Mistakes in The Tax Most Often Occurs

Eric | Jan 31, 2010 | 1 comment

Below I try to make a list of Mistakes in The Tax Most Often Occurs :

Protect Yourself From an Audit
That’s who cares thought to the many self-crosses the pipeline, while they are ready to tackle their taxes. Veteran CPA Steve Duben says it’s history as old as time. “The truth of the matter that the law is not easy to understand and too complicated,” Duben said. “The IRS claims that the average self-prepared tax returns of an individual 21 ½ hours one to complete. This includes the information required by the return, understand and collect and prepare”.

If you’re want and abled to put in the time and the effort to prep your own taxes this year, Duben gave Main Street a list of the most common tax mistakes he’s found and how to avoid them.

Forgetting to Report All Income
What you did freelance work while looking for the dream job you finally landed in September? You still need to report that your return of income in 2009.

“Some taxpayers believe that their failure to form in 1099 when they were receiving no income to report,” said Duben. “IRS has a long gun and seems to know what was and was not reported. To avoid this, take your time and review all sources of income.”

What’s the penalty if you don’t report all income? Duben says “The cost, besides the tax will be interest at 6% per year and penalties of up to 20%.”

Accounting for Business Expenses
Did you buy a deluxe espresso machine and want to call it a “business expense” on your taxes since you run a business from home? Think twice.

“Business expenses need to be ordinary and necessary for the business. Taxpayers should also be able to substantiate the expenses and their business purpose if asked by the IRS or other taxing agency. If the expenses cannot be substantiated then they will be disallowed upon audit and … the cost will include the tax, interest and possible penalties,” Duben says.

Sorry, that americano probably isn’t “necessary for the business.”

It Has to be From 2009
Want to deduct moving expenses from when you switched jobs and moved to New York? Great, but didn’t that happen right before New Year’s Eve in 2008? Sorry, that’s not deductible.

Duben says “Any deduction to be deducted on an individual’s tax return needs to be paid (or charged on a credit card) during the tax year.”

Next time, wait until Jan. 1 to book that flight.

Paying for Other People’s Expenses
Even if you’re a nice person, the IRS doesn’t really care.

“Some taxpayers consider payments of expenses for another as their expense. The law only allows one to deduct his/her expense,” Duben says.

Nice guys really do finish last.

Report Medical Expenses Net of Reimbursement
Health care expenses are a little too complex for us, so let’s leave it to the experts.

In IRS Publication 502, it states “You cannot include medical expenses that were paid by insurance companies or other sources. This is true whether the payments were made directly to you, to the patient, or to the provider of the medical services.”

Deducting Interest on Million-Dollar Mortgages
Some self-preparers might get excited to hear you can deduct the interest on your home loan. But, wait a minute, there’s a catch.

Duben explains, “Interest on one’s home is limited to loans of $1.1 million – any interest on a loan over this amount is not deductible.”

Well, at least Uncle Sam is looking out for the little guy. Owning a home is tough nowadays.

Forgetting to Keep Track of Charitable Giving
Reciepts, receipts, receipts. We can’t say it enough here at MainStreet. When it comes to tax time, good record-keepers will win.

As Duben explains, “Contributions over $200 require a letter from the charity to substantiate the deduction. Contributions in which something is received such as a dinner or merchandise can only be deducted to the extent the contribution exceeds the fair market value of goods or services received.”

So, if you won a pair of tickets to the Super Bowl at a blind auction for charity, but only paid $20 for them, you’re out of luck (and a deduction). Then again, you do have Super Bowl tickets.

Trying to Deduct Your “Time Donation”
Doing PR for a charity if your a PR professional is a really good deed, but it’s still not tax deductible.

Duben says that donating your own time doesn’t create a deduction for the value of the time donated. So, if you normally charge $60 an hour for your PR services and worked for 15 hours for the charity, sorry, but you can’t take $900 off of your taxable income.

Not Taking a Reimbursement, Then Wanting to Deduct It
Say your employer offers to reimburse you for the conference you attended in the spring of 2009, but you turn it down because you’d rather have the deduction. Opps, not a good move.

“Employee-related expenses can be deducted if they are related to employment, required by the employer and not reimbursed or reimbursable. Not claiming a reimbursement from the employer if it is available does not create a tax deductable expense,” Duben said.

Deducting Mileage Without Records
If you use your vehicle for business, you can deduct your mileage on your tax return, but make sure you’ve kept adequate records. If your log isn’t exact, the IRS is not going to be happy.

Duben says it very simply: “Auto mileage needs to have a log to substantiate the amount claimed.”

Claiming a “Dependent”
With so many “boomerang” kids coming home to live with mom and dad, it’s no surprise that the definition of a “dependent” is very important this year.

If you want to claim a dependent on your taxes this year, but you aren’t sure if the person fits the definition, make sure you visit the IRS Web site or ask a professional tax preparer. The IRS site has a really good tutorial on the ins and outs of who counts as a dependent.

Using the Wrong Social Security Number
When you file, don’t forget to double-check the form before you submit it by mail or online. If you’ve accidentally switched two digits in your Social Security number, you could be facing trouble down the road.

Even the IRS says this is one of the most common errors they encounter. Just make sure you read over your forms before you file, and you should be all set.

Claiming New-Home Credits Too Early
If you want to make sure you get credit for that new home you just purchased, you better have closed escrow before Jan. 1, 2010. If you didn’t, you’re out of luck and you’ll have to wait until next year to get the credit.

The IRS has a great little packet of tax information specific to homeowners of all types, whether this is the first time you’ve bought a home or you own a house for each season.

Using the Wrong Filing Status
You forgot you were married? That ’s it going to mess up your tax return.

This error corresponds to using the wrong Social Security number to match. Just remember to look over your form before you submit them.

Not Turning in Your W-2
This is a definite “d’oh” moment. Although obvious errors of all we’ve mentioned, this error can be expensive.

Duben said this could easily mistake a lot of time wasting. “Any additional charges will above errors plus interest and penalties might cost. If a taxpayer a refund waiting for the above errors can delay repayment until the error it takes to improve. I’ve seen cases where one of the year requires to get things corrected.”

Your w-2 are so incredibly important. Don ‘t takes time and effort by doing your taxes only to find that you forgot to send in the administration.

source : Keli Geldis – www.mainstreet.com