Before Filing Your Taxes
Just before you finish up your 2008 federal income tax return and hit send or drop the envelope in the mailbox, stop. Take a few minutes to review the forms and check to be sure you've avoided the following four IRS red flags:
Missing Signatures
According to the IRS, the biggest mistake taxpayers make is not signing their tax returns. Without your John Hancock, the government does not consider your return as filed, so you will be hit with a late fee. To file your return electronically, you must “sign” the return by using a personal identification number (PIN).
Wrong Taxpayer Identification Numbers
Make sure you have correctly entered on your return the taxpayer identification numbers (usually Social Security numbers) for you, your spouse, your children, and other dependents. The IRS charges a $50 penalty for any missing TIN. Worse — if you mess up on the numbers for your kids, you’ll be denied the personal exemption of $3,500 for each dependent and the $1,000 child tax credit for each child under age 17.
Choosing the Wrong Marital Status
Your marital status is determined by whether you were married on December 31, 2008. Claiming the wrong status can wipe out your Child Tax Credit, the Earned Income Credit, and exemptions for your dependents. Check out the instructions for Form 1040 to help select your correct filing status. Confused about “Head of Household” status? In general, you can claim it if you were unmarried in 2008 and paid more than half the cost of keeping up a home for your dependent parent or child.
Not Calculating the AMT
Make sure you determine whether you owe the alternative minimum tax, especially if you’re a strong candidate (you were married and made more than $70,000 in 2008 or were single and earned more than $46,000). The AMT is a kind of parallel tax universe originally created to catch high-income taxpayers whose write-offs wiped out too much of their tax liability. Now it catches just about anyone with a decent income.
With the AMT, you must calculate your taxes in very different ways than with the standard tax system. Then, you pay the IRS the higher of your regular tax bill or the taxes due under the AMT. The IRS has an AMT calculator, called the AMT Assistant, which can help you determine whether you’re an AMT candidate. You’ll owe the IRS interest, penalties, and the AMT tax if the agency determines you should have paid the AMT but did not.
