstances, such as extra medical expenses, can unexpectedly push you over the threshold to make itemizing the better deal. The experts say you should calculate your taxes both ways -- itemizing and taking the standard deduction -- to see which method reduces your bill or increases your refund.

Failure to Document Non-Cash Donations
Deductible values of your donated items vary by the item and quality, says Norwalk. Without a detailed list, will you really remember the entire contents of those bags for Goodwill? Probably not, and that’s money lost. Going forward, keep a running list of everything you donate throughout the year.

Filing too Early
If you have a brokerage account, it’s common to get a 1099 for transactions made that year, and then a revised form or two as mutual funds and other securities make their final tax determinations. If you file before those revisions come in, Gagnon warns, your numbers won’t match those the IRS gets. “They’ll say you failed to report it,” he said, and then they may add penalties or initiate an audit. Your best bet is to wait to file until the revised forms arrive, or file and then revise the return.

Neglecting to Enclose a Check
This mistake can be particularly expensive. Taxpayers who don’t pay by April 15 face an even bigger bill, with penalties and interest, says Rozbruch. The typical penalty is 5 percent of the tax owed, multiplied by the number of months you’re late. Even if a payment is just a few days late, the IRS counts that as a full month. If your payment is more than 60 days late, the penalty is $135 or 100 percent of tax owed, whichever is less. This is a simple fix: review the check itself for problems, like a wrong amount or failing to sign, just before you put it in the envelope.

Failure to Report Interest Income
Financial institutions have to send you a 1099 if you made at least $10 in interest, but many banks will report even smaller amounts to the IRS, Gagnon says. “Technically you’re supposed to report it even if you don’t get a 1099,” he said. Failing to do so can trigger penalties, or an audit. Your best option is to check the year-end statements for a total and note it on your return.

Source: ehow.com