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!

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.

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!

Sounds like you did not enter the correct rebate amount from 2007 (the amount before any offsets). Any rebate calculated on your 2008 return is simply the amount you were entitled to in either 2007 or 2008 reduced by the credit received. Without knowing your specific situation, it’s very difficult to tell you what you should have been entitled to claim. However, generally it would have been $600 (single) or $1200 (joint) plus $300 for each child.
Just so you know, with over 30 million returns filed for 2007 and 2008, we are not aware of any calculation issue in this area. I would suggest you contact the IRS first to determine how they arrived at their number.
I hope this information helps.
Bob Meighan
VP, TurboTax

He later added:

I would suggest you send a letter to the IRS requesting abatement of the penalty. They are generally pretty good about eliminating the penalty when it’s for a reasonable cause. Use language like “I respectfully request abatement of the penalty because…”
… I can confidently say there is not a calculation error with the rebate. I encourage you to call the IRS to find out how they arrived at their number and then compare it what you may have entered. In every case that I’ve seen, it’s been a case where the user entered the incorrect rebate received from the prior year.

(Interestingly enough, this isn’t the first time Meighan has gotten involved in online discussions of Turbotax.)

But what’s really going on is this: the stimulus plan has created a very confusing situation for the average taxpayer. If they missed the stimulus one year, they could get it the next — and tax software has to take that into account. Unfortunately, there’s no easy way to set this up. TurboTax keeps track of every user’s expected refund (or expected amount owed), and had to assume either that taxpayers would get a stimulus payment (so when they said they wouldn’t, their expected refund would drop painfully), or assume that they wouldn’t (so taxpayers expecting a stimulus payment would think they owed more money for a while.

The users may be partly to blame — most people were able to figure out how to file. On the other hand, people using different tax filing software were able to file weith less confusion and fewer mistakes. Hopefully, they’ll catch any confusing issues like this by next year’s tax season

Tax Blog Roundup: The Recovery Rebate and Turbotax

• Kay Bell at Don’t Mess With Taxes publicized the story in her Tax Carnival post.

• The Sun’s Financial Diary has a first-person account, and the comments have more.

• The TurboTax blog announced the Recovery Rebate feature back in December.

• TaxGirl has a reader who ran into a similar issue, but caught it before the IRS started asking for fines.

• The Wandering Tax Pro suggests double-checking Turbotax through a calculator on the IRS website. (The correct link is here.)

Forum posts asking about the Recovery Rebate and Turbotax

• “PennyLane” gets different numbers from TaxAct and TurboTax.

• “dirtyinjersey” is extremely confused by how TurboTax does the math (and one one user’s response claims that “The IRS is verifying every return due to the screwups. 1 in 6 tax returns made a mistake on this line alone.”)

• “Susan” asks, and a TurboTax representative answers.

• “Judy” explains that other tax preparation programs have the same issue.

• Reddit.com user “Popperian” got a letter from the IRS — that blamed the IRS!: “Apparently TurboTax was following the law and one-upped the I.R.S. who had screwed up some of it’s formulas… The I.R.S., of course, didn’t admit the error, just stated “the existence of an error” on the letter, ROFL.”

• One online commenter complained of a 12-week wait for the check, which hadn’t arrived yet.

• Other commenters are asking when the check will arrive — the answers indicate that it takes ten to twelve weeks, but there’s lots of confusion nonetheless.

• Other estimates for how long the credit takes imply a wait of 12-16 weeks.

• Some people are even less lucky. One of them had to wait fourteen weeks — to find out that he needed to send the IRS more information.

Some people are in no mood to wait for the check. Several states have found a way around this: HUD is starting to lend people money backed by the tax credits, for certain mortgages. And several states have taken matters into their own hands: here is a list of states that lend new homeowners money to tide them over until the tax credit arrives. For many new home buyers, this can be a good way to stay afloat, but in most cases, it’s best not to rely on that tax credit as the only way to close a new home purchase.

The First-Time Homebuyer Credit: How It Works Now

The credit gave new homeowners 10% of the purchase price of a new home, up to $80,000. This credit was restricted to buyers with less than $75,000 in income (subject to some adjustments), with reductions for incomes up to $95,000. For married homeowners, the full credit applied to incomes of up to $150,000, with reduced amounts available for incomes up to $170,000, and nothing available beyond that. The credit expires at the end of the year.

The credit thus targets people who are likely to buy a home, but also likely to be suffering too much from the current downturn to afford a new one. Although the tax credit has encouraged new home purchases, it hasn’t been as effective as it could be: most foreclosures are in a few states with far higher median home prices, which are still high enough that this credit is an extra 5% — enough to make a difference in which homes are bought, but rarely enough to be the difference between buying a home and not.

The New Housing Credit: How It Might Work

The new plan being advocated goes something like this:

some business groups say the amount of the credit, now capped at $8,000, should be raised to $15,000 and applied to anyone who buys a home.

Other possibilities include a $3,000 credit for refinancing, or an extension of the credit to the end of 2010 and an end to the income cap. This would have a larger effect on the housing market, but in a more gradual way: a credit with a deadline encourages people to buy homes they might have bought a year or two later instead, while a credit that keeps getting extended will start to feel permanent.

Now is not the time for the average homebuyer to react to this potential plan. There’s still a lot to be decided, from the exact amounts to the income eligibility to the deadline for the credit. In fact, the current discussion should remind taxpayers that this kind of deadline doesn’t always stay firm. The best plan is still to be cautious with homebuying, and to base decisions on what homes are affordable, not just which ones have tax incentives attached.