Tax preparers nationwide are starting to feel the heat of the season. Yes, that's right, it's mid-way through tax season again. Although there are no new changes to the filing system or tax code to report for 2011 tax returns, it's important to know common mistakes people make when filing and how to avoid them so that you can be guaranteed a maximum refund or smaller tax debt.
April 17 is this year’s filing deadline. It may seem far off, but will be fast-approaching for those who are ill-prepared.
The best way to get ready to file your taxes is to first gather all necessary documents, including all receipts for anything you believe you can take a deduction on.
“A good rule of thumb is to begin every new year with an updated filing system,” said Brad Bain, owner of Bain Accounting Tax Services. “Create some sort of organized system, even if it's just in a notebook, that stores information on properties you own, schooling, charity donations and receipts.
"Be sure to include logs for vacation homes, car mileage, and computer and cell phone use, if applicable."
Once you have located and sorted the things you will need, make sure you wait to file until all tax forms have arrived. W-2's issued by employers were required to be mailed by January 31, but other forms such as 1099's from brokers don't have to sent out until February 15. You don't want the hassle of visiting your tax specialist only to find out your returns cannot be completed. If you do complete filing and find and error the worst part will be having to pay for an amendment.
When you are sure you have absolutely everything you will need to correctly file, it's equally important to have as much faith in your tax preparer. Although last year stronger regulations were set up for preparers, requiring them to put their Preparer Tax Identification Numbers on returns, there may still be some “hobbyist” preparers who are able to slip through the system. Check the credentials of anyone who claims to be able to file your taxes, thus ensuring a qualified provider and accurate return.
Once you have completed the above steps, it's time to go to your preparer of choice. A good tax specialist will know which questions to ask you in order to pull out the most pertinent information to calculate your return.
Do not rely solely on them to figure out all of your entitled deductions though. If at all possible, it is important to be aware of things you may qualify for and common tax errors so that the chances of these showing up on your return are lessened.
The most common tax errors are also the simplest ones such as not signing and dating all required forms. This may seem obvious, but remains one of the most notorious errors. It's not likely for a specialist to overlook this but if you are in a rush filing last minute, unfortunately it may happen.
The chances of this happening drop dramatically if your returns are e-filed. Just be sure to give your preparer the most accurate information including direct deposit information for any refunds coming your way.
Other common errors include wrong or blank social security numbers, math errors, and not attaching copy B of your W-2 with the return. In the very least, make sure all of these things are correct before submitting your return to the IRS.
There are also some common mistakes that can cause you to get audited. These “red flags” include, but are not limited to:
- Filing too many deductions
- Incorrectly claiming dependents
- Differences in state and federal returns
- Large swings in income
- Rounded numbers on a return
- Sloppy, handwritten or incomplete information
In the case of charitable contributions, the IRS looks deeper when the contributions are larger. But even if you haven't donated amounts that may raise suspicion, it is still very important to keep the receipts. Tax practitioner, Fran Seward, emphasizes how vital it is to keep records.
“When itemizing charitable contributions, make sure to keep good records and all receipts," she said. "If you give away tangible items make sure to take a photo and know the fair market value of each item given away."
Overall, taxes don't have to be stressful so long as you start early, keep good records, use a credentialed professional and have at least a vague understanding of your deductions. If you think of questions throughout the year to ask your tax rep, keep them in a notebook for easy access when the time comes.