Yes, the income tax filing season is over—for those of us who are in the income tax preparation line of work and for you, too. Or is it? You have put together all those slips of paper reflecting wages or independent-contractor income or interest income or dividend income, and all of those receipts that seem to get lost, and you have filled out your tax return and have put it in the mail by April 15. You kick back, relax, and say it is over.
Avoiding Common Mistakes
It isn't. The Internal Revenue Service is still processing the tax returns that you have sent in. The IRS may have some questions about what you put on your tax return. There may be some errors on your return. These things must be corrected and answered before your tax return is safely put into storage at the IRS. The IRS has published a list of the 10 most common tax return mistakes.
Social Security number is incorrect or missing or doesn't match the name.
Required documentation (W-2s, etc.) is not attached.
Return is not signed.
Filing status is not correct.
Math errors. [This does not necessarily mean a calculation error; it can be a transposition error.]
Forms and schedules are incorrect or missing.
Standard deduction is used when itemizing is more advantageous.
Social Security Taxable Benefits Worksheet is not completed.
Failure to claim credits (child tax credit, earned income credit, etc.) or credits calculated incorrectly.
These errors must be corrected before the IRS considers your return complete, so the service may send you a letter asking for clarification. If you receive a letter from the IRS, it must be answered. But, before you answer the questions, visit your tax professional for assistance. The letters from the IRS, or the Franchise Tax Board as well, are written by those in the business of tax; as in all vocations, tax people have their own vocabulary, so the letters often are written in the jargon of the profession. Your tax professional can read and understand just what it is that is being requested and can solve the problem quickly. These problems are often exacerbated when you send information that is not necessary. But never panic.
Plan for Next Year
Start thinking about next year's tax return. Get in the habit of keeping your receipts and other information concerning your tax return in a central location and in an orderly manner. This will help you prepare for the next filing season, but it will also let you know where you are spending your money. Most of us don't have any idea where we spend our money; it is just gone. If you keep a good set of records, you may find that you have more deductions than you thought. Most people who estimate their expenses tend to estimate on the conservative side. People who keep records tend to have more realistic deductions for tax purposes.
What records do you keep? What is deductible? Those are hard questions to answer. You should try to learn from your preparation this year. In the words of the IRS: An expense is deductible if it is "ordinary and necessary" in the production of your income. In other words it must have a strict "business purpose."
Keep informed of any tax law changes that Congress is thinking about. Keep records, and if you have any questions, ask your tax professional. BSW
Patrick Connoly is a tax advisor with H&R Block. For more information, visit www.hrblock .com, or telephone (323) 851-1040.