Common Tax Return Errors - Updated

Don't rely on this list for tax prep - it is just a brainstorming guide - do your due diligence

Military:

South Carolina Tax Treatment of Working Spouse

Military Spouses Residency Relief Act Mistakes

• Not establishing domicile
• Not the same state as military member
• Shifting residence to state that is tax free to mil but not spouse (AZ, CA, MI etc.)
• Not taking advantage of MSRRA

Not taking Sales Tax Deduction

Not adding tax-free allowances to income for Sales Tax Deduction

      (Subtract W2 wages from YTD entitlements on Dec LES to get amount)

Not getting all taxes back from certain states (exclusions apply):

     ME, MI, NY, NJ, CA, AZ, ID, IL, KY, MN, MO, MT, NM, OH, OR, PA, WV, CT, AR (in 2014)

Not filing required returns:
     MI is good example since you can get EIC even with all income excluded
     PA is another example that requires copy of orders

Not subtracting Military Wage Deductions (these are portions not full exclusions)

     AR, IN, LA, MD*, CO*, VA

     *Need to meet overseas conditions

Boomer Deduction

Not getting $120/month MN deployment credit (actually a direct payment.)

Repayment of Bonuses (Claim of Right repayment)
Not taking National Guard and Reserve travel expenses for >100 miles from home

Dependents/Filing Status:
Not properly accounting for children claimed by non-custodial parent
Not having 8332 for claiming children as non-custodial parent
Filing Single when married
Claiming dependents who provide more than half of their own support (college students with big loans)
Not claiming Head of Household when unmarried for tax purposes
Not taking advantage of EIC for multi-generational households
Not including Dependent Care Benefits on W-2 and 2441
Not taking dependent care credit for 2 kids under 13 even if only one is in daycare

Retirement Pay:

Tax treatment of federal, state, local, military retirement pay

Treatment of employee contributions to retirement (worksheet)

Roth distributions

5329 - medical expenses, IRA exceptions

For SC - not deducting retirement pay from reserve time periods

Itemized Deductions:

Failing to claim Goodwill contributions

Undervaluing Goodwill (FMV is not what the Goodwill store sells it for)

Failing to claim Employee Bus Expense (especially mileage)

Deducting Commuting Mileage

Missing Health Insurance Deduction

Failing to claim Fertility Treatments

Failing to claim Glasses and Contacts

Failing to claim Birth Control Pills

Failing to claim Auto Taxes

Failing to claim Points paid by seller (points always go to buyer)

Failing to claim Taxes paid by seller (taxes always go by date of ownership)

Failing to claim VA/FHA funding fee

Not amortizing points on a refinance

Moving Expenses not taken

HSA and 1099SA not properly entered (Almost always need 1099SA if Code W in Box 12 of W-2)

Rental Property:

Not depreciating - not adding improvements to basis

Missing: HOA, Termite Bond

Not properly accounting for things that are rent

Not deducting Sch E and associated forms cost as expense (from prior year tax return)

Deducting vice depreciating items

Not adding out of state rental loss back to SC

Adding out of state rental loss back to states not required (GA)

Not realizing what "Active Participation" means and thus not getting $25000 loss allowed

Not tracking or accounting for passive losses not allowed in prior year

Completely messing up the sale of rental property

Allocation of first year expenses

Your roommate is often your tenant!

Businesses (Sch C):

Hobby vs. Business

Missing mileage (Use Mile IQ app to track mileage!)

Office in Home mess-ups (there is a Safe harbor now)

Failing to take tax prep fees from prior year as expense (allocable to the business)

Failing to depreciate items

Not properly figuring out best use of Sec 179 or bonus depreciation

EIC considerations

Likelihood of conversion or sale

Future income level considerations

Inventory/Cost of Goods Sold issues

Investments:

Improper treatment of Qualified Dividends or Long Term Capital Gains
Not maximizing 0% Capital Gains rate

Not reporting Gross Proceeds or improperly calculating basis

Failing to take foreign tax credit

Failing to exclude municipal bond interest from residency state

Failing to add back municipal bond interest to state tax return (except as above)

Messing up Schedule K-1's

Failing to carryover capital losses

Missing Education Credits or deductions (books etc.)

For SC:

Subsistence allowance for FF/Police

Base security are often police for the above

Volunteer FF deduction

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