If your eyes are straining from rolling too much, we suggest you simply bookmark this page for the final seconds prior to your sending off for your return. Why?

The IRS charges 6% interest and up to a 20% penalty for incorrect filings. A double-check can save you tons of time, and possibly, tons of money.

• Did you include your W-2?

Obviously this won’t be a problem for e-filings, but for our snailmail brothers and sisters, it’s one of the most-repeated mistakes.



• Did you write the correct social security number?

Go over your return and see if you didn’t forget a digit, or mix your wife’s with your own. It’s a silly mistake that can cost you time or money (or both), and the IRS says it’s the number-one “whoops” mistake.

• Did you file under the correct status?

Easy to slip up on this one if you’re recently married or separated. Same level of “whoops” in the IRS mistake list.

• Did you claim new home credits too early?

You must have closed escrow by January 1, 2010. Anything after that has to wait for next year. Sorry.

• Did you report all your income?

No problem for anyone who’s worked at the same job for umpteen years, but if you’ve been floating about doing work for multiple employers (or, gulp, a now-defunct business), it can be tough to keep track of all the W-2s you’re owed.

• Did you report all your charitable giving?

If you’re just starting now, it’s a little late, but make sure you keep receipts for anything and everything you give away to charitable organizations. Anything valued over $200 has to have a corresponding receipt. If the IRS comes-a-auditing, be prepared to whip out your receipt logs, or you’ll have an uncomfortable amount of ‘splainin’ to do.

• Did you report all your mileage?

Same as your charitable giving, above. Make sure you keep an immaculate log. Again, the IRS expects you to keep your records for at least five years, and they’ll expect you to have those records ready for display whenever they’d like a closer look.

• Are you sure your “dependent” is actually a dependent?

Visit the IRS’s website and make darn sure your hanger-on qualifies as a dependent.

If this list saves just one person a week’s worth of waiting for a much-needed return, then our post will have been worth the effort!

The Schedule M form is for anyone needing to account for the Making Work Pay credit or retirees who got the free $250 from the government last year. The Making Work Pay credit comes from the February 2009 stimulus package, which stated that working taxpayers can get up to a $400 benefit.

This benefit was automatically adjusted in the witholdings of most Americans’ paychecks; your “benefit” should’ve resulted in a slight increase in your take-home pay. If you’re a self-employed employee, however, you likely didn’t see a dime of it. You’ll need to file a schedule M, and there’ve been more than a few mistakes.

Apparently, lines 10 and 11 are tripping up filers. Seems to be some confusion with the yes/no check box telling the IRS if you received the check, then the following line to put in the total amount received.

The solution is pretty simple:

• If you check “yes, I received a check,” then you must put in the amount received in the correct line.
• If you check “no, I didn’t receive the check,” then for goodness sakes, don’t put an amount in the line.

Both errors get your return shipped to the Error Resolution System, where it’ll languish waiting for someone to realize it was a simple mistake. This can add weeks to your return. Double-check your return and consider using an electronic filing system, as those flag errors in your filing. A misplaced checkmark or an extra “0” where there shouldn’t be can mean the difference between a prompt, juicy tax check and hours on the phone with an IRS representative. Ouch.

Question? Call the IRS toll-free at 1-800-772-1213.

• Complaints about tax preparers were up 80% in five years. This includes complaints for things like late filing, missing W-2s, base inaccuracies, or completely missing or lost filings. The solution is to get help with your filing from a service like RapidTax. You get 24-hour help if you’ve any questions, and you know for a fact that it was sent in on time.
• On average, “tax preparers” at tax return offices make more mistakes, and costlier ones, than the average taxpayer. The IRS says that 56% of professionally prepared returns had “significant errors” compared to 47% of those filed by the taxpayer. Think about it: these tax organizations like H&R Block have to hire gobs of seasonal employees. The person doing your return likely has no idea who you are, and therefore, no real obligation to make sure he gets it right. He’s there to slip under the radar, take a long lunch, and cash a paycheck, not double-check your above the line deductions.
• Any jerk off the street can call himself a “tax preparer.” And the scary thing is, he’d be right; unless you’re ponying up for a CPA, there’s no universal standard for qualification. In fact, only Oregon and California have any kind of system in place to determine whether or not the person filing your taxes is a complete fraud. There’s no way to know if the person you’re shelling out cash for is any more qualified than you are to file your return.
• It’s possibly too late to get the attention of a legitimate tax professional. Between February and April, “’you’re not going to get good service,’ says Frank Degan, and enrolled agent in Setauket, NY. ‘In the fall, tax preparers will give you their full attention.’” If you dive into the tax preparation waters now, you’ll likely end up in the kiddie pool with the unlicensed, uncaring, minimum-wage seasonal employees.
• Many accountants use tax preparation websites like RapidTax to file claims. No big deal if you simply don’t want to spend the hour or so to input numbers into fields. But if you’re expecting some kind of time-intensive numbers-crunching from your accountant, it’s quite possible he’s taking it easy, using a site like RapidTax. And he’s getting paid $50 an hour to do it.
• Outsourcing is a big business. Your accountant isn’t obligated to tell you if he hires someone halfway across the country to complete your return. In fact, he could take your (and your neighbors’) return and hand them off to the local tax preparation chain. The only thing he’s likely saving you is a trip to H&R Block.

SmartMoney has more info on the dangers of using a tax return office and how to avoid them.

Rarer still is a landmark victory that could mean thousands in deductions for others.

But that’s exactly the double-feat nurse Lori Singleton-Clarke accomplished, winning a ruling that her nearly $15,000 in business school deductions were legitimate. This judgment makes it easier for other professionals to claim from an MBA tax deduction.

The 47 year old Maryland resident’s battle wasn’t an easy one. On her 2006 tax return, she listed a deduction for $14,787 in expenses related to getting her MBA from the online University of Phoenix. Her tax preparer told her this was legal under the IRS’s complicated and narrow definitions of deductible work-related educational expenses.

The Internal Revenue Service disagreed, and in late 2006, audited Singleton-Clarke, who conceded all of their rectifications – except the tuition deduction. On this point, she dug in her heels and fought the government agency, which barraged her with requests for forms and information; “At one point I had three requests for the same records, each with a different contact name. I had to spend hours calling to figure out who needed what,” she recounts.

The nurse eventually tried her case in Tax Court, a forum where individuals argue cases on their own behalf, unable to afford a lawyer. What she did have was an articulate, a steady resolve, and impeccable records – three qualities that go far when outnumbered in tax disputes.

The presiding judge, Stanley Goldberg, praised her: “…Ms. Singleton-Clarke was so articulate and well-prepared. Too many taxpayers are not.” And, more importantly for her and a generation of professional MBA seekers, he ruled in her favor. While decisions in small cases can’t be cited as precedent, her trial helped clarify the rules in a way that can only help those looking to lighten their tax burden as they pursue a degree.

Self-employed Health Insurance Tax Deductability

According to about.com,, prior to claiming this deduction, you must first “calculate your allowable health insurance deduction. Take your self-employment income, and subtract the 50% deduction for self-employment taxes, and subtract any retirement contributions you make to SEP-IRA, SIMPLE-IRA, or Keogh plan. The remainder is your allowable deduction for health insurance expenses.”

The Tax Deduction that Pays Off

On to the deduction! First, and most important: you can deduct the full cost of health insurance you pay for yourself, your spouse, and/or your dependents. If you’re not, go over your taxes right now. You claim your health insurance deduction as an “above the line” deduction on Form 1040, line 29. Feel free to use your worksheet on this one.

But Don’t Go Over Your Maximum Tax Deduction!

Remember, however, you can’t deduct insurance costs any time you were eligible to be in a group insurance plan. So: if you or your husband work for a company that offers an insurance plan, you’re out of luck, even if you prepaid for your insurance prior to getting a job at a company that offers the group plan. Example: today, as a self-employed father of three, you buy a 1-year policy for yourself and your family. But, five months later, your wife gets a job where group insurance is offered as part of the package. In this example, you may only deduct five months’ worth of the cost of the insurance. The government doesn’t reward the self-insured, unfortunately.

Here’s a quick list of the more common ones: where you get them, what you do with them, and what to watch out for.

CP 21B Form

The CP21B is a form for handling the overpayment of taxes. If you already filed a tax return, and you amend it to include new deductions (like the first time home buyer’s credit), you’ll probably end up getting one of these. The good news is that, in theory at least, the IRS will give you your money in 30 days. They say you don’t need to do anything at this point.

But be careful. The CP 21B might get to you after your taxes get amended in a way that makes the money unavailable again. For example, you might be due a refund because you purchased a new home—but then find out that the IRS has decided you weren’t a first-time homebuyer after all. If you’re at all unsure, call the IRS before you start planning to spend the money (they give you a number on the form). It’s a small inconvenience that could save you big trouble later on.

HUD-1 Form

If you’ve purchased a home before, the HUD1 form might be familiar. This form summarizes all the costs and charges of buying a new home. You can view a copy of the HUD-1 form to see exactly how it works, but it’s basically a long list of small charges.

Since the value of the home determines the amount of the new home tax credit, a HUD-1 form is the simplest way to document how much of a credit you should get. So when you apply for the credit, you’ll need to have this form filled out and sent in.

Recorded Deed

A deed simply records who owns a particular home or piece of property. While it shouldn’t be strictly necessary (since the HUD-1 form also shows who bought and sold the property), the deed is redundant. More information is better, though, so sending in a copy of your deed is a good way to ensure that what you get back from the IRS is a refund, not a request for more information.

1040, 1040A, 1040EZ, or 1040X forms

You’ve probably filed a 1040 of one kind or another already. If you’re collecting the first-time buyer’s tax credit, you may need to amend it. This is one of those processes that’s best done automatically with tax preparation websites or software—there’s a lot of simple math and double-checking that you may end up needing to do, and don’t want to get wrong.

Form 5405: The First-Time Home Buyer Credit form

This is the form you can use to apply for the First Time Home Buyer’s Credit. It’s fairly straightforward—most of the information on this form will come from the other documents you’re using—but it’s absolutely critical to double- and triple-check the 5405 form to make sure it’s entirely accurate.

The good news for you is that everyone’s on your side: your realtor wants you to get the payment, because it lets you spend more money on a house; the government wants you to get the money because it’s being spent in order to raise home prices; and the company or individual who helps you with your taxes has every reason in the world to want you to get this extra cash.

1. Most cars, motorcycles, light trucks, motor homes, SUV’s and RV’s are eligible for this tax deduction, though there are some restrictions. The Gross Vehicle Weight (GVW) of the vehicle has to be less than 8500 pounds. Thus, for example, the Hummer H1 and H2 are ineligible, since their GVW’s exceed 8500 lbs, but the H3 satisfies the requirement. You can look up the GVW of your vehicle before claiming the deduction.
2. State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible. Leased vehicles are ineligible. In states that do not have sales taxes, there is a provision for deduction of other taxes or fees paid.
3. The vehicle tax credit has a deadline. The vehicles must be purchased on or after February 17, 2009, and on or before December 31, 2009.
4. Your eligibility for the vehicle tax credit depends on your income. Taxpayers with modified AGI of less than $125,000 (if filing singly) or $250,000 (if filing jointly) are eligible to get the full benefit. If your AGI exceeds these amounts, then the amount of deductions is phased out till $135,000 for single filers and till $260,000 for joint filers. Therefore families whose AGI exceeds these amounts should make a careful decision as to who will potentially be using the vehicle and who should be buying it, so that it may be possible to get the full benefit. Taxpayers with AGI above $135,000 (if filing singly) or $260,000 (if filing jointly) do not qualify.
5. Businesses are ineligible to claim this deduction. They can, however, capitalize the sales tax as part of the acquisition of the vehicle, and can claim Section 179 (depreciation expense).
6. Itemizing doesn’t matter. This deduction can be availed of, whether or not you itemize other deductions on your Schedule A.

The Obama administration is trying to jump start the sagging automobile sector by offering these various incentives. Earlier this year owners of used fuel-inefficient vehicles were given an incentive to trade in their vehicles for more fuel efficient ones, in the “Cash for Clunkers” program. This incentive was in the form of a voucher and did not have any AGI restrictions, and the voucher amount is non-taxable. Anyone contemplating buying a new car should look into the current offering and make a wise decision. The offer, one more time, is only for cars and other qualifying vehicles purchased on or before December 31, 2009. The IRS has more information.

There has never been a better time to purchase that new car you have been fantasizing about, and save some federal tax dollars in the process.

• Make sure you’ve actually filed a 2008 income tax extension: many taxpayers end up owing extra fees because they didn’t complete their 2008 tax extension form filing.

• Make sure you’re aware of the penalties: even if you filed a 2008 tax extension, you’re still going to owe money when you pay late. Fortunately, the penalties for paying late are much lower than the penalties for filing late. You’ll owe .5% of your total bill for each month you’re late. You’ll also have to pay 5% per year in interest—steep, but much lower than the 5% per month you could owe if you file late, too.

• Don’t forget about state taxes: If you’ve filed your federal tax extension form, but not your California income tax extension, you could be on the hook for fines from the state. If you’re in the military, tax extensions can get even more complicated, because you may serve in different states—but it’s fairly simple to sort out, since the paperwork is all available.

• Gather your tax forms: you don’t want to come up short when it’s time to actually complete the filing. If you’re unable to get the forms, make some plans in advance: you’ll have to estimate your income and withholdings, and the IRS may end up questioning the estimates. It can get fairly complicated, so it’s best to avoid the trouble and track down your forms.

• Double- and triple-check your work: the IRS is always picky about errors—but if you filed a 2008 tax extension, they’re going to pay extra attention. You might know how long the tax extension does last, but you don’t know how long those errors will stick around. This isn’t because they want to pick on late filers, or even because people who file late make more errors. The reason is simple: they’re less busy when it’s not tax season, so they have more time to carefully examine your return. So spend some extra time reading over your 1040; extension filing won’t help you there.

The good news? Although it used to be difficult, filing after the deadline once you file a 2008 tax extension form has never been easier. You can efile (an electronic file extension) online, and have your credits automatically calculated. It’s faster and simpler than a traditional return, and could help you get even more money back! And even if you expect to owe money, you don’t have to pay until you’ve completed the filing (so you can wait until you know how much you’re saving—it amounts to getting to file for free!)

The Federal earned income tax credit gives money to low-income workers, to compensate them for payroll taxes. Since there was already a payroll tax cut in an earlier stimulus plan, why not just boost the Federal earned income tax credit?

There are a few reasons the earned income tax credit hasn’t been expanded:

• It isn’t targeted. The earned income tax credit doesn’t necessarily help build new infrastructure, boost home prices, or send people back to school. It may go straight into savings, which is not something stimulus plans generally try to do.
• It helps people who are still employed. With the unemployment rate likely to hit 10%, fewer and fewer people will be eligible for a tax credit that pays back payroll taxes. Instead of giving more money to people who are still working, the current stimulus plan tries to do two things: create new jobs, and reduce competition for existing jobs by sending people back to school.
• It’s harder to notice. A one-time credit giving back money that was already paid into the tax system is hard to notice. It sounds like an accounting gimmick, not a benefit (and maybe it is). But, for good reasons or for bad, it’s easier to notice having extra money if it shows up in a roundabout way, so the federal earned income tax credit doesn’t get as much attention.

The good news? The Federal earned income tax credit is one of the most common tax credits available to filers. Find out if you’re eligible!

Via Phillip on Flickr.

Getting information from Swiss banks: even when they aren’t in Switzerland, these banks are feeling the heat. It may be the single best way to make up for a weak 2008 tax return: collect unpaid taxes on money earned during the good years, instead!

Legalizing in order to tax: The Washington Post recently published an editorial calling for legalizing and taxing drugs. For a paper that values its connections to the political mainstream, that’s a significant step. Among other things, they argue that it’s a dollars-and-cents issue:

Having fought the war on drugs, we know that ending the drug war is the right thing to do — for all of us, especially taxpayers. While the financial benefits of drug legalization are not our main concern, they are substantial. In a July referendum, Oakland, Calif., voted to tax drug sales by a 4-to-1 margin. Harvard economist Jeffrey Miron estimates that ending the drug war would save $44 billion annually, with taxes bringing in an additional $33 billion.

Finding new things to illegalize and fine: High-Frequency Trading is a fiendishly complex subject which is only partly understood, even by PhDs and industry experts. Fortunately, the qualifications for having an opinion on it are a bit lower. One new proposal is a tax on every trade as a way to partly ban high-frequency trading.

So that’s the plan: tax money overseas, legalize drugs, and create a fine for something nobody really understands.

How much of this will really happen? The answer is, likely, almost none of it: overseas banks have always had to assume that there could be a crackdown, so they’ve taken precautions to make it hard to get money out. While drug legalization is getting more popular, it’s hard to beat the status quo. And a trading tax is not likely to get passed any time soon—if Wall Streeters are already paying income taxes, why kill the golden goose by cutting their incomes in order to tax them a different way?