Wednesday, January 22, 2014

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

If you like the blog, buy my book: Everyday Taxes

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