Five Mistakes to Avoid

 

1. If you hand-write your return, the risk of making a mistake is much higher that if you file a computer prepared return and file it electronically. The three most common problems – math errors, incorrect social security number and failing to sign the return – slow your refund because the IRS has to contact you to fix the mistakes. Plus, a sloppy handwritten return is more likely to need corrections because the info cannot be easily deciphered and entered into the IRS system. But if you file electronically, the process is speeded up so you get your refund sooner.

 

2. By filing your return electronically you get a confirmation that your return has been accepted so you avoid the IRS telling you later they did not receive your return.  some tax professionals advise you to send it certified, but we are of the opinion that that only proves you mailed an envelope to the IRS, it does not prove you mailed a tax return. We have filed returns electronically for our clients for 10 years.

 

3. Some people assume, incorrectly, that they are audit-proof if they use the standard deduction rather than itemize; others do not want to put forth the afford. But, why pay more tax than is necessary? Itemize all the deductions you are legally entitled to. If they total up to more than the standard deduction, you have succeeded in lowering your taxes. The standard deduction changes every year and for the 2007 tax year it is: $10,700 for Married Filing Jointly, $5,350 for Single or Married Filing Separate and $7,850 for Head of Household. We can assist you with this process. We have been preparing tax returns for over 35 years.

 

4. Do not declare a child as a dependent who does not qualify. When the IRS detects the mistake, your return will get adjusted and your refund, or amount due, will be changed; plus they may charge a penalty and interest. A full-time student up to age 24 as of December 31 of the tax year is still considered a dependent. Otherwise, the cut off age is 18. In cases of divorce, the custodial parent has the dependent deduction. Exceptions to this rule do apply and we can discuss your particular situation with you.

 

5. If you owe tax and you cannot pay, you should still prepare and file your tax return. If you do not file on time, a penalty for “failure-to-file” will be accessed and that is 5% per month up to 25% of the amount of tax in addition to interest on the tax and the penalty. The solution? Submit your tax return on time, paying as much as possible and include with your return a request for an Installment Agreement. That will allow you to pay off your debt, with interest, over a period of months. IRS charges a $43 fee for that installment agreement and we can assist you with the preparation of the return and the installment agreement.

Surprising way to increase your refund or lower you tax bill.

1. If you use your car for unreimbursed business travel, you can take a deduction for 48.5 cents per mile. Or, you can claim the business portion of your automobile operating expenses, including loan interest, registration etc, plus you can depreciate the auto. You must choose which method to use.  We can assist you in deciding which method is best for you.

 

2. If you use you automobile for charitable purposes, for 2007 you can deduct 14 cents per mile. And, if you have medical expenses, you can deduct 20 cents per mile for travel for medical care, including routine doctor office visits. Medical expenses have limitations, however we can assist you to determine if this is a deduction available to you.

 

3. Did you move your residence due to a job change in 2007?  Unreimbursed moving expense are deductible if you meet distance and work tests. You can write off the costs of packing, transportation and lodging en route to your new principal residence. This is a deduction that a lot of people overlook and we can assist you with this calculation.

Kiddie Tax beginning with tax year 2007

Who is a Federal Kiddie?

For 2007, a child is subject to kiddie tax if that child:

• Has not yet reached the age of 18; and
• Does not file a joint return.

For tax years beginning after May 25, 2007, a kiddie is defined as:

• a child who has not yet attained age 18 before the close of the tax year; or
• a child who has attained age 18 before the close of the tax year and who meets     both these requirements:
     The child can not have turned 19, or 24 if a full-time student, before the close of the calendar year in which the tax year begins. The child meets the age requirements for a qualifying child under the dependency deduction; and,
     The child’s earned income for the taxable year does not exceed one-half of the amount of the child’s support.