As the tax filing season grinds to a close, you might be quickly trying to gather your records and beat the April 17 deadline. In other words, you're doing the things you should have done in February. 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. Here are a few of the common items that taxpayers overlook.
Carry-forwards from prior years
Do you have capital losses or suspended passive losses from a prior year that you can carry forward to your 2005 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 amount, or other deduction opportunities available to you in 2005.
Missing Social Security numbers
The Social Security number for all dependents must be included in 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.
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. For 2005, the standard deduction for married folks is $10,000. And if you're both over age 65, the standard deduction jumps to $12,000. That's a large number, especially if your itemized deductions aren't considerable -- for example, if your home is completely paid off, or your state charges no income tax. Before you itemize, remember that the standard deduction may actually be a better way to reduce your tax liability.
Overpayment of Social Security taxes
If you've worked for more than two employers, and your wages are greater than $90,000, it's likely that you've overpaid your Social Security taxes for the year. Though Form 1040 doesn't make it immediately clear, you can indeed claim that overpayment as additional withholding on your tax return.
State tax refunds
Many taxpayers blindly report their prior-year 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.
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.
Alternative Minimum Tax (AMT)
In the next two years, as many as 16 million taxpayers may be subject to the AMT for the first time. 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 (link opens a PDF file), and if you overlook it, you can expect to receive a nasty note from Uncle Sam. If you are subject to the AMT, you might get hit with both the taxes and nasty 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.
Don't get trapped by these common filing mistakes. Take your time, review your records and prior-year returns, and know the tax code. And when you're all done, throw your hands up in disgust and write your Congressperson about the complexity of the tax laws.
When he's not dealing with tax issues, Roy Lewis is a motivational speaker who lives in a trailer down by the river. He understands that The Motley Fool is all about investors writing for investors. You can take a look at the stocks he owns as long as you promise not to ask him which stock to buy. He'll be glad to help you compute your gain or loss when you finally sell a stock, though.
More from The Motley Fool
Solar Companies Are Set Up for a Strong Earnings Season
Rising demand and prices for solar panel prices bode well for manufacturers.
Today's Workers Aren't Optimistic About Raises and Promotions, Data Shows
Surprisingly, a large number of workers across the globe think their chances of a pay or title boost are pretty low. Here's how to bust out of that cycle and propel your career forward.
Could These High-Flying Tech Stocks Start Paying a Dividend?
Alphabet, Facebook, and Adobe don't do it yet, but that could change sooner than you think.