November 2006    Vol. 15, No. 10  REAP HOME PAGE  A publication of the Center for Rural Affairs    
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REAP Rural Business Roundtable

Topic: Common Tax Return Mistakes and Overlooked Deductions

The information on common tax return mistakes and overlooked deductions below was supplied to us by Wayne and Janet Mitchell with the H&R Block office in Scottsbluff, Nebraska. You will find more tips and resources on year-end tax strategies in the November REAP Business Update.

10 Common Tax Return Mistakes
Even a simple error on a taxpayer’s return can needlessly delay a refund and may even cause an overpayment. Using quality tax software or the services of a tax professional can help eliminate many filing problems. Below is a list of some common tax filing mistakes.

  1. Social security number(s) incorrect, missing, or don’t match name(s)

  2. Required documentation (W-2s, etc) not attached

  3. Return not signed

  4. Incorrect filing status recorded

  5. Math errors (Note: According to the IRS, a math error is an incorrect number entered on the return. There need not be a calculation. Example: reporting wages of $29,472 as $24,972.)

  6. Incorrect or missing forms and schedules

  7. Standard deduction used when itemizing is more advantageous

  8. Social security taxable benefits worksheet not completed

  9. Failing to claim credits (child tax credit, earned income credit, etc) or figuring credits incorrectly (Often because of not understanding credit eligibility or calculating incorrectly)

  10. Omitting income items – such as interest from savings or checking accounts

Show Me the Money: Don’t Miss Out on these Frequently Overlooked Deductions
Tax deductions are valuable benefits in the tax code that allow you to reduce the amount of your taxable income. And for some individuals, failure to claim qualified deductions can mean the difference between getting a refund and having a balance due.

“Many federal deductions are also allowable on state tax returns,” advises Jackie Perlman, senior tax research coordinator for H&R Block. “So if you fail to claim a qualified deduction on your federal return, you’ve just compounded your mistake.”

Below is a list of deductions which are often overlooked.

Itemized Deductions:

  1. Medical expenses – in addition to what you’ve spent on doctors, hospitals, and medicines, other possibilities are health insurance premiums, prescription eyeglasses and contacts, hearing aids, medical transportation, equipment for handicapped people, and nursing home expenses.

  2. State and local taxes – includes income or sales taxes, real estate taxes, and personal property taxes.

  3. Charitable contributions – cash and property donated to charitable organizations, including clothing and household items. You can also deduct your auto mileage for travel related to charitable activities.

  4. Out-of-pocket job expenses – not reimbursed by your employer, including car expenses (the non-commuting kind), travel expenses, uniforms, union dues, and continuing education expenses.

“Above the Line” Deductions:
About two-thirds of all taxpayers don’t itemize on their tax returns. These deductions are available for even non-itemizers.

  1. Student Loan Interest – up to $2,500

  2. Tuition and Fees Deduction – used to be up to $4,000 of qualified higher education expenses. (Unfortunately, this deduction was scheduled to go away after 2005.)

  3. Moving expenses – the cost of moving yourself, your family, and your belongings (even your pets) to a new job location.

  4. Military reservists’ deduction – for non-reimbursable travel expenses.

  5. “Hybrid vehicle” deduction – was a deduction of up to $2,000 for the purchase of a qualified vehicle in 2005, but in 2006 this deduction is replaced by a tax credit. Tax credits are a more lucrative benefit as they offer a dollar for dollar reduction in taxes owed.

  6. Self-employed – You may deduct one-half of self employment (Social Security) taxes, 100 percent of self-employed health insurance premiums, and contributions to self-employed retirement plans (SEPs, SIMPLEs, etc.).

Roundtable Discussion Questions

Brainstorm with roundtable participants to seek their help in answering the following questions for your business. Write your responses below or on another sheet.

1) Have you ever made any of these tax return mistakes listed on the other side? Do you have other things you double-check before filing your tax return?

2) Do you itemize your deductions? What deductions do you find the most beneficial?

3) Do you use the standard deduction rather than itemizing? Have you used any of the allowable deductions listed above? What other tips do you have for preparing small business tax returns?

Source: H&R Block taxfacts, 

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