Tick, tock -- April 17 is right around the corner. It's getting down to the wire, which is exactly how taxpayers make simple-yet-devastating mistakes on their returns.
Sadly, there's no spell-check-like function for tax forms, though if you do them with tax software like Intuit's (Nasdaq: INTU ) TurboTax, the computer hamsters will likely catch your most egregious math errors.
So I asked longtime Motley Fool tax guru/CPA Roy Lewis, who provides tax tips galore in our Tax Center, for a heads-up on the most common tax-return flubs. Before you lick the envelope and mail your return to Uncle Sam, make sure you haven't made any of these common boo-boos:
- Missing Social Security numbers: You know your number by heart, but you also need to know the Social Security numbers of any dependents you include on your return, or you'll risk having the IRS deny your exemptions for them. If you got married or changed your last name this year, make sure the proper authorities (namely the Social Security administration) know. The IRS and Social Security databases are integrated, so if a number is attached to an "incorrect" name, your return could be rejected.
- Sloppy math: Don't rush through the computations. Many of the numbers you input affect other figures on your return. One small addition or subtraction error can reverberate and really mess things up.
- Ignoring the Alternative Minimum Tax (AMT): AMT is complex enough to make even a tax pro's head spin. If you don't know what it is, or whether it applies to you, do some digging. The IRS will flag an AMT that's MIA, and you could get smacked with the taxes you owe, penalties, and interest if you don't pay your tab on time.
Money left on the table
Some common tax return errors actually work in your -- not Uncle Sam's -- favor.
- Assuming the itemized deduction: Many taxpayers assume that itemizing is the best route to reducing their tax liability. But don't automatically dismiss the standard deduction. (This year, it's $5,150 for single or married, filing separately; $10,300 for married, filing jointly/surviving spouse; and $7,550 for heads of households.) If your itemized deductions aren't even close (e.g., if your home is paid off or you live in a state that doesn't charge income tax), going with the standard deduction may be better for your bottom line. On the other hand, if you've got a bunch of expenses to itemize, sticking with the standard deduction could cost you big money.
- State tax refund oopsies: Don't follow many taxpayers in blindly reporting prior-year state tax deductions as income in the current year. Roy says that even if 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 nontaxable. "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," he says.
- Overlooking carry-forwards: Sometimes lemons (like a stock you own that tanked) can be turned into lemonade (a tax deduction!). In many cases, you can carry forward losses from prior years to this year's tax return -- so don't forget about them.
The best defense against tax-return errors is taking your time, reviewing prior-year returns, and familiarizing yourself with the tax rules, even if you -- like 60% of taxpayers last year -- decide to hand off the dirty work to a tax pro at places like H&R Block (NYSE: HRB ) or Jackson Hewitt (NYSE: JTX ) . No, it's not an ideal way to spend a weekend, but it's certainly better than finding yourself on the wrong side of the IRS.
Need a hand finding the tax paperwork you need?
In the February issue of Motley Fool Green Light, the Fool's investing/personal-finance newsletter service, I assembled a comprehensive list of all of the forms and records you should have ready before you start working on your taxes. And if you're still in the market for a helping hand, check out "Find a Tax Pro In the Know" in the same issue for tips on getting trustworthy help and cutting that tax-prep tab by as much as $750. It's free tax help if you check it out via our standard free 30-day trial.
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Given that the IRS admits (on page 81 of its Form 1040 instruction booklet) that it'll take the average taxpayer at least 11 hours to complete and file a return, Dayana Yochim begrudges no one for asking for help to get their taxes done right. She owns none of the companies mentioned in this article. Intuit was a former Inside Value pick. For a full audit of her finances, check out her profile and the Fool's disclosure policy, which, compared to the IRS's tax code, is as breezy as the back cover copy of a Harlequin romance.