Tax day 101: top mistakes to avoid on your tax return
With tax day approaching, here are some common tax-return mistakes that Americans make. A key stumbling block: the 'making work pay' credit.
Not much time is left before the IRS buzzer sounds and those tax forms are due.
As Americans pore weary-eyed over spreadsheets and instruction booklets, sometimes it's easy to overlook important mistakes. Many are easy to avoid, if you take a moment to review some basics before tax day.
In honor of April 15, here are 15 common tax-return mistakes to avoid, according to tax experts and the Internal Revenue Service itself.
1. Being ignorant about the "making work pay" credit. This was President Obama's tax-cutting pledge on the campaign trail. It's now a reality, worth up to $400 per worker. But people haven't learned how to claim the credit properly, causing it to pop up as the most common mistake cited by the IRS this year. (As of April 2, the agency had notified more than 575,000 Americans of this error.) Open up "Schedule M" and grab those savings.
2. Not taking the home-buyer tax credit. The housing market has been tough. It's even tougher if you bought your first home in 2009 and don't take advantage of a tax credit worth up to $8,000. Information is available at a special IRS Web page.
3. Passing up the opportunity for tax-free retirement savings. April 15 isn't just tax day; it's also the deadline for making contributions to an IRA (individual retirement account) for 2009. Whether you contribute to a Roth or traditional IRA, the result can be considerably reduced taxes on your savings. Build that nest egg if you can – and also report those IRA contributions as required by the IRS.
4. Not attaching W-2 forms. Staple it to the front of your return, if you're a wage earner.
5. Letting your refund go astray. Double-check the routing numbers if you're seeking direct deposit of a tax refund. An incorrect account number or financial institution routing number can cause your refund to be delayed or deposited into the wrong account.
6. Rushing to "get it over with." If you're uncertain about a tax issue, it's probably better to file for an extension than to rush your taxes into the mail with the thought that you can amend it later if it's wrong.
7. Thinking that filing for an extension exempts you from paying. You still have to pay your taxes by April 15 (or you'll owe a penalty). It's just the tax forms that can wait.
8. Making a math error. Double-check your math, especially on the big items – your key income and deductions. Your tax software did the math for you? That's great, but it's only as good as the numbers you typed in. While you're at it, make sure you typed your Social Security number correctly.
9. Not boosting your standard deduction if you're over 65. For people who don't itemize deductions, the standard deduction steps up when people reach that age threshold.
10. Mixing up where things are deductible. Income from US Treasury securities, such as Treasury bonds, is tax-exempt at the state level, but not at the federal level. Municipal bonds are exempt from federal taxes.
11. Forgetting to keep your own copy. Photocopy your return or make a second printout for your own records. (The computer-oriented can also scan it and save it as a digital document – but store it securely, such as on a flash-memory drive that you keep locked up.)
12. Failing to sign and date the return. If you file jointly, both individuals must sign. And if you owe money, remember to enclose payment. (If you pay by check, adding a memo "For Form 1040, tax year 2009" can help ensure that your payment gets properly credited.)
13. Forgetting a state tax refund from 2008. If your state sent you a tax refund during the 2009 calendar year, the IRS wants to see that reported as income (there's a line for it on Form 1040). Remember the flip side of this coin, too: If you itemize deductions, you can deduct tax payments you sent to the state during 2009.
14. Not adding enough paperwork with your state income-tax return. Some forms from your federal return may be required as add-ons. If you had capital gains, for example, you may need to enclose the federal Schedule D with your state return.
15. Sending your return to the wrong address. If you file by mail, the IRS recommends that you using a peel-off label they provide (you can hand-correct any mistakes on that label). Or you can check where to file on the IRS website at http://www.irs.gov/file/index.html. To join the growing ranks who file electronically, you can also learn about "e-filing" at www.irs.gov.
Also in Tax Day 101:
Part 1: Top mistakes to avoid on your tax return