If you're in a rush to mail or e-file your 2009 tax return, your haste can come back to haunt you in the form of penalties, interest and missed tax-saving opportunities. According to the tax pros, here are 10 common mistakes that plague individual filers.
1. Fuzzy math: By far the most common tax return error is faulty math. Numbers often are transposed, left out or added or subtracted incorrectly. And when a math error is repeated throughout your return, it can have a domino effect. Even if you use tax software, you’re not immune. For instance, you may have entered the wrong numbers in the first place.
Tip: Double-check your entries. Don’t take any calculations for granted.
Mastering Business Finance is a plain-English resource for business owners and professionals. Learn More...2. Incorrect ID numbers: These nine-digit identifiers are the “passwords” to your return. It’s easy to write down the wrong identification number for you or your spouse. Remember to check ID numbers for dependents such as your children or an elderly relative.
Tip: A mistake here could delay your return or, even worse, cost you a credit or deduction.
3. Discarded IRS labels: If you’re still filling out a paper return, use the preprinted label with your name and address the IRS sent you. Even if the label is wrong—for example, you might have moved in the past year—correct it by hand. Similarly, use the proper address label for refunds or payments.
Tip: Using the preaddressed label also will ensure your return is directed to the proper processing site.
4. Wrong 1040 forms: There are three types of 1040s. Most of our readers must deal with the longer 1040, but other filers—such as your children—may be able to use the simpler 1040A or 1040-EZ. But the long Form 1040 includes more tax goodies.
Tip: You don’t have to fill out every line on the form—just those that apply to you.
5. Omitted forms: Remember to include all W-2 forms (Copy B) to avoid delays in processing your return. Similarly, if you received a Form 1099-R reporting federal income tax withheld, you must mail Copy B of that form, too. Other forms required for extra tax deductions or credits are often omitted.
Tip: Put forms in the proper order following your 1040. Each form has an attachment sequence number in the upper right corner.
6. Unreported investment income: Based on your Social Security number, the IRS can keep tabs on your annual interest and dividend income. The information on the 1099s it receives may be cross-checked against the income you’ve reported on Form 1040.
Tip: If you receive a bunch of 1099s, it’s easy to misplace one or inadvertently omit it. Keep them all organized to avoid any oversights.
Get more tax financial advice, cash management strategies and much more in Mastering Business Finance7. Tax table entries: Watch out for the small print in the tax tables. You could easily misread the figures or use the wrong column for your tax filing status. Even worse: You might use the wrong tax table if you’re not careful.
Tip: Capital gains and losses require a separate computation on Schedule D. Work through a “sample” before you actually enter the figures.
8. Payment problems: If you owe a tax payment, make the check payable to the U.S. Treasury—not the IRS. Be sure the check is signed. Then simply include it in the envelope.
Tip: Don’t staple the check to your Form 1040. When an IRS staffer pulls it off, it could rip or obliterate other items.
9. Missing signature: It’s last but not least: Don’t forget to sign your tax return. The IRS won’t process a tax return that lacks a signature. This won’t hurt as much if you filed early, but it could cost procrastinators a penalty on taxes due.
Tip: Before you seal the envelope, take one last look at the entire return.
10. Tardiness: Unless you’re stranded on a desert island somewhere, there’s no excuse for missing the tax filing deadline. The failure-to-file penalty is generally 5% of the tax owed for each month, or part of a month, for up to five months (maximum penalty of 25%). If your return is more than 60 days late, the minimum penalty for late filing is the lesser of $100 or 100% of the tax owed.
Mastering Business Finance isn't just a how-to, it's a why-to. Mastering Business Finance answers the most frequently asked questions, like:
Get Mastering Business Finance now!
- What do you do if your banker won’t grant your company a loan?
- Have gains in volume been worth tying up assets?
- How can you reduce mistakes in allocating capital?
- Are your inventories and your competitors’ out of line?
- What limitations come with a fixed budget?
- How do you use the net present value tool?
- How can a smaller company “team budget”?
- What’s the best way to manage a financial crisis?
- Why can’t you substitute a budget for a cost reduction program?
- How can you continue to receive payments even after you eliminate your credit department?
- How to Fire an Employee the Legal Way: 6 Termination Guidelines
- 10 Secrets to an Effective Performance Review
- Small Business Tax Deduction Strategies
- Weigh the tax benefits of new Roth 401(k)s
- North Carolina ranks 38th on business tax index
- To what extent can we use electronic systems to store I-9s and other personnel documents?
- Dallas hospital owes $3.6 million for discrimination