Here's the lineup of the ten biggest mistakes that taxpayers make on their tax returns:
1) Bad math
According to the Internal Revenue Service, mathematic errors are the number 1 mistake that taxpayers make. Naturally that is the case because 50% of all tax returns are prepared manually. Not unlike the attorney who represents himself in court., if you are preparing your own tax return manually, you have a fool for a client.
SOLUTION
If you are the do-it-yourself kind, at least prepare your tax return by using one of the more popular computerized tax packages, Then have the tax return reviewed by a competent tax preparer, Each line of a normal tax return may have literally hundreds of pages of tax code, IRS procedures and court explanations. You need a "pro" to interpret the meaning and to maximize your allowable deductions. The advice from the "pro" should pay for itself many times over.
2) Forgetting interest and dividends
Interest and dividend payments are reported to the IRS by banks, brokerage houses and other financial institutions, The IRS computer cross checks your tax return with the Form 1098 submitted by these reporting entities. The real problem is the IRS takes a long time to report the mistake to you, resulting in penalties and interest on your account.
I personally remember getting one of these notices 10 years after the fact. Fortunately, I had kept all of my reports since day one and I had proof that the IRS was wrong; but I, like most Americans, paid the bill because I didn't want to be bothered with it. But a $2.50 interest income statement from a bank for my daughter, if left for 10 years, became $35.00 with penalties and interest.
SOLUTION
If you have an interest or dividend bearing accounts and have not received your Form 1099-NT or 1099-DIV from the financial institution, telephone the institution directly to get the information. They can fax it to you.
3) Forgetting to donate unwanted personal items to charity before December 31.
If you itemize your deductions, not giving your old clothes, furniture, appliances and automobiles to your favorite charity is a lost opportunity for additional deductions on your tax return.
SOLUTION
Plan to give to your favorite charity in 2000 all of those items that you wanted to sell in a garage sale. If your tax bracket is 28% and higher, you probably will make more money from your tax savings by donating the goods at fair market value (that is, retail at the time of the gift) than selling them at a great cash discount at your garage sale. Besides the time lost in working the garage sale, you need to factor in your costs of selling the goods,
4) Losing your receipts
The good news is that the IRS only audits less than 2% of the lax returns filed. The bad news is that your tax return is the one they audit. Without documentation of your deductions, you probably will lose the deduction.
SOLUTION
Always get receipts for every thing you do. And if you are like most of my entertainer tax clients, I recommend that you toss the receipt in a box and at the end of the year, either you or I can analyze the receipts. Also, there are several cheap computerized accounting packages available to buy that can give you the capability of computerizing these receipts in a fashion that would pass an IRS audit,
5) Forgetting to deduct job expenses
Most taxpayers want a simple, no hassle form of filing their taxes. That is why the Form 1040EZ is so popular. However, anyone who files a 1040EZ is probably overpaying on their taxes. Why? Because there are deductions you probably can take if you file a Form 1040 return instead,
SOLUTION
For example, let's say you are a single construction employee working on three major construction sites in Las Vegas Valley. One site is in Henderson, one is at the state line and the other is in Summerlin. You travel 25,000 miles per year to reach these sites each year and your employer does not reimburse you. In addition, you have $2000 in tools, union dues and special work clothes not reimbursed by your employer. If you make $30,000 for the year, you will have lost in itemized deductions at least $9,150. That means, you will have lost a net $1,370 in tax and cash savings if you filed a Form 1040EZ.
My recommendation is to pay a tax "pro" to file your 1040 for $100-$200 and pocket $1,170 and be happy with the refund.
Waite & Associates • Certified Public Accountants • Las Vegas/Henderson, Nevada • 800-666-6250 • 702-733-2727
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