Tuesday, March 28, 2006

Ten Top Tax Transgressions

The AICPA has identified ten easily avoidable errors frequently made by taxpayers. The ten errors are: [1]leaving off attachments such as supporting forms and schedules; [2] forgetting prior year carryforwards such as NOLs or charitable contributions; [3] misclassifying income such as showing money market mutual fund income as interest when it should be dividends; [4] overpaying Social Security taxes for high earners with two or more jobs in the same year (note: if married filing joint--you cannot combine husband and wife earnings for the year to escape Social Security); [5] declaring state tax refund as income if you did not itemize the year before; [6] failing to document charitable donations--including the use of Form 8283 if noncash donations exceeded $500; [7] omitting Social Security numbers, especially on dependents; [8] making math miscalcuations; [9] failing to file Form 6251 (Alternative Minimum Tax--unless Congress acts soon; many new taxpayers will be subject to the AMT) and [10] assuming, in the absence of mortgage interest, major medical bills or major contributions, that itemized deductions will work out better than standard deductions (special note for high income taxpayers--certain charitable deductions may be partially phased out in some cases).

A competent tax preparer, such as a CPA or enrolled agent, should avoid all of these traps. Additionally, most of these should not be an issue if tax software is used so long as you thoroughly and accurately answer the tax software questionnaire.


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