With only a few days left to the April tax filing deadline, CNBC personal finance correspondent Sharon Epperson, author of "The Big Payoff," shares last minute tax tips and some common mistakes to avoid:
Mistake #1: Not filing a tax return
The biggest mistake this tax season you can make is not filing because you can’t pay the taxes that are due or because you aren’t required to file a return.
Not filing because you can’t pay and delaying payment of taxes due is only going to increase the amount you’ll have to pay later with additional and increased penalties. If you enter into an installment arrangement with the IRS, and you’ve filed on time, your monthly late payment penalty on the outstanding balance will drop from half a percent (.5 percent) to a quarter percent (.25 percent).
Also even if you don’t normally think about doing taxes because you’re a senior or retiree and have a low income, or you’re living off Social Security benefits, or you receive certain benefits as a veteran, you should file a return this year. You’re likely still eligible to get a rebate check through federal government’s Economic Stimulus Plan. We’re talking a minimum of $300 for individuals and up to $1,200 for married couples who file a joint return, according to the IRS.
As long as you file a 2007 tax return with a valid Social Security number and note at least $3,000 of Social Security income, you should receive a rebate payment. Request direct deposit by including your checking account and routing number on the return and you’ll be among the first in line to get a check when the IRS starts sending them out on May 2nd.
Mistake 2: Missing, duplicate or incorrect Social Security number
Triple check that you haven’t transposed the digits of your Social Security number on your return. Double-check that it is included and correct on each page of the return. Then re-check your spouse and dependents Social Security numbers to make sure they’re right too.
Electronic filing helps decrease the error rate dramatically. But tax preparation software, the IRS’ Free File program (if you make $54,000 or less), and even your top-notch accountant might overlook an incorrect Social Security number if you initially submit the wrong digits.
A little mistake like that can cost you big time. The IRS may issue only a partial refund until they can verify the information on the return. They’ll likely recalculate your tax liability based on the information they have and you could wind up with a tax bill instead of a refund.
Mistake 3: Inaccurate W2 and 1099 forms attached to the return
Don’t just assume your employer got it right. Double check your W2 forms to make sure the Social Security number is accurate and it’s in the right box. Also check to see that you had the right amount of taxes withheld. If you had more than one employer in 2007 and multiple W2s, you may have overpaid Social Security tax. The maximum amount of wages withheld for Social Security tax in 2007 was $97,500.
Mistake 4: No receipts or cancelled checks to verify charitable contributions
If you want to claim the money that you put in the collection plate every Sunday as a charitable contribution, make sure you get a receipt. Starting in 2007, a deduction for cash contributions to a charity will not be allowed unless you have a bank record (such as a cancelled check) or a receipt, regardless of the amount given. You could also have a bank statement or written communication from the charitable organization that includes the charity’s name, date and contribution amount.
Remember, charitable contributions are deductible only if you itemize deductions on a Schedule A form.
Mistake 5: Not deducting sales tax instead of state income tax if the sales tax paid is greater As of now, 2007 may be the last year taxpayers will have the opportunity to claim state and local sales taxes instead of state and local income taxes when they itemize deductions, unless the government extends this provision again. If you don’t have all the receipts you collected over the course of last year to tally up the sales taxes you paid, sales tax tables are available on the IRS’s website () to help you figure out how much you can deduct.
This deduction will mainly benefit taxpayers with a state or local sales tax but no income tax — in Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. But any taxpayer who paid more in sales taxes than income taxes may be eligible for a larger deduction. For example, you may have bought a new car, boosting your sales tax total, or claimed tax credits, lowering your state income tax.
The official IRS website () is a great resource for those last minute questions ahead of the looming April 15 deadline. Also log onto www.jacksonhewitt.com, www.jklasser.com, or get a copy of J.K. Lasser’s Your Income Tax 2008 (J.K. Lasser, $17.95) or The Ernst & Young Tax Guide 2008 (CDS Books, $17.95)for last minute tax help.
CNBC personal finance correspondent is the author of “The Big Payoff: 8 Steps Couples Can Take to Make the Most of Their Money — and Live Richly Ever After" (HarperCollins).