Errors hover on deadline

PERSONAL FINANCE

Last-day tax filers often make mistakes

April 15, 2008|By EILEEN AMBROSE

You have less than 24 hours to make good with the Internal Revenue Service if you haven't already.

Filing under deadline pressure could lead to mistakes. And it is usually the small stuff that trips you up. The forgotten document. The missing signature. The transposed figure.

A lot of common errors can be avoided if you use a tax software program or the IRS Free File program at www.irs.gov. Paper is more prone to blunders, although millions of filers still prefer it.

So here are some landmines to sidestep in your rush:

ONE PLUS TWO EQUALS FOUR: Math errors are common.

IRS spokesman Jim Dupree says the IRS will correct obvious errors and send you a letter telling you of the correction. Still, double-check your work.

TRANSPOSED NUMBERS: It is easy to do, but the consequences can be serious.

"On a Social Security number, you flip a number and the return won't get processed," says Barbara Weltman, author of J.K. Lasser's 1001 Deductions & Tax Breaks.

Or, maybe you put down you earned $275 in interest but your 1099 tells the IRS it was really $725. If you don't fix that error in time, you might end up underpaying your taxes and get whacked with a penalty and interest.

WRONG BANK NUMBERS: You want your refund fast, so you give the IRS your account and bank routing numbers so the money is directly deposited. In your hurry, you write down a wrong number. If you're lucky, the IRS or the bank catches the error, and you end up getting a paper refund check from the IRS.

Worse, the bank accepts the deposit and puts it in someone else's account.

"If you give the IRS the wrong number, you are totally responsible for any misdirection of your refund, and you have to try to straighten it out with all the banks. Have fun," Weltman says.

And there is a risk of double jeopardy this year. The IRS will also send your tax rebate to the bank numbers you provide. Refund. Rebate. Poof!

WRONG FILING STATUS: Married? Single? Your status Dec. 31 is your filing status.

Some filers who marry or divorce during the year forget to change their filing status, says Jeff Lawson, a certified public accountant at Stoy, Malone & Co. in Towson.

Often, too, singles don't realize that they can file as "head of household," Weltman says.

It can make a big difference. Tax rates are lower for heads of household than those filing as single. The standard deduction is higher, too. That's $7,850 for a head of household versus $5,350 for singles.

File as a head of household if you were unmarried - including divorced and legally separated - at the end of last year and you paid more than half of the cost of maintaining a home and a dependent child or relative lived with you for more than six months.

If the dependent is an elderly parent, he or she does not have to live with you, Weltman says. "You could support them in a nursing home."

WRONG TAX COLUMN: This is a paper-return problem. You use the wrong column on the tax table when looking up your tax liability.

Overreport your tax, and the IRS will catch the error and refund any overpayment, Lawson says. Underreport, and the IRS will catch that, too, but might slap you with a penalty and interest, he says.

"In cases where you obviously made a mistake, a lot of times the IRS waives the penalty," he says. "That's their discretion. But interest is very hard to get waived."

FORGETTING DOCUMENTS: Failing to attach W-2s or other required documents will delay the processing of your return.

Also, here's a form you might not know about but need if your bank forgave some of your mortgage debt last year: Form 982. You likely received a 1099-C form that reports the amount of canceled debt.

This used to be taxable income, but late last year the government cut troubled homeowners a break. For 2007 through 2009, homeowners won't have to pay taxes on up to $2 million of forgiven debt on their primary residence. But you will need to file Form 982 - Reduction of Tax Attributes Due to Discharge.

NO SIGNATURE: You must sign the return. And spouses filing jointly both must sign.

H&R Block senior tax adviser Vivian Scott says many times one spouse comes into her Baltimore County office to handle the taxes, forgetting that two signatures are needed.

INCOMPLETE DOCUMENTS: Make sure you have all your documents if you're rushing to a tax preparer to file your return today. Otherwise, the preparer might have to request an extension of time. You'll still have to pay any taxes due.

And if you're mailing in your return, don't forget the stamp.

eileen.ambrose@baltsun.com

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