Valley Voice January 2017 | Page 66

10 Tax Goofs Many Of Us Keep Making

Here, according to the IRS, are the 10 most common taxpayer mistakes:

1. Claiming the wrong filing status

Marital status is determined as of Dec. 31. Anything before that date really doesn't matter for tax purposes. You may qualify for "head of household," but you have to satisfy all of the requirements.

You may think just because you consider yourself as a head of your household that you qualify, however. In fact, you can't be head of household if you're married unless you qualify as an abandoned spouse.

Claiming the wrong status could kill your eligibility for the child tax credit, the earned-income credit and exemptions for dependents.

2. Omitting or using wrong Social Security numbers

The Social Security numbers you list for you and your dependents is directly used for the earned-income credit and the child tax credit, and must match your dependents' Social Security cards, EXACTLY. Otherwise, the IRS computers will reject your credits and deductions, and even possibly your tax return in total. It is imperative that the names on your tax return exactly match what the Social Security Administration is showing.

3. Failing to use correct forms and schedules

The IRS has a vast bureaucracy that is controlled by an outdated computer system that is used for determining audit direction. For instance, if you file your employee business expenses on Schedule A without attaching a Form 2106, the computer's going to register a “point” toward the audit selection. The more the computer “points”, the more likely that you will get audited. So, it is important to be knowledgeable, current in your tax law and completely thorough, or better yet hire someone else who is.

4. Failing to sign and date the return

This one is easy. Both spouses have to sign and date the return or it isn’t considered a filed return and not only can penalties accrue, the statute of limitations doesn’t start until the return is filed. How would you like the IRS to be able to come back on your return for audit, forever?

5. Claiming ineligible dependents

Just because you feel that you are taking care of someone financially you should be entitled to claim them as a dependent, the IRS doesn’t agree. The qualification criteria to claim a dependent are technical and very specific. With nontraditional families, there are the exceptions. The rules are detailed and complex. If you have an unusual situation, do not attempt to determine qualifications on your own. Seek advice.

6.Misusing -- or not using -- the earned-income credit

This is a provision, created by Congress to help the poorest in our nation, but lawmakers designed it to be one of the most convoluted provisions in our tax code. Unfortunately, the group of taxpayers it was meant to help is also the ones who lack the tax sophistication or the dollars necessary to hire a professional to claim those dollars.

7.Losing receipts

No receipt, No deduction. So hunt down all those receipts and start a consistent and immediate archival process. The IRS won’t care that they faded with the heat or that they were stolen in a robbery. It’s the most simple rule of all the IRS has…. No Receipt, No Deduction, period. Consider taking a picture on your smart phone so that you have it immediately.

8.Failing to report domestic workers

Even if you don't think you are wealthy enough to have domestic workers, you just may be. You have to pay the payroll taxes on your nanny, housecleaner or in-home caregiver. If you paid $1,800 or more in 2013 to any one household employee, you are required to withhold, and match, both Social Security (6.2%) and Medicare (1.45%) taxes. You must file Schedule H to compute and report the liability. Keep in mind $1,800 is only $150 a month or a mere $37.50 a week.

9.Failing to report all income

You can't avoid reporting all of your income just because you don't get a W-2 form or a 1099. Not all income is reported on 1099s. That doesn't excuse you from having to pay tax on it. The fact that there's no reporting to the IRS doesn't prevent the agency from auditing your bank statements for deposits, and your receipts. Unreported income can lead to civil and criminal sanctions. I don't care how lucky you feel. The potential consequences aren't worth the risk.

10. Failing to check for the alternative minimum tax

The AMT, or "awfully mean tax," was created to catch high-income taxpayers who used allowable deductions and credits to wipe out too much tax liability. It's an alternative computation of your tax, with different deductions, add-backs and flat rates. You pay the higher of your regular tax or that computed under the AMT.