The following is a guest post from our friends at the Dental CPAs
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.
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.
