Some of the most common mistakes made at tax preparation time should also be some of the easiest to catch, with a little diligence.
According to the Ernst and Young Tax Guide, No. 1 on the list is math errors. These should be relatively easy to avoid altogether if you use software or file electronically. Using old-fashioned paper and pencil and simply double-checking your computation is another way to avoid a potential snag.
No. 2 on the list: Make sure you have correctly written your Social Security number on your return -- same for your spouse, if you are married. If married and filing separately, make sure each uses the appropriate Social Security number.
Another one to watch for: Make sure you've named all of your dependents. This may even include an elderly relative who doesn't live with you.
Other Tax Tips:
Be Organized | Free Tax Guide | Don't Overpay | Tax Scams | Earned Income Tax Credit | Free Help | Still Waiting For W-2? | Nanny Tax | Name Changes | College Savings | Taxes On Social Security | Unclaimed Refunds
Being Organized Is Full-Time Job
The time to begin getting organized with your tax documents isn't just a few days before the filing deadline. At the latest, it's when you receive the first of the items you need to begin filling in the numbers.
Eric Tyson, a financial adviser and co-author of "Taxes for Dummies," suggests you find a large folder or envelope to begin herding things like W-2s, 1099s and other important forms and documents. As he notes, when it's all in one place, it's easier to do your taxes.
Another consideration: When trying to pull together all of these key items at the last minute, one can too easily make a mistake. That could include missing an overlooked deduction that can help you to save on your tax bill.
Extra Work Can Save On Your Tax Bill
A study by the federal government found that more than 2 million Americans had overpaid their income taxes by an average of more than $400. Why? Because they claimed the standard deduction, rather than by writing off items like their mortgage interest payments, state and local taxes and contributions to charity.
To itemize, you'll need to use Form 1040. This is also the form to use if you have taxable income of $100,000 or more, if you have self-employment income or have income from the sale of property.
Remember, it may take some extra work and organization on your part, but you may be able to save hundreds or even thousands of dollars by itemizing your deductions.
Free Written Tax Help
Remember the reason you pay taxes? To finance the government. So you've already paid for the materials you can now get for free from Uncle Sam.
One of the best is Publication 17, which is several hundred pages long, comparable to the commercial tax guides available at the bookstore for $15 or more. If you call the IRS toll free, they'll mail "Pub 17" to you at no extra charge. If you want the material right away, you can download it and a lot of other free forms and publications from the
IRS Web site.
Another great thing about Publication 17 is that it has tax tables and a number of pieces of key information that can help answer many tax questions.
Still Waiting For A W-2?
For this year's tax filing season, you should have already received a W-2 form from your employer. The IRS requires this proof of earnings and taxes withheld be provided to you by your employer or former employer by the end of January.
If an employer isn't cooperating, the IRS can intervene. If they say they mailed your W-2 to you, make sure they have your correct home address.
If you are asking the IRS for some help getting your W-2, have the employer's name and address handy, as well as an estimate of your wages and federal income tax withheld. The toll-free IRS number is (800) 829-1040.
You need to know that you are required to file your return on time, even if you don't have your W-2. If you don't get it by the tax-filing deadline, use IRS Form 48-52, which is a substitute. The information you provide on form 48-52 has to be verified, and that can delay processing your return, as well as your refund if one is due.
Tax Scams Abound
Nobody wants to pay more in taxes than they need to. Unfortunately, there are people out there hoping to prey upon that instinct, launching tax-related scams.
The IRS says one of these problems is fraud perpetuated by tax return preparers. Some latch on to a portion of the filer's refund. Others charge inflated fees or guarantee larger refunds.
Some of the biggest problems involve illegal offshore transactions. Use of an offshore credit card, trust or other arrangement to hide income, or to claim false deductions on a federal tax return, is against the law.
Another scam: Thousands of blacks have been misled into believing they are due refunds related to reparations for slavery. Some of these promoters have landed in prison.
Help For Figuring Earned Income Tax Credit
Tax credits have appeal because they directly reduce an eligible filer's tax bill. And now, the IRS is making available an Internet-based tool to help filers determine whether they're eligible for the sometimes complicated Earned Income Tax Credit.
The Earned Income Tax Credit last year provided about $38 billion in relief to an estimated 22 million low-income families.
Congress intended the credit to offset the burden of Social Security taxes and to provide an incentive to work.
For this filing season, the maximum credit is $4,300 for those with two or more children. Find the
EITC assistant on the IRS Web site.
Sources For Free Tax Help
Even for the well-to-do, free income tax preparation help abounds over the phone and on the computer, beginning at IRS.gov.
For seniors and low- to moderate-income filers, there are additional face-to-face options.
Through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly Programs in many communities, volunteers provide help preparing simpler returns for people with low or limited incomes.
For seniors, AARP is the largest single group providing help. Military families are also provided a hand when needed.
For more technical questions, or for situations where you cannot pay the full amount of tax owed, IRS Taxpayer Assistance Centers are an option. These are for taxpayers who prefer a personal touch, where getting on the phone just won't do. There are dozens of these IRS offices across the country.
Don't Get Caught By 'Nanny Tax'
It makes for headlines when a presidential appointee goes down in flames for failing to pay payroll taxes for a nanny or other household employee. The fact is, these same rules apply to other taxpayers, too.
In general, the JK Lasser Income Tax guide points out that individuals paying a household employee $1,400 or more in 2004 must pay Social Security and Medicare taxes, just like every other employer. That's the so-called FICA withholding. This could be for wages paid to a nanny, maid, health care provider or other domestic worker. You'll also need an Employer Identification Number if you have a household employee.
The federal unemployment tax may also be required.
Excluded from the Nanny Tax is pay to part-time helpers under age 18, as well as compensation provided to your spouse, your parents and grandparents.
Possible Marriage, Or Divorce Afterthought
Understandably, it could be the last thing you think about. But if you are getting married or divorced and are changing your name, you'll need to inform the Social Security Administration.
A mismatch involving a name on your tax return and your Social Security Number could make for some unexpected headaches. That includes raising your tax bill or reducing a refund.
The IRS computer could fail to match a Social Security number for a newly married couple filing a joint return with the bride's new name. The same holds true for a newly divorced woman who goes back to her maiden name.
To make the name change official, use the Form SS-5, which is available at any Social Security office or at SSA.gov. Or you may ask for it over the phone at (800) 772-1213. It usually takes about two weeks to process the name change.
Taxes And Social Security Benefits
How do you know if you owe federal income tax on your Social Security benefits?
Generally, if the benefits represent your only income, then they are not taxable, and you probably don't have to file a federal income tax return.
The answer, however, becomes more complicated if you received other income during the year. To do the calculations, use the worksheet worksheet found in the instruction book provided with the Form 1040 or the 1040-A.
If your retirement benefits are subject to tax, you might able to avoid the problem in future years by having the government withhold federal income tax from your benefits. Complete Form W4V, Voluntary Withholding Request, and file it with the Social Security Administration.
Putting Money Away For College
The Coverdell Education Savings Account allows you to set aside up to $2,000 per year to cover your child's college expenses. When used for educational purposes, withdrawals from these accounts are tax-free.
You can use the money to pay for college tuition, books and other expenses. One advantage the Coverdell account has over the increasingly popular 529 account is that it may also be applied toward education beginning kindergarten and continuing on through high school. This is most useful for parents relying on private school.
Another advantage of the Coverdell accounts is that they tend to be less expensive because there are usually no management fees as there are with the 529s.
At the same time, eligible families typically can contribute much more to 529 plans than they can set aside for the Coverdell savings accounts. For some families, both plans may hold some attraction.
Land Of The Lost Refunds
The IRS has been trying to get the word out: More than 1.5 million Americans have failed to file for tax refunds covering more than $2 billion in withholding they paid three years ago.
Most of them failed to file income tax returns, and their opportunity to do that will expire with this year's April 15 filing deadline.
Under the law, the money becomes the property of the U.S. Treasury if it goes unclaimed for more than three years.
Most of the people who have this money coming to them worked less than a full-time, year-round job. Many are believed to have been students or retirees.
The government estimates that if 2001 returns were filed for this money, the average refund would be around $484.
But it doesn't work the other way around. If you haven't filed your return for 2001 and you owe the IRS, the three-year time limit doesn't apply to you. They have an unlimited timeframe to get you to file and pay.
Copyright 2005 by The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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