Tuesday, February 5, 2008

Five Common Tax Filing Mistakes

Mistake #1: Failing to Claim Above-the-Line Deductions & 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. Your life will be much simple if you have turbo tax promo codes.

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 and using turbo tax promotion codes. 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.

Mistake #3: Missing Out on Last-Minute Tax Breaks

Taxpayers have until April 15th 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 15th. (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 and use good software like turbotax.

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