Tax Time Blunders

It's virtually guaranteed to happen every year - the IRS gets a slew of tax returns loaded with errors. These mistakes can range from the petty - failing to sign your tax return to pretty substantial mistakes. Whether intentional or not, these tax goofs can delay your refund or end up leaving you on the hook with a bigger-than-anticipated tax bill or additional penalties.

Math Errors

The number one taxpayer mistake is basic arithmetic errors. According to the IRS, the average 1040 form contains dozens of math miscalculations. These include basic errors in addition and subtraction, which can be avoided completely by using tax preparation software. Also, watch out for data entry errors such as transposing digits (e.g. putting $56,087 instead of $50,687). If the error leads to a tax deficiency, you automatically receive a bill for that amount. If you overpaid, the excess is applied to future taxes, credited or refunded at your request. You can't appeal such corrections, but you can ask in writing that they be reviewed if you think the IRS made a mistake.

Forget Documents

Don't forget to attach all informational forms to your tax return. These include all W-2 and 1099 forms that show you had taxes withheld from those accounts. If you had more than one employer, don't forget to attach wage statements from all employers.

Overlooked Deductions

Itemizing your deductions instead of taking the standard deduction will generally save you m ore money. If you already itemize your deductions, make sure you're squeezing every cent out of them. Some important deductions you won't want to overlook are:

Charitable contributions (donations)
Health insurance premiums
Medical expenses
Traveling and mileage expenses (e.g. tolls paid)
State sales tax or state income tax deduction
Volunteer work expenses
Investment expenses
Home office expenses
Electric vehicle credit
Gambling losses
Expenses for cleaning your work clothes/uniforms
Clean-fuel deduction (for hybrid car users)
Bonds-buying expenses
Job-search expenses
Job expenses not reimbursed by employers
Education expenses
Tax return preparation expenses

Tax Form Errors

These include lines you forget to fill in, entering information on the wrong lines, or spelling errors. Watch out for these mistakes:

Social security numbers that are incorrect, missing, or don't match your name.
Missing signature/s. Sign and date your tax return; if it's a joint return, make sure your spouse's signature is there, too.
Wrong or no filing status. Read the instructions to make sure you qualify for a certain filing status...and choose only one!
No exemptions entered. Also, make sure to enter the correct social security numbers for each listed exemption.

Deadlines

Avoid getting a penalty charge because you miss the filing deadline. If it's because you don't have the money to pay the taxes you owe, file anyway. You can apply for an "offer in compromise", make monthly payments through an IRS installment agreement, or temporarily delay paying. Whichever is best for you, contact the IRS right away to let them know you cannot pay. You should pay as much as you can when you file because the IRS assesses penalties and interest on the amount not paid. If your taxes simply aren't ready and you know you can't make the deadline, make sure you file for an extension.

Paying Your Tax Bill

Some tax payers simply don't have the funds to pay their tax bill and must use borrowed money to pay the IRS. Although this is a better approach than not paying your taxes at all, you should investigate the best way to borrow the money. Compare the interest rate of your credit card with that of a personal loan from your bank or credit union. The idea is to incur the least amount of money in interest. Try to pay off the loan as soon as possible and do what you can to avoid the same situation next year. To pay your taxes on time, you may need to adjust your withholding on your W-4 with your employer or put aside money each pay period in a savings account.

Letters from the IRS

Never ignore correspondence from the IRS. If you do not communicate with the IRS your inability to pay, you will have a tax lien filed against you. The lien attaches all of your property, including your house, car and any future property you might obtain. A levy, which is a legal seizure of property to satisfy a tax debt, is another legal means the IRS can use to collect taxes. This means the IRS can seize your car, boat or home and sell it to satisfy your tax debt or it can place a levy on your wages.

Liens are also reported to the bureaus and unlike the typical 7-year reporting period for negative information, liens stay on until paid in full. Once paid in full, then the 7-year reporting period begins.

Refunds

It's always nice to get a big check, but when in it's in the form of a tax refund that means that you either paid too much tax or withheld too much from your salary the previous year - simply stated, you didn't optimize your tax return.

Minimize your tax refunds by adjusting your withholdings. One way to do this is to claim more withholding allowances so you can reduce your withholdings.

If and when you do get a refund, don't just run out and spend it on something frivolous. Rather, apply it to your debts, put it in a savings account, or invest it.

Refund Anticipation Loans

Refund anticipation loans are heavily advertised around tax time. Lenders count on the impatience of taxpayers who want to cash in on their refunds as soon as possible. These types of loans are bad news and should be avoided at all costs. First, keep in mind that this is a loan. If the IRS denies any of your deductions or credits, or if you made any errors, you are still responsible for the full balance of the loan. Second, the fees and interest rates are extremely high and the loan could end up costing you much more than you bargained for.

Wait Until Tax Time to Think About Taxes

If you have deductions to claim and/or a fluctuating monthly income, it will be very difficult to keep things straight if you wait until April to sort through all of your receipts, bills, donations, checks stubs, etc. Organizing and itemizing documents on a monthly, or even weekly, basis will make your job much easier when it's time to file.

Tax Scams

Every year thousands of tax payers fall victim to tax-oriented schemes. There are many methods scammers use to entrap tax payers and steal their money or identity. The following link details the most common tax fraud schemes.

http://www.bankrate.com/finance/taxes/beware-of-tax-scams-during-tax-season.aspx