HOW TO FOUL UP YOUR TAX RETURN AND GET THE IRS CURIOUS ABOUT YOU!
By: Nicholas T. Simonic C.P.A. MACC
"The hardest thing in the world to understand is income tax" – Albert Einstein
What three letters strike fear in the hearts of most Americans? I.R.S. Why? Simple – No one wants the stress or expense in time and money that an IRS audit can generate. What do people do to attract the attention of the IRS? Most of the time they unintentionally make errors on their tax returns. Simple mistakes can cause minor or major problems depending on the type of mistake.
COMMON MISTAKES THAT CAUSE YOUR RETURN TO BE RETURNED, A CORRESPONDENCE AUDIT, OR AN OFFICE AUDIT:
1.) Failure to sign the tax return. Both signatures are required when filing jointly. (I have had single clients get a letter about the return they filed where the IRS asked "If you filed jointly, both spouses must sign their agreement to the change)
2.) Failure to enter the names and social security numbers exactly as they appear on the Social Security Cards, for all of the dependents claimed. If there have been any name changes be sure to contact the Social Security Administration at 1-800-772-1213.
3.) Disallowance of earned income tax credit because of incorrect information. Did you enter the names and social security numbers for yourself, your spouse, your dependents, and qualifying children for the earned income tax credit, exactly as they appear on the social security cards?
4.) If you complete your tax return by hand, failure to write legibly when making letter and number entries. (Use black ink and all CAPITAL letters.)
Let's drive the IRS crazy – Fill out your entire tax return in Roman Numerals.
5.) If you had a baby last year, you need to get a Social Security number for your child before you file your tax return. The IRS will not allow you to claim a dependency exemption, child tax credit or Earned Income Credit without a valid Social Security number. (Clients have been delayed over a year for their money.)
6.) Errors on W-2s and 1099s can cause more headaches for taxpayers in terms of disallowances and audits than anything else.
a) Make sure that your tax return numbers match the 1099s you receive from your broker, employer, or Investment Company. The IRS receives a copy of all 1099s issued to you so they can match what's on your tax return with what is shown on the 1099s.
b) Make sure that the W-2s and 1099s have the correct Social Security Numbers on them.
c) Make sure that you did not get the 1099 or W-2 in error.
d) Make sure that you did not get a 1099 when you should have been an employee.
e) Note to the employer, make sure that they qualify as sub-contractors before treating them like a sub. You could wind up paying the employee's share of Social Security Taxes. (My drywall contractor)
f) Note to workers. Just because you did not get a W-2 or 1099 does not mean that you don't have to report the income. The IRS does what I call "Back Door Audits". You really can't beat the game. If you earn anything, it's minus taxes. If you buy anything it's plus taxes. "Income tax has made more liars out of the American people than golf." (Will Rogers)
7.) Failure to staple required items to your tax return. (You need to include all of your W-2s, 1099Rs, and 1099s with income tax withholding.)
8.) Math errors on the tax return. Of course, with computers that doesn't happen, right? WRONG!
9.) Failure to include all supporting schedules with the tax return. The IRS will bounce it back in a heartbeat!
10.) Choosing the wrong filing status. Taxpayers should confirm that the filing status (i.e., single, married filing jointly, married filing separately, head of household, qualifying widower) selected on the return is correct. For example, taxpayers often incorrectly claim "head of household" filing status without meeting the requirements for that status. In addition to delaying the processing of the return and any refund, designating the wrong filing status on a return also may affect a taxpayer's eligibility for the Earned Income Credit.
11.) Failure to include on your tax payment your Social Security number, the tax year and the number of the form you are filing. The IRS has been known to apply it to the wrong year, person, type of tax, etc.
12.) Putting numbers on the wrong lines. A new client just came to me for us to represent him in an IRS audit. He had a schedule C with over $100/K in "Contract Labor". It should have been put in cost of sales, the labor portion. (How the IRS works with red flags).