Avoid Costly Mistakes at Tax Time

As we turn the calendars ahead to a new year, it's time to turn our attentions to a topic that most of us would rather not think about: our income tax returns. Whether you are expecting a refund or worried about the possibility of owing taxes this year, tax time can be a stressful time for many of us.

Ideally, our annual interaction with the IRS should be a simple affair. We spend some time digging through piles of papers trying to gather our financial records into a logical order. We tackle the countless IRS forms and confusing instructions in an attempt to understand which numbers go on what lines. After the math is done, we send off our tax returns in the weeks, day, and sometimes hours before the April 15th deadline. If we're lucky, we'll receive a refund check in about two months.

For some of us, however, the process is not as smooth. According to IRS statistics, approximately 1% of all tax returns - over 800,000 each year - contain mistakes made by the taxpayer. These mistakes range from simple addition and subtraction errors to overlooking credits and deductions that could result in greater tax savings.

The IRS has identified the top five mistakes made on all tax returns:

• Incorrect or missing social security numbers
• Incorrectly calculated tax when using the tax tables
• Errors in calculating credits such as the child tax credit or earned income credit
• Entering information on the wrong lines
• Math errors

These mistakes are costly and inconvenient for a number of reasons. You could experience a delay in receiving your refund check or you may find yourself corresponding with the IRS in order to resolve your situation.

More importantly, mistakes could cost you money. Math errors could increase the tax you pay or reduce the credits or deductions you are allowed to take. Some math errors - especially those made on worksheets not sent to the IRS - will not be easily discovered.

Some mistakes are made because of the complexity of the tax laws. Many taxpayers don't know about many of the credits or deductions they are allowed to take. Some don't take time to read through the instructions carefully. These mistakes are especially costly and not likely to be caught by the IRS. The best way to avoid these kinds of errors is to consult an experienced tax professional. He or she will be up-to-date on current tax laws and will be able to advise you on how to take advantage of all the benefits to which you are entitled.

If you intend to tackle your tax returns yourself this year, here are some things you should double check before you drop your return in the mail box:

• Social Security Numbers - The IRS checks all social security numbers against the Social Security database. Enter all numbers correctly and ensure that names on your return appear exactly as on social security cards. Contact Social Security if there has been any name changes this year.

• Filing Status - Check only one filing status. There are changes in the law that affect people who have filed as "Head of Household" in the past. Read the instructions carefully to make sure you qualify this year.

• Exemptions - The number of exemptions listed should match the dependents you have listed on the form. Double check social security numbers and spellings.

• Income, Deductions, and Credits - Check that you've entered the correct numbers on the correct lines. Many people make mistakes in adding or subtracting columns of numbers. Be sure to enclose negative numbers in brackets.

• Standard Deduction - If you or your spouse is over 65 or blind, your standard deduction will be different that the amounts listed on the form. Read the instructions carefully to calculate the correct deduction.

• Tax - It's easy to figure the tax wrong when you use the tax tables. Make sure you are looking up the correct tax using the column for your filing status. Reading the wrong line or using the wrong column can mean more tax.

• Signature - Don't forget to sign and date your return. If you file a joint return, your spouse must sign and date as well.

• Informational Forms - You must attach any informational forms - W-2s or 1099's - that show taxes withheld to the front of your return. If you had more than one employer, be sure to attach copies of W-2s from all employers.

• Assembling Your Return - Put all of your forms together in the correct order. There is a sequence number in the top right-hand corner of each form. If you owe this year, don't forget to include a check. Write your name, social security number, tax form and year (ex. "1040 2005") on your check.

Don't forget to make a copy of your tax return and any schedules and forms you send to the IRS. Keep your records for at least three years.

Taking the time to double check your tax return for these common mistakes may help avoid delays processing your tax return and may even save you some money. At the very least, it may make your annual tax experience go much smooth this year.