Extra care with '85 taxes can help limit errors, boost refund
Tax returns are running late this year -- again. ``This is a trend we've been aware of for several years,'' says Steven Pyrek, spokesman for the Internal Revenue Service. Every year, it seems, more and more people wait longer and longer before sending in their returns.
``We've never really tried to analyze why it is,'' Mr. Pyrek says. ``It may be people aren't getting all their supporting documents from banks, brokers, and other payers. It may just be procrastination.''
Whatever it is, all those last-minute returns only increase the possibility of errors on both ends of the tax-filing pipeline: from the IRS regional processing centers and from taxpayers who are rushing to beat the April 15 deadline.
The IRS, Mr. Pyrek notes, has taken steps to eliminate some of the problems it had at some of its processing centers last year, where there were reports of returns being misplaced, damaged, or even destroyed as employees in some IRS offices were unable to cope with the avalanche of tax returns.
On the taxpayer end, there's still about a month left before the deadline, but as that date gets closer, people need to be extra careful not to let the pressure force them into unnecessary and perhaps costly mistakes.
In most cases, the penalty for these mistakes is fairly mild: your refund is delayed or not as big as you planned, or your return has to be sent back so you aren't credited for filing it on time, possibly costing you a penalty and most certainly interest on any taxes owed. It's only a deliberate pattern of apparently trying to avoid or delay paying your taxes that gets the IRS enforcement hounds snarling.
The most common error, says Thomas Ochsenschlager, a partner with Grant Thornton International, an accounting firm, is forgetting to sign the return. If you don't sign it, the IRS won't accept it, causing a delay.
Another common error occurs at the top of the return where your name, address, and social-security number are supposed to go. Even though everyone who files a return the previous year gets a removable label from the IRS with the forms and instructions for the current year, fewer people put that label on their new return each year, Mr. Pyrek says.
``This just causes more errors,'' he points out, because people transpose numbers on their social-security number, write their addresses wrong, or leave out pieces of it altogether.
``Even if you've moved, use the label,'' Mr. Pyrek urges. ``Make any changes on the label. Also, use the envelope that came with your return.'' This cuts down on the number of misprinted addresses.
Beyond these seemingly simple mistakes, the most common problems the IRS has to deal with are math errors, lines that are supposed to be filled in that aren't, and income figures from the W-2 and 1099 forms that are not copied properly on the 1040.
There are other tax-filing errors that people make at the last minute, or tax-saving strategies that because of the rush they forget about or don't have time to look into:
Don't automatically use the sales tax tables when computing your state sales-tax deductions. ``I've never had a situation where a person who kept records didn't come out ahead'' of what they would have gotten from the tax tables, Mr. Ochsenschlager says.
If you didn't save any sales receipts for this in 1985, it is probably too late for this year's filing, but if you had several major purchases last year, you may be able to reconstruct a record that will satisfy the IRS. This reconstruction could include charge receipts, monthly statements, or canceled checks. This year, save your receipts.
If you do use the state sales tax tables, he adds, be sure to add back income that would otherwise not be taxed, such as from municipal bonds. While this is not included in your adjusted gross income, it can be used to qualify you for a larger sales tax deduction.
If you invest in the stock market, try to purchase enough stock so you qualify for the $100 dividend exclusion, or $200 for married couples.
If you are selling some stock, make sure you keep track of the basis, or purchase price. ``A lot of times people have no idea what they paid for a stock,'' Mr. Ochsenschlager says, so someone has to go back through the company records and find what the stock was selling for around that time. Also, the stock may have split several times since it was purchased, or the company may even have been acquired by another firm.
If you have any income from money market mutual funds, this should be reported as dividends, not interest.
Be sure to keep close track of all dividends, interest, and the 1099 forms that list them. You can be sure the IRS is keeping track. ``The IRS always had the ability'' to compare the dividend and interest income you reported with the statements they received from banks and corporations, Mr. Ochsenschlager says. ``They just didn't have the equipment. But now they've got the equipment and they can catch almost 100 percent of these things.''
If you want a charity to share in your stock market gains, don't sell the stock first. Give it to the charity intact or you will have to pay capital gains on the profit.
If you do any driving for charitable work, you can deduct 12 cents a mile plus parking fees and tolls. For medical purposes the auto deduction is nine cents a mile.
See if you qualify for income averaging. It only takes a few minutes with Schedule G to find out if you don't qualify, and if you do, it could save hundreds of dollars.
If you have a question that would make a good subject for this column, please send it to Moneywise, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.