The Tax Man Cometh

As April 15th quickly approaches, over 150 million Americans will be filing their 2007 tax returns. When Ben Franklin said, “nothing in life is certain except death and taxes,” who would have thought that most people would fear the latter of the two more?

Whether you are one of the technologically advanced who have chosen to file your return electronically or one that prefers the more traditional method of paper filing, I wanted to share some common mistakes that can hopefully reduce some stress and possibly save you some money this tax season.

1.  Bad Math
   Measure twice and cut once is a rule by which carpenters live. The same technique should apply to tax filers. According to the IRS, this is the number one mistake. Transposed numbers, missing decimals or simply omitting information altogether can immediately raise a red flag. Miscalculations early on in a return are often transferred to other forms and worksheets and like a snowball effect, can become very costly. For those of you who file electronically, most software guarantees accurate calculations, but you as the taxpayer are ultimately responsible for all of the information that is entered.

2. Social Security
   Your Social Security number is the most important piece of information on your return. Make sure that your number is correct as well as your spouse’s, and all of the dependents that you claim.

3. Using the Wrong Forms
   For those using the traditional method of paper forms, make sure to use the appropriate 1040 form. Sometimes the easiest form is not always the one that gives you the best tax result. Remember when filling out longer forms you still only need to fill out the information that applies to you. But these longer forms could uncover several ways to cut your taxes and save some additional money.

4. Include All Documentation
   This also applies to paper filers. Make sure to include all W-2 and 1099-R forms with your return. Include any additional forms that give you a tax credit or deduction. Omitting these forms could delay the processing of your return.

5. Report All Income
   The IRS knows exactly what you earn and all interest and dividends that you have made in a given year by way of your Social Security number. Before filing your final return, make sure you have received all of the appropriate information. Failure to include all income can lead to unwanted penalties and interest charges.

6. Who Owes Whom
   If you find yourself owing money, be sure to make your check payable to the U.S. Treasury—not to the IRS. Be sure to also include your Social Security number and sign your check. If you are getting money back and are having your refund direct deposited, double-check to make sure that you have entered your bank routing number and account number correctly.

7. Sign on the Dotted Line
   The second largest mistake taxpayers make is forgetting to sign their return. In the process of calculating your entire return, a simple signature is often overlooked.

8. Ask for More Time
   If you are just too busy and cannot get all the forms completed on time you can file for a six-month extension using Form 4868. When you file an extension, you avoid the late filing penalty. But Form 4868 does not extend the time to pay your income tax. So estimate your tax bill and provide payment with this form.

As basic as these mistakes seem, they top the IRS list of reasons tax returns are delayed. We are all responsible for paying our share of taxes and accurately reporting them. If you are ever audited, it is your responsibility to provide the supporting documentation that coincides with your return.

I still believe that having a sound financial plan and working with professionals can eliminate the majority of problems that you may encounter with your finances. In preparation for next year’s taxes, please call my office at (412) 258-1109 for a copy of Hefren-Tillotson’s 2008 Tax Reference Guide.

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Kevin C. Krul is First Vice President and Financial Advisor with Hefren-Tillotson. He may be reached at 412-258-1101 or kkrul@hefren.com. The Wexford office of Hefren-Tillotson is located at 4001 Stonewood Drive.