Watch Out for These Common Mistakes Come Tax Season
Check your math! Sounds simple but you'd be surprised how many people do not take the time to double check their math. Just do it!
Don't assume your client does not have to pay the alternative minimum tax. This system was designed to prevent higher-income people from taking too much in deductions but more and more middle income taxpayers are being hit lately.
Don't forget to five-year average if your client took all the money out of a qualified retirement account.
Don't forget to include your client's mutual funds reinvested dividends. When shareholders sell their fund shares, dividends and gains should be added into the original investment.
Your client may have to pay capital gains taxes on the portion of their house for which they've taken home-office deductions when they sell that home, although generally they do not need to pay taxes on up to $500,000 in profit they've made since they purchased the house.
Although most couples file jointly, it sometimes makes more sense to file separately, especially if one spouse makes significantly more income or takes more deductions than the other
They can make more retirement contributions to an IRA, simplified employee pension (SEP) and Keogh as late as their tax filing date plus extensions.
Although they cannot make more than $3000 in investment losses claims in a year, they can carry the unclaimed amount over into following years.
Don't overpay Social Security! Wages over $72,600 are not subject to Social Security tax.
Don't forget to include gambling losses. Gamblers can deduct losses up to the amount of their winnings. They must keep accurate and acceptable records in order to claim these deductions.
Double-check that all social security numbers (him and hers) are correctly written on the return.
Make sure you claim all dependents of the client. (This includes elderly parents who may live with your client.)
If your client is single and have a dependent living with them, check to see if they qualify for lower taxes available to a head of household or surviving spouse.
They may be eligible for earned income credit, as long as they do not file as married filing separately. If their earned income and modified adjusted gross income for 1999 are less than $29,928 and they have one child ($30,580 if they have more than one child), they may qualify. If they are childless and between the ages of 25-65 and their earned income and modified adjusted gross income for 1999 is less than $10,200, they may qualify as well.
Your client may be eligible to claim additional standard deductions if they are blind or 65 years of age or older.
Make sure they write their social security number, form number and tax year on checks made out to the IRS.
Check last year's tax returns to see if any items can be carried over into this year, such as capital losses or charitable contributions that exceeded the amount they were allowed to claim last year.
Dependents on someone else's returns cannot claim a personal exemption on their own return.
For contributions made to an IRA account, fill out a Form 8606, even if your client is not claiming any deductions for these contributions.
Recheck that they have used the correct column in the Tax Rate Table or the correct Tax Rate Schedule for their filing status.
If they regularly get large refunds, they may want to change the number of allowances they claim on W-2 forms and increase they take home pay.
Don't miss deadlines!
December 1st to set up a Keogh plan
April 17th to make your IRA contribution
April 17th to file your return or request an extension
Keep copies of all documents they send to the IRS. Never send their original documents. Always use certified mail for all-important correspondence with the IRS.