Lance Jacob of the Dental CPAs has compiled a list of the top
twelve most common tax filing mistakes that he sees his dental clients making. If
you don't have a dental CPA,
contact Lance.
Filling out tax forms with an incorrect Social Security number. The IRS computers will automatically reject
your deductions and credits if your Social Security number is wrong.[i] This mistake seems
careless and trivial, but it is paramount to have the right Social Security
number when filing your taxes. Your social security number is your tax ID
number, which is linked to numerous transactions such as income statements,
savings account interest, and retirement plan contributions. It is also vital
to claiming tax credits. Since the majority of returns are now being filed
electronically, a correct social security number is paramount. An incorrect
social security number will result in the reject of an e-filed return.
Double dipping on dependents for divorced taxpayers. Ill repercussions could result such as
additional taxes, penalties, and interest charged.[ii]
A child can ultimately meet the rules to be a qualifying child of only one
person.[iii] Once divorced, your
children do not duplicate out of thin air; therefore they cannot be claimed
twice in taxes. The IRS does not allow both divorced taxpayers to claim a
child as a dependent.
Not reporting non-deductible IRA contributions. Any contribution to an IRA, whether it is
deductible or non-deductible, should be reported on Form 8606, so when you
withdraw it you are not taxed on it. Plain and simple, all contributions
to an IRA must be reported.
Incorrectly reported estimated tax payments. If your accountant instructed you to make
quarterly estimated tax payments, be sure to let him or her know the details of
the payment for each installment. Provide the check numbers, dates of
payment, and the amount of each payment. What often happens is people
claim they made the payments as their accountant told them, but did not keep
any records and inadvertently forgot a payment or two. If the accountant
includes all of the estimated payments on the return when they all were not
really made, the IRS or state government will send a notice of tax due with
penalties and interest.
Incorrect Federal ID number used on 1099 MISC. Although your accountant can easily fix this,
the less the IRS has to contact you, the better it is. The IRS matches 1099MISC
and the Social Security number or Federal Identification number used. If you
provide services, and the client you did the work for issues a 1099MISC, be
sure they know to use the federal identification number of your business and
not your social security number. If they use the wrong number the IRS
will send you a notice that you did not report income on your personal return,
when in fact it was reported correctly on your business return.
Exceeding the mortgage interest deduction limit on Mortgage and
home equity debt in excess of $1.1million. This error commonly falls as the fault of both
the taxpayer and accountant. They only deduct the amount reported of the
mortgage interest statement, Form 1098, and do not bother to check the amount
of mortgage the taxpayer has. The tax laws limit the amount of deductible
interest to the interest on the first $1,000,000 of home mortgage debt and
$100,000 of home equity debt[iv]. So if you have a mortgage of $2
million, you can only deduct mortgage interest related to the first $1.1
million in total debt.
Standard mileage vs. actual expenses. Mistakes in this area come from inconsistent
use of methods. If your car is for business purposes only, then the
entire cost of its operation can be deducted. However, if the car is used
for both business and personal use, only the cost of its business use can be
deducted. The amount of your deductible car expense can be found using either
the standard mileage rate method or the actual expense method. [v]
Some people will qualify for both methods but you must choose only one method
when you start using the vehicle and continue with that method until you
replace the vehicle. Be sure to figure your deduction with both methods
initially to see which gives you the larger of the deductions.
First-Time Homebuyer Credit recipients unaware of the fine
print. Those who received a
First-Time Homebuyers’ Credit towards their purchase of a home settled on prior
to 12/31/08 must begin repaying that money on 2010 tax returns. Now is the time
to take a good hard look at the details of this credit. Many who accepted the
$7,500 credit may not realize that it was in fact a loan, and the government
will begin not-so-politely asking for the money back over the course of the
next 15 years starting with 2010 individual tax returns. As with any federal
money however, there is a lot of fine print to read into on this one. Use form 5405. [vi]
Forgetting to tell your tax preparer you took an early
distribution on an IRA; therefore, failing to calculate the early distribution
penalty of 10%. If you are under the
age of 59.5, a distribution on an IRA (including employer matching and profit
sharing) is considered early, and subject to a 10% additional tax. This
tax is in addition of other taxes that apply to the distribution.[vii]
Forgetting your
signature on your return! If you were an artist,
you wouldn’t forget to sign your masterpiece upon its completion, would you?
You must sign your taxes for the IRS to process your taxes. Filing your
taxes electronically is a foolproof way to ensure your taxes will not go
unsigned. These software packages do not allow documents to be sent
unless every step is completed.
Incorrect bank account information for refund. If
you are having your accountant file your returns electronically and want your
refunds directly deposited (or payments automatically) withdrawn from your
checking or savings account, provide the correct account information including
name of bank, bank routing number, and account number. This will avoid delays
in processing your refunds and/or payments
Forgetting
to file a Form 1099 for rental property or a
business as a sole proprietor.
The
IRS now requires you to answer the following questions
1.
“Did
you make payments during the tax year that would require you to file Form(s)
1099? (these are forms used for rents, non-employee compensation, interest, and
other income).
2.
“If
yes have you or will you file all required Form(s) 1099?
It
is important for your accountant to ask this question of the client and also
important for the taxpayer to be aware when a 1099 is needed. You can see the
problem you might have if you answer yes to the first question and no to the
second.
1 comment:
Probably one thing you can consider adding to the list is about charitable contributions. If you've made charity contribution, whether cash or non-cash, don't forget to take advantage of the tax benefits. You need to ensure you'll get a receipt for your contribution and if it is non-cash, make sure to give it a proper value. So many times dentists under-value their donations, so it is really important to speak to your CPA about needed documentation to maximize your donation value - Rapid Braces
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