Top Mistakes In Itemizing Deductions

The IRS estimates that the average taxpayer takes more than 21 hours to do their return from gathering the information to completing the tax return. Particularly with the introduction of new tax laws, the average tax payer is not aware of many new deductions that are now available. An experienced accountant should be able to take advantage of every possible deduction. Remember, the tax preparer’s fee is deductible. There are many common mistakes made by taxpayers that you need to pay attention to:

Tip 1: Check Your Math
The IRS indicated that 20 percent of those filing paper returns include computation errors. When completing your tax return, it is important to double check your math.

Tip 2: Organize and Attach Necessary Backup Paperwork
If the IRS cannot verify the information you provide, it makes its own adjustments to the amount you owe. Failing to have the necessary backup paperwork could also lead to an audit.
The most important paperwork for you to have available includes W-2s, other forms that show taxes withheld during the year, and receipts for itemized deductions and charitable donations. Make sure to attach to your tax return your W-2, other forms that show taxes withheld during the year, and any other applicable schedules.
Regarding charitable donations, note that if the donation is over $250 you must have a letter from the charity showing you made the specified monetary donation. Also, if you receive a gift thanking you for the donation (like a tote bag or a mug), you can only deduct the amount you donated that exceeds the value of the item. For example, if you donated $250, and you received a $50 gift in return, then you can only deduct $200.

Tip 3: Report All of Your Income
Failing to report income can lead to the payment of interest and penalties. Note, you must report all income, even if you didn't receive a 1099 form for work you performed. Penalties for unreported income can be very high. In addition to having to pay taxes on the unreported amount, interest will be about 6 percent per year and you could incur penalties of up to 20 percent.

Tip 4: Itemize for Deductions
Kiplinger reports that 46 million people itemize their deductions and claim approximately $1 trillion in deductions. The taxpayers (85 million) who take the standard deduction claim half that amount. A good tax preparer will calculate your income tax both ways (applying the standard deduction and itemizing deductions) to alert you to which method works in your favor.

Tip 5: Unemployment and Deductions
To help the 15 million people who are currently unemployed in this country, new tax laws have been enacted. A professional tax preparer should be aware of the new laws that can benefit you.

For example, the first $2,400 in unemployment benefits is tax free.
If you have been searching for a job in your field, job hunting deductions may be available to you such as employment agency fees, resume preparation, traveling for interviews, and postage for mailing out job applications and resumes.
These expenses may be available to you as long as the total of your miscellaneous itemized tax deductions exceed 2 percent of your adjusted gross income.

Note that expenses incurred while looking for your first job are not deductible; however, moving expenses could be. For example, if you had to move 50 miles for your first job in 2009, you can deduct your moving expenses, using the mileage reimbursement of 24 cents a mile for driving your car to your new home, plus parking costs and tolls paid driving there.

Tip 6: First Time Home Buyer Credit
In an effort to boost home sales, the stimulus package includes an expanded first time home buyer credit and a credit for long-time home owners in an amount up to $6,500. The IRS estimates that approximately 1.4 million buyers took advantage of the first-time home buyer tax credit.

Tip 7: Common Mistakes To Guard Against
Make sure your social security number is entered correctly. An incorrect social security number will prevent your return from being processed and delays you refund.

Sign and date your return. If you are filing a joint return, both people need to sign and date the return. If you use a tax preparer, make sure the preparer does the same.