60-Second Guide to Acing Your Tax Return
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You may be familiar with this scenario: It's time to file your taxes, you've waited until the last minute, and now you're quickly trying to gather your records and beat the filing deadline. In other words, you're doing the things you should have done months ago.
In your haste to file your return -- whether you prepare it by hand, with a computer program, or through a tax professional -- some things might slip through the cracks. Let's spend a minute looking at a few of the common items that taxpayers overlook.
0:60: Carry-forwards from previous years
Do you have capital losses or suspended passive losses from a previous year that you can carry forward to this year's tax return? If so, don't overlook them. Make sure that you don't have any excess charitable contributions, net operating losses that exceed prior years' deductible amounts, or other deduction opportunities available to you this year.
0:55: Missing Social Security numbers
The Social Security number for all dependents must be included on the return. The IRS won't give you a pass on this requirement, so if you're still missing those numbers for any of your dependents, get them now. Additionally, if you've recently married and changed your last name, make sure that you've notified the folks at the Social Security office. The IRS and Social Security databases are now integrated; if the IRS finds a number attached to an incorrect name, the return could be rejected for additional information, or the dependent deduction could be denied.
0:47: Assuming the itemized deduction
Many taxpayers still believe that itemizing deductions will always produce a smaller tax liability. However, the standard deduction for both single and married folks has increased substantially over the years. If your itemized deductions aren't considerable -- for example, if your home is completely paid off or your state charges no income tax -- then you might be surprised just how large the standard deduction is. Before you itemize, remember that the standard deduction may be a better way to reduce your tax liability.
0:40: Overpayment of Social Security taxes
If you've worked for more than two employers and your wages are greater than $100,000 or so, it's possible that you've overpaid your Social Security taxes for the year. Though Form 1040 doesn't make it immediately clear, you can claim that overpayment as additional withholding on your tax return.
0:33: State tax refunds
Many taxpayers blindly report their previous year's state tax deduction as income in the current year. But even though the state taxing authorities notified you of your refund, they have no idea whether that refund is taxable. If you didn't receive a benefit for deducting those taxes last year, your refund may be partially or completely untaxable.
For example, you may have used the standard deduction for federal purposes and itemized on your state return, or used the sales-tax tables rather than state taxes paid in the prior year. If that's the case, you might be overstating your taxable income by simply reporting your entire state tax refund as current-year income.
0:23: Math miscalculations
If you're doing your return by hand (please don't), make sure that you review your computations to ensure that 2+2=4. Since many of the numbers on your tax return affect other figures and computations, a simple math error could really foul up your entire return.
0:12: Alternative Minimum Tax (AMT)
Most taxpayers don't even know what the AMT is all about, much less how to make the complex computations to complete the AMT return. But the IRS computers know when you should complete IRS Form 6251, and if you overlook it, you can expect to receive a nastygram from Uncle Sam. If you are subject to the AMT, you might get hit with both the taxes and unpleasant penalties and interest if you don't file the return when required. If you're preparing your own return and aren't familiar with the AMT, be careful. It could apply to you.
0:03: Wait till next year
If you get through these steps without a hitch, odds are you're in good shape to ace your tax return this year. Take your time, review your records and previous year's returns, and know the tax rules. And when you're all done, throw your hands up in disgust and write your representative about the complexity of the tax laws.
Got another minute?
For more on the preparing your tax return, read about:
- Getting good professional tax help.
- Avoiding an IRS audit.
- Steps you can take to cut your taxes year-round.
- Deductions even the pros overlook.
- Things to organize before you crank out your return.