Monday, February 16, 2015

Don't make these income tax mistakes

Tax mistakes can mean much more than just a computation error. The tax code is long and complex, so it's not surprising that wrong assumptions about preparing and filing taxes abound. Correcting those misconceptions could save you money. Here are a few commonly misconstrued facts that can lead to tax mistakes, and the real story.

I shouldn't file until I can pay what I owe

Mistake. Even if you can’t send one cent to the Treasury, file your return by April 15 to avoid the penalty for failure to file, which is greater than the failure-to-pay penalty.
That's especially true for tax season 2015. Taxpayers who overestimated their health-insurance premium tax credit last year now must reconcile what they got with what they should have recieved; in most cases, they must repay the difference. But some folks, caught short by the new reporting requirement, may not have the funds to pay by April 15. So for this tax season, the IRS is waiving late-payment penalties on those owed sums, assuming the taxpayer files on time. Here's more from the IRS on calculating what you owe related to your premium tax credit, and making a payment.
The IRS offers arrangements for installment agreements and short-term extensions if you can't pay everything on time. The agency may waive penalties in some cases, but not interest charges on unpaid taxes. If you’re concerned that you can’t pay at all, call the IRS at 800-829-1040, or check out IRS Tax Topics 202, Tax Payment Options, for more information.

It's always better for married couples to file jointly

Not always. Couples who recently lost tax breaks when they bid their dependent children goodbye may now benefit from filing separately. So might a married couple whose income is much higher or lower than last year. In some cases, the savings may be in state, not federal, taxes. So to avoid this tax mistake, ask your tax preparer about the cost of comparing the options of filing separately and jointly.

I can't claim my parents as dependents unless they live with me

No, your parents can live anywhere. What matters is that you and your siblings pay for more than 50 percent of their living expenses. Adult children can share equally or unequally in that support, but only one child can claim the dependent-care exemption each year. Often the children give the exemption to the sibling who deals most with day-to-day issues, even if she or he doesn’t provide the most financial support. (That child must provide at least 10 percent of total support.) For more guidelines, consult IRS Publication 501, "Exemptions, Standard Deduction and Filing Information." [PDF]

CPAs charge the most to prepare taxes

Not necessarily. Certified public accountants, with their extensive training, may be considered the most costly tax professionals. But a national survey of members by the National Society of Accountants—including CPAs, tax experts known as enrolled agents, and other credentialed tax professionals—found that tax-prep fees may have less to do with the preparer’s professional designation than with the size of the firm.

A canceled check is the only proof needed for a charitable deduction

Wrong. To be eligible for a deduction, any donation of $250 or more requires a donor acknowledgement letter that specifies the amount of cash given and describes any property that was donated. The letter should also state whether the donor received any goods or services from the organization in exchange for the gift. If the letter doesn’t mention the date of the donation, a bank record or receipt will suffice. See IRS Publication 526, "Charitable Contributions," [PDF] for more.