Updated March 13
GAINESVILLE, Ga. (BP)–Most taxpayers submit tax returns or extension applications by April 15, but not all taxpayers submit error-free tax returns.
The Internal Revenue Service (IRS) tells us that about 35 percent of all personal tax returns have at least one mistake with a negative impact on the taxpayer, and 17 percent have at least one mistake that affects the person positively. Electronic filing (e-filing) may help alleviate these errors because, generally, e-filing will not allow you to leave out critical information on your tax return.
Although mistakes on income tax returns are wide-ranging, 10 seem to be the most common when filing non-electronic returns.
1. Social Security numbers.
This is the number one oversight. The 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, and failure to do so could delay refunds by months.
2. Signature and date.
Forgetting to sign and date the tax return (joint returns require both spouses to sign) is the second-most common mistake. Without a signature and date, the return is incomplete and could be returned for the signature and date, thus delaying any potential tax refund.
3. Interest income.
Many taxpayers include stock and mutual fund dividends or annuity disbursements in their gross income, but 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.
4. 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. Taxpayers who itemize deductions have the choice of claiming their state and local sales taxes instead of state and local income taxes (see IRS Publication 600 for tables for figuring sales tax deduction amounts).
Many taxpayers include their previous year’s state and local income tax return as taxable income, but 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 deductible.
5. 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 that all the numbers reported to the IRS are correct and that the same numbers are used on tax returns.
6. Personal property taxes.
Personal property tax is a commonly overlooked deduction. These are legitimate deductions if the tax is charged on an annual basis. Personal property tax includes motor vehicle registration tax, auto environmental inspection fees, personal property assessment tax and easement assessment tax.
7. 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, and wages for nursing services.
Even stop-smoking programs may be deductible if prescribed by a licensed doctor, and so is psychiatric care, the cost and care of guide dogs, and so on (see IRS Publication 502).
8. Charitable contributions.
All contributions — even a few dollars — must have written proof from the charitable organization or a cancelled check.
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 during which the points were paid — if the loan was made to buy or improve a primary residence.
10. Foreign tax credits
Foreign countries and U.S. possessions 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 your 1099B forms for foreign tax credits paid on dividends from foreign-owned stock.
Of course, you wouldn’t intentionally make any of these mistakes on your tax return. But if attention isn’t paid to detail, errors will call attention to the return — and this could result in additional tax liabilities or delay in receiving a tax refund, because the IRS doesn’t ignore errors.
So, whether you’re the old-fashioned, hard copy, paper variety filer or an e-filer, it’s not too early to take care of your tax business. But, before sending your tax return to Uncle Sam at the IRS, go over it again to make sure you’ve made no obvious errors. After all, some mistakes could be in that 17 percent bracket and work for your benefit.
Howard Dayton is co-founder of Crown Financial Ministries and the current host of Crown’s radio program, “Money Matters.” Dayton and the late Larry Burkett joined forces in 2000 when Crown Ministries, led by Dayton, merged with Christian Financial Concepts, led by Burkett. The new organization became Crown Financial Ministries, on the web at www.crown.org.