Jim Guido's Blog

With the help of tax preparation software more tax payers are making fewer mistakes on their returns. However some still do make mistakes or don’t take all the full advantage of all that they can. Here is a list of 10 things that may be of help to you this tax filing season. These tips are from Bankrate. Don’t forget to file on time.

1. The Making Work Pay Credit

The Making Work Pay tax credit was in effect for all of 2010, thanks to adjusted payroll withholding tables. The credit is worth up to $400 for individuals and $800 for married couples filing jointly.

But to officially get the credit (and cash), you must claim it on your tax return.

Even though 2010 is the second tax year for the Making Work Pay credit, some filers still are forgetting to claim it. Don’t be one of them. Filers who use Form 1040 or 1040A need to send in Schedule M. Those who use Form 1040EZ need to complete the work sheet on the back of that form.

2. Homebuyer Tax Credit Complications

Since its creation, the first-time homebuyer credit has experienced some significant changes. It’s gone from a $7,500 interest-free loan from Uncle Sam to a true tax credit of up to $8,000 for a first-time buyer and up to $6,500 for a previous homeowner.

All the revisions to eligible buyer guidelines, purchase time frames, income thresholds, home price restrictions and payback requirements are a tax-filing minefield. If you’re not careful, a mistake here could end up costing you the credit or at least slowing down processing of your return.

Whether you’re claiming the credit for 2010 or paying back your 2008 claim, be sure to fill out Form 5405 correctly. And if you’re claiming the credit this filing season, don’t forget to include the documentation that the IRS requires in order to process your return.

3. Math Miscalculations

The most common error on tax returns, year after year, is bad math. Mistakes in arithmetic or in transferring figures from one schedule to another will get you an immediate correction notice. Math mistakes also can reduce your tax refund or result in you owing more tax than you thought.

Using a tax software program to file your return can help reduce math errors. The built-in calculators do the work for you, adding, subtracting and inserting numbers on additional forms as needed. But you still have to make sure that your initial numbers are correct. Entering $3,500 when the real figure is $5,300 makes a lot of tax difference. Getting the numbers right is crucial because you can be sure that the IRS will be double-checking numerical entries against its copies of your tax statements (W-2, 1099s and the like). When IRS examiners find a discrepancy, they’ll definitely let you know and, in many cases, will correct your mistake and refigure your taxes for you. Don’t give them the chance. Make sure your math entries are right.

4. Direct Deposit Dangers

Taxpayers can have a refund directly deposited into multiple bank accounts. This option is a great way to save your refund money, but the more numbers you enter on a tax form, the more chances you have to enter them incorrectly. And a wrong account or routing number could cause you to lose your refund entirely.

You can divide your refund into three accounts by filing Form 8888 along with your individual return. It’s not a difficult document to complete, but if you put in wrong account numbers, your refund could end up in someone else’s account or be sent back to the IRS. Either way, you might not be able to retrieve your refund because there is no IRS procedure for replacing lost electronically transferred funds.

Incorrect account numbers aren’t just a problem when a refund is split multiple ways. Even if your refund is going to just one account, make very sure you enter your account and bank routing numbers correctly.

5. Additional Income, Additional Filing Work

Did you have a side job this year? If so, as a contractor you probably received a 1099-MISC detailing the extra earnings.

What about savings and investment accounts? For these, you should have received 1099-INT and 1099-DIV statements.

In each 1099 instance, the IRS knows precisely how much extra money, either as wages or unearned investment income, you made as soon as you did, thanks to the copies of your 1099 forms that went to the tax agency.

If you forget to include any of these earnings on your return, the IRS examiners will let you know that you owe taxes on it, too. And depending on when your oversight is discovered, you also could owe penalties and interest on the unreported earnings.

6. Filing Status Errors

Make sure you choose the correct filing status for your situation. You have five options, and each could make a difference in your ultimate tax bill.

If this is the first tax-filing season that you’ve been divorced and you now are a single parent, head-of-household probably will be more beneficial. And you’re still married, but you and your spouse are thinking about filing a separate tax return? That works in some cases, but not all.

Make sure you know what each tax filing status entails and choose the one that best fits your personal and tax situation.

7. Social Security Number Oversights

Because the IRS stopped putting taxpayer Social Security numbers on tax package labels in response to privacy concerns, some taxpayers forget to write in their identification numbers. Your tax ID number is crucial because there are so many transactions — income statements, savings account interest, retirement plan contributions — keyed to this number.

The nine-digit sequence also is vital to claim several tax credits, such as the child tax and additional child tax credits as well as ones for educational expenses and dependent care costs.

And make sure that the names associated with the Social Security numbers match Social Security Administration records. A difference here also will cause the IRS to kick out or slow down your return.

8. Complete Charitable Contributions

Did you give to charitable groups last year? All types of donations, from cash to cars, could be valuable tax deductions, so make sure you count them all when you file. Be sure to follow the donation tax rules, the most important being that you give to a qualified organization — that is, one that has tax-exempt status with the IRS. Also be careful when calculating any gifts of clothing and household items. Tax law now requires that these donations be in good or better condition or the deduction is disallowed.

9. Signature Required

Sign and date your return. The IRS won’t process it if it’s missing a John Hancock, and that means on e-filed returns, too. Taxpayers filing electronically must sign the return electronically using a personal identification number, or PIN. To verify your identity, you’ll have to provide the PIN you used last year or your adjusted gross income from your previous year’s tax return.

Your tax software should walk you through the e-signature process, but if you’re still mailing your return, don’t be in such a hurry that you stuff your 1040 in the pre-addressed IRS envelope without signing it. And if it’s a joint filing, you and your spouse must sign.

10. Missing the Deadline

If the impending April 18 tax deadline (yes, it’s later this year) is a problem for you, make sure you buy yourself six extra months by simply asking the IRS for more time to complete your tax paperwork. All you have to do is submit Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, by the regular filing deadline. Remember, though, that the extension is only for the forms; you still have to pay any tax you may owe by April 18.

If you make the mistake of not filing or paying on time, you’ll end up facing even more costs in late-filing penalties and interest fees.

The IRS recently released information on processing issues that are impacting a small percentage of tax returns involving repayment of the First Time Homebuyer Credit (FTHB), primarily involving 2008 home purchases. While most of these returns are processing normally, the IRS recognizes the hardship caused by delayed refunds, and it has assigned additional staff and resources to address the issues promptly.

It is important to note that taxpayer returns claiming a home purchase in 2010 are not affected, and those returns are being processed as are the vast majority of other homebuyer returns.

Here’s an update on the source of the processing issues:

1. Married Filing Joint taxpayers who received the FTHB credit on a 2008 purchase

There seems to be an identified processing issue primarily impacting refunds for married couples filing joint returns this year who received the First Time Homebuyer credit on their 2008 tax return. This credit was an interest-free loan, and must be paid back beginning this year under the provisions of the law.

This issue, related to Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, primarily impacts Married Filing Jointly taxpayers who filed their tax returns this year before Feb. 22. The IRS is working aggressively to manually process tax returns for this group of taxpayers. It expects most, if not all, of these refunds to be available by April 5, and others the following week. (The date assumes that there are no other issues with their return, and that their refunds are not subject to any offsets for unpaid federal taxes or other debts.)

2. Taxpayers who received the FTHB credit and are now reporting the sale or disposition of their home

3. Taxpayers who received the FTHB credit and are attempting to pay back more than the amount required (typically $500)

These two issues require changes to IRS’ core tax processing systems. The IRS is actively working on the development and testing of the required changes that will allow these impacted tax returns to be processed and appropriate refunds issued. The IRS does not currently have a definitive date for when these changes will be complete, although it will be in April.

What should taxpayers do?

The IRS understands that taxpayers affected by this issue are anxious to get the status of their refund. For those who have already filed, no action is necessary. They can check “Where’s My Refund” at www.IRS.gov for updates. Because the IRS is already aware of this issue and is taking corrective action, there is no need to call.

For those who have not yet filed and are making a repayment of a First Time Homebuyer Credit this year, there is a simple step taxpayers can take to help speed processing. Couples filing a joint return for tax year 2010 who received the credit on their jointly filed 2008 tax return should file two 5405 forms, one for each taxpayer. For couples filing a joint return for 2010 but who had a different filing status in 2008 and only one spouse received the credit, the IRS recommends filing one Form 5405 for the taxpayer who received the credit.

For more information visit www.IRS.gov.

If your home was built before 1978 and you still have the original windows, it’s time to seriously consider replacing them—especially if members of your household include young children or someone who is pregnant.

During National Poison Prevention Week—March 20-26, 2011—homeowners are urged to evaluate their windows and make healthy living changes.

According to the Environmental Protection Agency (EPA), the routine opening and closing of windows in homes built prior to 1978 can disturb lead-based paint around the windows, causing paint dust and chips to be released into the air. These lead particles are so potentially dangerous that the EPA now requires contractors to become trained and certified before they can perform any renovation, repair or painting projects that may have previously applied lead-based paint.

“Research indicates that the everyday activity of opening and closing windows creates friction that then allows invisible lead dust to enter the air,” says Rick Nevin, a consultant to the National Center for Healthy Housing (NCHH). “Young children, who crawl on the floor where the lead dust has settled, can be especially at risk. Toddlers put their hands in their mouths, and after playing on the floor near a window, they can easily transfer the lead dust into their mouths. The ingested lead travels through the bloodstream to a child’s developing brain, causing many types of neurobehavioral damage.”

According to Nevin, one of the most important long-term investments a homeowner can make for the overall safety of a family is to replace older windows, using the EPA-approved lead safe renovation guidelines. “Replacing older windows is one of the best ways to reduce lead risks,” says Nevin. “Make sure to use only a contractor that is certified in lead-safe work practices and strongly consider the use of ENERGY STAR® qualified windows.

Nevin explains that, according to his research funded by the National Institute of Health (NIH), homeowners need to understand there are four key steps to completing a “lead-safe window replacement strategy” for the home. “First, they advise replacing all single-pane windows with ENERGY STAR® qualified windows,” says Nevin. “Second, stabilize any significantly deteriorated paint. Third, perform specialized cleaning to remove any lead-contaminated dust. And finally, perform dust wipe tests to confirm the absence of lead dust hazards after the clean up.”

Earlier this month, the National Association of Realtors® released their Profile of Home Buyers and Sellers for 2010. Each year, this report helps real estate professionals better understand their clients and provides insight into the ever-changing real estate market.

Here’s a look at some of the highlights from this year’s report:

• The number of first-time home buyers continued its upward trend this year. Of all buyers, 50% were first-time buyers in 2010, up from 36% in 2006.
• The home buyer tax credit was a major incentive to buy a home this year. Eight percent of all buyers cited the tax credit as their primary reason for purchasing a home, and 93% of first time buyers used the home buyer tax credit. In 2009, only 1% cited tax incentives as their primary motivation for purchasing a home.

More buyers cited affordability as a reason for purchasing a home, up 5% from 2009.

• Sellers in 2010 were slightly older than in 2009, but nearly two-fifths were selling a home for the first time. Additionally, sellers this year said they most wanted agents to help price their home competitively.
• 38% of buyers found the home they purchased through an agent, up by 4% since 2008, while 37% said they found the home on the Internet.
• Fewer buyers this year purchased homes in foreclosure, although 57% said they had considered it.
• Buyers rated photos, detailed information about the property and virtual tours as the most useful web site features.
• Buyers identified honesty and trustworthiness as well as the agent’s reputation as the most important factors when choosing an agent.
• 87% of buyers say they would definitely or probably use their agent again.
• Eighty-eight percent of sellers used an agent or broker to sell their home, up from 79% in 2001. Only 9% of houses sold were FSBOs.