There are seven particular errors to avoid on your 2012 federal income tax return, according to certified financial planner Rick Rodgers.
Taxpayers on average spend nearly an entire day -- 23 hours -- completing their tax returns, Rodgers says. Eight out of 10 will hire someone to do the work, although two out of three don't owe anything.
However, keeping an eye out for seven particularly important errors will save you money and make calculating your taxes much easier.
The 7 Sins
The seven mistakes include errors in deductions, tax ID numbers, dividend reinvestment, and excess Roth contributions. Here's a short version of Rodgers' list:
1. Charitable deductions -- cash. The IRS is examining charitable deductions especially closely this year, so be sure to follow the donation tax rules.
2. Charitable deductions -- in kind. Used clothing and other unwanted household items might not seem worth much while they're sitting in your garage, but using valuation software to determine how much to claim can yield some pleasant surprises.
3. Social Security number. Most tax information is now keyed to a tax ID number instead of the SSN. Tax ID number errors raise red flags, however, so be particularly vigilant when claiming the Child Tax and Additional Child Tax credits and credits for educational expenses.
4. Dividend reinvestments. Each time a stock or mutual fund reinvests dividends, it's the same as making a new purchase of shares. Make sure you don't overpay the IRS, but remember that it's up to you to make sure you calculate the gain properly.
5. Unused deductions from 2011. The tax code allows capital losses to offset capital gains. Any excess loss can be carried forward into future tax years.
6. Excess Roth contributions. Single taxpayers whose modified adjusted gross income is between $110,000-$125,000 ($173,000-$183,000 for joint filers) can't make a full Roth IRA contribution. Excess contributions are subject to a 6 percent penalty on the amount you contributed.
7. Overlooked medical deductions. The portion of health insurance premiums paid by an employee is a deductible expense. This includes the portion paid to Medicare, along with transportation expenses.
How to Fix Mistakes
If you have made a mistake or missed a deduction, Rodgers says, you can file an amended tax return to correct the problem. If you're worried that filing an amended return will trigger an audit, remember that amending a return doesn't focus the IRS's attention on your return, but it will extend your exposure to their challenges.
Rick Rodgers is president of Rodgers & Associates in Lancaster, Pa., and author of The New Three-Legged Stool: A Tax Efficient Approach to Retirement Planning.
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