Mistake #14: Not putting enough postage on the envelope
You cut it close, but you made the filing deadline. Or did you? If your return included a lot of supporting documents, it probably needed more than one stamp. If you overlooked that, you'll probably be seeing your 1040 again soon. The Internal Revenue Service has no funds to pay for postage due and you can bet that return-swamped agents aren't going to pay the postal charge out of the goodness their own hearts. If you don't put enough stamps -- or forget to put any -- on the envelope, your return will be on its way back to you. And that envelope marked "Insufficient Postage, Return to Sender" is very likely to cost you more than 37 cents. In the best-case scenario, that will mean a delayed refund and possibly a late filing penalty. Worst case: a late-filed return and, if you owe tax, associated penalties and interest. So make sure the envelope has enough postage, especially if you have a lot of forms. It's also a good idea to make sure that the addresses -- both your return address and the IRS processing center one -- are clear so the envelope won't go astray in the mail. The IRS considers your return delivered by the U.S. Postal Service as long as when it is received it has an April 15 postmark on the envelope. If you want added assurance that your tax return made it safely to the IRS, the post office offers verification services for an extra charge. Or you can send your return through an IRS-approved overnight delivery service:
•	Airborne Express
•	DHL Worldwide Express
•	Federal Express
•	United Parcel Service
If you use one of these companies, the tax collector deems your return as "timely filed" based on the date entered on the address form by the delivery company when it picks up your package. Be sure to use the correct IRS delivery address if you use an overnight service. These services do not deliver items to P.O. boxes, such as the one on your preprinted tax return envelope. Instead, check the back page of your tax form instruction book or this Bankrate story. There you'll find a list of the nation's IRS Service Centers. Find the one where tax returns for your state are processed and put that address on your private delivery service form.
Mistake #13: Missing the deadline to request an extension
You say you still haven't mailed your 1999 federal income tax return? If you owe the government money and procrastinate much longer, watch out or you may get socked with additional unwanted fees. If you don't pay your taxes when they're due, you may be subject to a failure-to-pay penalty of 0.5 percent of your unpaid taxes for each month the tax isn't paid. To avoid that, you better move fast. The most important task at hand is to file something with the IRS before this year's April 17 deadline. If you're unable to complete the appropriate Form 1040 before the clock strikes 12, at least submit the form to get an automatic extension of time to file. To get the four-month extension, complete and file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. By filing the extension, you avoid the late filing penalty. However, Form 4868 does not extend the time to pay your income tax. So, what you need to do is estimate your tax for 1999 and send the amount due with your Form 4868. If you can't pay it all, at least pay whatever amount you can. Keep in mind that you'll owe interest on the unpaid amount. For U.S. citizens and residents who aren't living in the United States on April 17, there are special filing and extension rules. For more information, refer to Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
Mistake #12: Not taking all the credits you're eligible for
When it comes to taxes, credits offer the best savings. But many taxpayers miss the boat on these. One of the biggest reasons: They don't know about them. What's great about tax credits is that they reduce your tax liability dollar-for-dollar, making them more valuable than deductions. A tax deduction reduces the amount of your taxable income. Credits, on the other hand, come into play AFTER your taxable income has been calculated and the tax determined. There are two types of tax credits: refundable and non-refundable
Refundable credits may eliminate any tax you owe and provide you with a refund. Refundable credits Brief description More information Earned income tax credit You may qualify if you worked and earned a low or moderate income. You may get more of a tax benefit if you have children. See "How to Figure the Credit Yourself" in part D of IRS Publication 596. Credit for taxes withheld on wages and other amounts You can claim excess Social Security taxes you paid and certain tax withholdings made on your dividends or interest income. You'll find the necessary figures on your W-2 and 1099 forms. Additional child tax credit You may be eligible if you have three or more qualifying children under age 17. Fill out Form 8812, Additional Child Tax Credit.
Non-refundable credits can take your tax down to nothing, but you can't get money back from the government. Non-refundable credits Brief description More information Child and dependent care credit You could get up to $1,440 if you pay someone to look after Junior or another dependent while working or looking for work. Use Schedule 2 with Form 1040A, or Form 2441 with Form 1040. Child tax credit You may be able to cut your tax bill by $500 for every qualifying child under age 17, if your income is within certain amounts. File Form 1040 or 1040A and fill out the child tax credit worksheet, which is included in the forms' instructions. Credit for the elderly or disabled A credit of up to $1,125 is available to qualified individuals whose income doesn't exceed certain limits. See Publication 524, Credit for the Elderly or the Disabled. Adoption expenses credit Adoptive parents may be able to claim up to $6,000 for each child for certain expenses incurred and paid for on or after Jan. 1, 1997. See IRS Publication 968 for more about qualified adoption expenses. Education credits You may qualify if you paid for higher education for yourself or your dependent children. Complete Form 8863. Use Part I for the Hope credit and Part II for the Lifetime Learning Credit.
While non-refundable credits can't be used to get a refund on your tax return, the unused amount can be carried over from year to year until the credit is absorbed, or the carry-forward period expires, whichever comes first.
Mistake #11: Forgetting to bunch your deductions
Many taxpayers find that itemizing gives them a better tax break than the standard deduction. But too often, itemizers don't use the system to their full advantage. To do so, they need to set a tax strategy of "deduction bunching" before tax-filing day arrives. The Internal Revenue Service allows some deductions only after they exceed a minimum amount tied to your adjusted gross income. Medical expenses are of no use until they total more than 7.5 percent of your adjusted gross income. Similarly, miscellaneous deductions -- such as unreimbursed employee expenses -- must surpass 2 percent. If your adjusted gross income is $50,000, these limits mean your medical costs must be $3,750 and miscellaneous expenses $1,000 or you can't deduct them. If you see that you're close to these limits as the year progresses, think about bunching as many deductible costs as you can into that year. For example, if your medical costs are at $3,000 in December and you're putting off Junior's braces until after the holidays, don't! An immediate call to the dentist and the out-of-pocket orthodontia expenses could be what you need to get that medical deduction. For miscellaneous expenses, think about prepaying any business magazine subscriptions or professional dues early to help reach the 2 percent floor. Of course, if you bunch your expenses into one year, that might mean you'll be short of reaching the itemized deduction requirement the next year. If that's the case, consider alternating years that you itemize deductions with ones in which you use the standard deduction. The IRS doesn't care which you use and you're not required to use the same deductions method every time you file.
Mistake #10: Making the check out to 'IRS' and not signing it
If you owe money to Uncle Sam and you choose to pay by check or money order, make it out to the "United States Treasury." Many taxpayers make the mistake of making the check payable to the IRS. Also, don't forget to sign it! Be sure that the following information appears on the front of your check or money order: your name, address, Social Security number, daytime telephone number, and the tax year and form number. Example: If you file Form 1040 for 1999 and you owe additional tax, show your name, address, Social Security number, daytime telephone number and "1999 Form 1040" on the front of your check or money order. Example: If you file an amended return (Form 1040X) for 1998 and you owe tax, show your name, address, Social Security number, daytime telephone number and "1998 Form 1040X" on the front of your check or money order. Now you're ready to enclose your payment with your return. Don't attach it to the form.
Mistake #9: Using the EZ form when a longer form could cut your taxes
When it comes to taxes, most of us look for the quickest way to get through filing season. But if you opt for the 1040EZ way out, you could pay the Internal Revenue Service more than you should. Don't automatically think that filing a longer 1040 isn't worth your while. If your tax life is not that complicated, it might not take much more time at all. You don't have to fill out every line, just the ones that apply to you. And it could give you several shots at cutting your tax bill. Let's look at Joe. He finished college last year and got his first full-time job making $30,000. He's single, renting and has no investment income. A perfect 1040EZ filer, right? Sure, if you're Uncle Sam, since Joe will overpay his taxes by using the short form Why? Joe has a student loan. By filing the 1040A he can subtract from his income the $2,500 interest he paid on that debt. He also started planning for his retirement by putting $3,000 into a traditional IRA. Since his new employer doesn't offer a company retirement plan, Joe's deductible IRA contribution can reduce his taxable income further -- but only if he files the longer form. By choosing the 1040A over the 1040EZ, suddenly Joe owes taxes on just $24,500 instead of his full $30,000 salary. And he's dropped into a lower tax bracket (the 15 percent range instead of the 25 percent rate) even before he takes the standard deduction every taxpayer is allowed. If Joe files a 1040EZ, he cheats himself. That's because this shortest form doesn't allow him to adjust income like the 1040A does. The still-longer Form 1040, which Joe also could have used to claim his student loan interest and IRA tax breaks, provides even more tax-cutting chances. A filer using this tax return gets more than 10 ways to take income off the top before he computes his tax bill. And the deductions are all on the form -- no Schedule A and itemizing limits to worry about. Plus, both the 1040A and 1040 offer tax credits not found on the EZ. These breaks could reduce your eventual bill even more. So take a few extra minutes to look over all three forms and determine which one best suits your tax situation. It could help you pocket more tax cash. Remember that in tax season, time often truly is money -- yours!
Mistake #8: Not properly tracking your investment "basis
No one wants to pay the same tax twice, but that's what a lot of people do when they don't correctly figure the cost basis of the stocks or mutual funds they sold. Because calculating capital gains on stocks and funds involves several complicated steps, too many taxpayers focus on just determining the holding period -- long- or short-term -- or which specific shares they sold. But the basis -- what you paid when you bought your investment -- is how you figure what portion of your sale is taxable. If you bought 100 shares for $10 each, your basis is $1,000. If you sold those 100 shares at $15 each, then your taxable gain would be $500 -- $1,500 sale price minus $1,000 original basis. It gets complicated -- and potentially costly -- if your investment paid dividends or capital gains distributions that you reinvested in the stock or fund. Even though you reinvested these earnings, you paid tax on them the year they were reinvested. Don't give Uncle Sam tax money a second time when you sell! Here's how this works. You bought your 100 shares for $1,000 in 1997, and that year had dividends of $100 that you reinvested. You paid tax on this $100 in 1997. In 1998, you got $200 in dividends, again reinvested and again paid on those earnings that year. In 1999 you sold the stock for $1,500. Now those reinvested dividends that you paid tax on in 1997-98 can help reduce your 1999 taxable gains. Take the $1,000 original price and add the $100 reinvested in 1997 and the $200 in 1998, giving you an adjusted cost basis of $1,300. This is the amount you subtract from your sale price of $1,500, meaning you have taxable gain of $200 instead of $500. To make sure you don't overpay the Internal Revenue Service tax due on investment earnings, be sure to hang on to all your stock and fund account statements. It may mean an extra folder in your filing cabinet, but it also could mean extra cash in your wallet at tax time.
Mistake #7: Not including all your forms
If you're still doing your taxes with pen and paper, you've likely slogged through reams of paperwork to get your return done. Now don't waste those hours of work. Forms for a tax credit or extra deductions won't do you any good if they don't make it to the Internal Revenue Service. So before sealing the envelope, double-check that all the forms are in there. The IRS notes that putting the forms in proper order behind your 1040 will make processing your return quicker. Take a look at the forms and you'll see an attachment sequence number in the upper right corner, just beneath the year notation. For example, Schedule A, used to claim itemized deductions, is number 07 and the form for credit for the elderly or disabled, Schedule R, is number 16. When your tax return material reaches the IRS, checking it is speedier with the supporting forms in order. And don't forget to send in the most crucial form: your W-2 income statement. The IRS says too often it gets tax returns without these, delaying return processing. Staple your W-2s to your return -- but leave any check you send loose. Why? Your tax payment gets snagged first, before the IRS begins any actual return checking. If you staple your check along with other documents, this supporting material could get separated when the check is pulled off.
Mistake #6: Forgetting to donate unwanted items to charity
Spring cleaning is a terrific way to clear out old stuff and make way for the new. Even better, if you donate your items to certain charities, you'll be able to claim a tax deduction on next year's return. What does this translate to in dollars? Here's an example: For 2000, Sarah had a taxable income of $35,000, putting her into the 28 percent marginal tax bracket. She donated $500 worth of clothing and household items to Goodwill and claimed a tax savings of $140 ($500 times 28 percent) on her federal income tax return. By following these guidelines, you'll be able to receive maximum tax benefits when donating used clothing and household goods.
1.	Give your items to a qualified organization -- an organization that has a tax-exempt status with the IRS. To find out if the organization is qualified:
	•	Ask the charity if the IRS has qualified it
	•	Check IRS Publication 78, Cumulative List of Organizations, which lists most qualified organizations.
	•	Read the charity's literature to ensure that it is fully recognized by the IRS.
2.	Assign a fair market value to the items that you're donating.
	•	You can't claim a fair market value that is more than the original cost of that item.
	•	Certified Financial Planner Ken Pikor of Westerville, Ohio, who is also an "enrolled agent" -- someone who can represent taxpayers before all administrative levels of the IRS -- says, "If you happen to be like my wife, who saves all her clothing receipts and files them, a good rule to follow when valuating used clothing/items is to use 25 percent of the original purchase price as a guide when determining the donated value."
3.	Keep a detailed record of your donated items, including:
	•	The number of items and the condition they're in
	•	The dates you received or bought the items -- if you don't know exact dates, use approximate dates
	•	The original purchase prices.
	•	A photo or video of the items you're donating -- this will substantiate your contribution if questions ever arise. Keep the visual record with your tax records.
	•	Signed and dated receipts from the organization receiving your donations -- when Goodwill asks you, "Do you want a receipt?" say "yes."
4.	Report your charitable deductions on Schedule A of Form 1040.
5.	The value of your charitable deductions can't be more than 50 percent of your adjusted gross income in any single year. Donations exceeding the 50 percent limit can be carried forward to future years.
6.	When you donate more than $500 worth of goods to charity, you must include Form 8283, Noncash Charitable Contributions, with your tax return.
7.	If your claimed deduction is more than $5,000, you must get an appraisal from a qualified appraiser and attach an appraisal summary (Section B of Form 8283) to your tax return. A qualified appraiser is someone authorized to complete Part III, Declaration of Appraiser, of Section B.
Mistake #5: Forgetting about interest and dividends
Thanks to your Social Security number on bank and investment accounts, the Internal Revenue Service knows how much unearned income you made with these accounts almost as soon as you do. That's because a copy of your Form 1099 earnings report goes directly to the taxman. In fact, judging from the Form 1040 and 1040A layouts, this bit of information is very near the top of the IRS interest scale -- they want the data entered right after you plug in your annual salary income. So be sure to collect all those earnings statements and put the total taxable amount on line 8a (it's the same line on both returns). If you don't, the IRS return examiners -- who cross-check almost all of these entries -- will let you know that you owe taxes on it. That notice of unreported income isn't one you want to get. In addition to billing you for the additional tax, it will tell you how much penalty and interest charges your filing oversight has cost you, too.
Mistake #4: Illegible handwriting
When filing your federal income tax return, the IRS urges you to use the peel-off label that's included in your tax package. A major reason for doing so? It's legible! And that makes the job a bit easier for IRS employees. More importantly, it means that if you're expecting a refund, you'll be able to pocket the money sooner rather than later, since all of your personal information has been included and it's easy to read. If you file a complete and accurate tax return and you're expecting cash back, your refund will be issued within six weeks from the date the IRS receives your return. If any information on your peel-off label is incorrect, or if your handwritten information is illegible, expect an additional eight-week delay in receiving your refund. So, before you mail in that return, check the label to be sure that ALL of the information is correct. If something isn't right, simply make a correction on the label. If the label has too many errors, throw it away and neatly write the required information directly on your return. If you didn't receive a tax return package with a label, have no fear. Just be sure that you clearly print or type your name, your full mailing address and your Social Security number in the space provided. Then mail your return to the address given in the tax form instructions for the area where you live. If possible, use the pre-addressed envelope that came with your package.
Mistake #3: Not signing and dating your return
It may be THE easiest task when it comes to filling out your federal income tax return, yet forgetting to sign and date the return is a common taxpayer error. This seemingly little molehill of an oversight could turn into a mountain of a mistake, because the IRS won't process a tax return if there is no signature. It's not a big problem for taxpayers who are sending in their returns in February, because there is ample time. If the IRS receives a return without a signature, they'll mail it back to the taxpayer, requesting that it be signed and mailed back to the IRS office. "But, if they send it in April, let's say the 12th, 13th or 14th, they might be hit with a late filing fee because it's not a valid return without a signature," says Robert Firman, IRS Communications Specialist of the South Florida District. No matter what form you're filing -- 1040, 1040A or 1040EZ -- you must put your "John Hancock" on it to make it official. If you've completed your own tax return, then only you need to sign it. If you have someone else prepare the return for you, then both you AND your tax return preparer need to sign it. If you're filing status is Married Filing Jointly, remember, both you AND your spouse must sign the return before sending it in. In the case of an extremely sick person or decedent, the representative should sign the return on the line intended for the taxpayer and attach a written power of attorney.
Mistake #2: Omitting Social Security numbers
A couple of years ago, the IRS stopped putting taxpayer Social Security numbers on the tax package labels. Privacy advocates were concerned that this information could be too easily used by others. Unfortunately, the IRS found that removing it also meant that taxpayers forgot to write in their identification numbers on their tax returns. It's now up to you to fill in your Social Security number, as well as your spouse's if you file jointly and those of any dependents you claim. This is crucial because there are so many transactions -- income statements, savings account interest, and retirement plan contributions -- keyed to this number. The identification numbers also are vital when the IRS checks any tax credits you apply for, like the Child Tax and Additional Child Tax credits, as well as credits for educational expenses and dependent care. If your kids don't have their Social Security numbers yet, contact the Social Security Administration immediately and, if necessary, send the IRS Form 4868, Automatic Extension of Time to File, to make sure you have plenty of time to get the number and fully complete your return. Getting the identification number or numbers on your forms -- legibly and correctly -- means the IRS will get it right when they check your return. Just one wrong or transposed number in your Social Security number could delay your refund or result in a disallowed credit or allowance
Mistake #1: Making math errors
Far and away, says the IRS, the most common mistake on tax returns is bad math. Numbers are transposed, left out or totaled incorrectly. It may be simple addition and subtraction, but when you're looking at pages full of figures it's easy to mess up a few. And since a total figured on one tax form or worksheet often is transferred to another form (or forms), a simple mistake could quickly compound. The tax agency automatically examines all returns for mathematical errors. Mistakes in arithmetic or in transferring figures from one schedule to another will get you an immediate correction notice. So invest now in a calculator and use it -- repeatedly -- to double check your math as you complete your tax return. Math mistakes alone rarely lead to a full audit, but they can reduce your tax refund or result in you owing more tax than you thought. If the error leads to you owing tax, the IRS automatically bills you. If your error means you overpaid, the excess is applied to future taxes, credited, or refunded at your request. And remember that checking math works both ways. If you do get an IRS correction notice, be sure you also check their numbers. They have been known to make mistakes, too.

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