For Mark Roberts’ Use: Tax season has begun, and that means most of us are busily preparing our returns. Tax time can bring a lot of anxiety, because no one wants to have their return rejected or audited. The good news is, most problems can be avoided by watching out for these very common tax mistakes:
Keep your receipts. If you’re going to itemize deductions, such as charitable contributions, you should keep receipts proving those amounts. For one thing, it makes your calculations much easier, since you only have to look at a stack of receipts rather than searching through old bank statements or duplicate checks. Also, saving these receipts along with a copy of your return will help quickly clear up any misunderstandings in the event you are audited.
Watch for small mistakes. Some of the most common tax filing mistakes include incorrect Social Security numbers or information entered on the wrong lines of tax forms. Be diligent to check every detail of your return. Set it aside, and go over it again the next day before mailing your return.
Be careful about mailing your return. Many people choose to mail their returns the old-fashioned way, rather than utilizing electronic delivery methods. This is certainly an acceptable choice, but insufficient postage and missing the deadline are both more common than you’d think.
Sign and date your return. You might be amazed to find out how many people forget this last, but very important, step!
Report stock sales correctly. If you sold stock at a loss, don’t make the mistake of thinking you don’t have to mention it on your tax return. The IRS will receive a 1099 form listing the sale, and they will automatically assume it was a profit unless you record the transaction as a loss on your return.
Report IRA plan distributions correctly. The taxable amount can be difficult to determine if your cost basis has been adjusted for transaction fees or returns of capital. It’s best to consult a tax professional if this situation applies to you, so you can prevent incorrect reporting of income.
Watch out for Schedule E mistakes. Schedule E forms are used to report income from items such as rental property, estates, partnerships, royalties, and S-corporations. These forms are notoriously tricky, and are commonly the source of tax filing errors. It’s best to consult a tax professional if these items apply to you.
Ask for an extension if you need one. Filing for an extension does not mean your return is more likely to be scrutinized and audited, as many people mistakenly believe. In fact, taking this step protects you, since you have more time to gather the information you need, consult with your tax professional, and do it right the first time.