10 common tax mistakes to avoid
Tax season has begun. You probably already have your 1040s and 1099s -- or if not, they're in the mail. Over the next few months, you'll be calculating your taxes and writing a check to the IRS. To help ease the pain of April 15th (extended to April 17th this year), here are a slew of common tax mistakes that you can easily avoid:
1. Fail to use tax preparation software. If you are a do-it-yourselfer when it comes to taxes, don't go it completely alone. Be sure to rely on commercial tax prep software -- if you do, it will drastically reduce the odds of committing virtually every other mistake listed here.
2. Fail to file electronically. Filing electronically is the smart and efficient way to pay your taxes these days. If you don't, be sure to send your paper return via certified mail.
3. Forget to file a change of address. Did you move since last April? You're required to file IRS Form 8822 to notify the IRS that you've moved. And not getting mail from the IRS because it went to the old address is not an excuse for not knowing about the mail's contents.
4. Forget to keep receipts. This one should be obvious, but less obvious (to some folks, at least): Keep records of all your charitable donations. If you donate online, keep a printout of the donation receipt web page.
5. Claim a home office deduction. Home offices have a reputation as an audit magnet, and for good reason. Many people use home offices wrong, are too generous in their application of tax law, and don't properly complete all the necessary forms.
6. Forget to report forgiven debt. If you've had some debt forgiven in 2011, the debtor will have reported it on a 1099-C. That counts as income and you need to pay taxes on it.
7. Fail to report debt paid by your employer. If your company paid for your debt this year (like a student loan) then that's reportable income.
8. Forget to pay payroll taxes for domestic help. If you have a nanny, au pair, housekeeper, or any other in-home assistance, don't forget to include that in your taxes, or you could get the same treatment as movie stars and politicians. You just won't make the evening news.
9. Fail to claim your state taxes. You can deduct your state taxes paid on your federal return. It's easy to overlook, but can save you some money.
10. Pay by credit card. If you owe the IRS, using your credit card is a mistake, because you pay an additional 2.5 percent. That's the amount that the merchant usually pays. In this case, you're left holding the bag because the IRS doesn't pay the fee.
Do you have a favorite tax tip? Be sure to share it in the comments.
