9 Last-Minute Tax Filing Pitfalls to Avoid
With the tax-filing deadline on Monday, April 18, plenty of taxpayers will be spending their weekend filling out forms. If you're one of them, you want to make sure that you don't make costly mistakes or overlook money-saving deductions in your rush to complete your tax return. Here are nine pitfalls to avoid.
Being unwilling to admit you need more time. If you discover over the weekend that your tax situation is just too complicated to sort out in a few hours, file for an extension with the IRS to delay the due date for your return until October 17, 2011. You'll still have to mail a check to the IRS by April 18 if you owe (you can estimate the amount). See How to File an Extension to learn more.
Overlooking the Making Work Pay credit. You’ve probably been enjoying the fruits of this credit via reduced payroll tax withholding throughout the year. But to lock in your savings -- by reducing your tax bill by $400 if you’re single or $800 if you’re married and file a joint return -- you’ll need to actually claim the credit on your 2010 tax return -- and you'll use Schedule M to do so.
The credit is equal to 6.2% of your earned income, capped at $400 or $800. For single filers, it starts phasing out at $75,000 of adjusted gross income and dries up at $95,000. The phase-out zone for couples is $150,000 to $190,000. This is one of the most-overlooked tax deductions we’ve identified.
Getting caught in the weeds. Too many people get in a frazzle because they’re looking for every last little receipt that could save them $2. Make sure that before you go into a paperwork tailspin that it’s worth it for you to itemize. The standard deduction is $11,600 for married couples filing a joint return, $5,800 for singles and married individuals filing separately, and $8,500 for heads of household. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes. Do note that wealthier filers win big this year: The tax agreement passed in late 2010 means their itemized deductions aren’t cut back anymore.
Remember that medical expenses have a separate threshold: You can write off only those out-of-pocket medical and dental expenses that exceed 7.5% of your adjusted gross income. If your adjusted gross income is $50,000, for example, and you have $4,000 in unreimbursed health-care costs, you would be able to claim a skimpy $250 as an itemized deduction on Schedule A. So, do some ballparking of your expenses before you go on a document hunt. Read more about The Challenge of Deducting Medical Expenses.
Paying Uncle Sam rather than yourself. If you owe the IRS, you may be able to lower your tax bill by contributing to an IRA. You have until April 18 to make a contribution for 2010. You can deduct your contribution if you're not covered by a retirement plan at work. Depending on your income, you may be able to claim a deduction even if you or your spouse are covered by another retirement plan at work. See Fund an IRA, Cut Your Taxes.
Mixing up a Social Security number. Year after year, the IRS says bad Social Security numbers are at the top of the list of taxpayer mistakes. Pull out your Social Security card -- as well as the cards of your spouse and dependents -- and check the numbers against what is on your tax form. Forgetting to enter a number, or transposing two figures, will slow down your refund (if you're getting one) or lead the IRS to reject your exemptions for dependents if you get their numbers wrong.
Getting bank routing and account numbers wrong. If you are getting a refund and are electing to have it deposited automatically into your account, make sure you enter your information correctly so the money actually shows up in your account.
Leaving off a signature. The IRS says this is one of the most common mistakes, and it won't process a return without a signature. Everything will be put on hold while the IRS sends you a special form to sign certifying that your return is accurate.
Forgetting to attach forms. If you file a paper return, make sure you attach your W-2 and other forms that reflect tax withheld to the front of your return. If you're claiming credits that require special documentation, such as the homebuyers credit, include those records with your return.
Making math mistakes. Another big source of errors is basic addition and subtraction mistakes. The easiest way to avoid this pitfall -- as well as the previous two on this list -- is to use tax software and file your return electronically. Programs such as TurboTax, TaxAct and TaxCut will ask you questions about your income and expenses and do the math for you. And when you e-file, you won't have to include a W-2 and you'll be prompted to sign your form electronically. If your income is $58,000 or less -- which accounts for about 70% of all taxpayers -- you qualify to use free tax-preparation and filing software at www.irs.gov/freefile.
Not enough postage On April 17, the rate for extra postage is going up. The price of a first-class stamp stays the same, but if you've got a fat return that weighs more than an ounce, make sure you put enough on the envelope. New rates are available at this USPS link. You'd hate to have all that hard work come back to you with an uncashed check that means penalties and interest are accruing.