6. Failing to deduct charitable contributions properly
Charitable contributions must be tracked and substantiated. Taxpayers often miss out on this important deduction because they failed to obtain and/or maintain proper documentation. For weekly donations to church or other religious institutions, regular members are generally provided a year-end statement with the total of their contributions but given the volume of such statements provided by the institutions, discrepancies can occur even in these records, so taxpayers should also keep their own records.
Many taxpayers mistakenly try to claim the time that they donated to a charitable organization (which is not tax deductible), however they often overlook out-of-pocket expenses, such as mileage accrued on their vehicles while volunteering which is tax deductible.
Another common charitable donation mistake happens when taxpayers receive a benefit such as receiving event tickets in exchange for their donation. They often (and mistakenly) try to claim the full amount of their cash contribution without subtracting the fair market value of the tickets. The full deduction is available only if the taxpayer refuses the tickets.
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7. Failing to report cryptocurrency transactions
Transactions in virtual currency like Bitcoin are ever increasing. It is important to remember that cryptocurrencies are treated as property for federal income tax purposes and any capital gain or loss on virtual currency transactions must be recognized, subject to any limitations on capital losses. The IRS currently has a compliance campaign focused on cryptocurrency transactions and has ramped up their enforcement efforts in this area. Also, there is a specific question about cryptocurrency on the first page of Form 1040 that reads – “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?” Please check this box and report the related amounts, as appropriate.
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8. Math errors
One of the first areas that the IRS checks on a tax return is math, especially on those first two pages of the return. If a paper tax return is completed and filed by hand, it’s easy to miss a number or two, so go slowly and double-check the math.
9. Filing failures: Arranging tax forms in wrong order, failing to sign, not keeping copy of signed return, mailing to incorrect IRS office, attaching W-2s and 1099-Rs
Believe it or not, if you’re filing a paper return, it matters the order that the tax forms are presented when filed with the IRS. In the upper right-hand corner of many forms other than the 1040, there is an Attachment Sequence Number which is easily overlooked and the entire return potentially is rejected if the forms are not in the correct order behind Form 1040 according to the Attachment Sequence Number.
Sometimes in the rush to get the return in the mail, the taxpayer’s signature is inadvertently omitted which is a very common occurrence. Nonetheless, omitting a required signature results in an invalid return. A return is only considered timely filed if properly signed and submitted. Keep in mind that, if there is a joint return, both spouses must sign the return for it to be valid.
It is important to make a copy of signed tax returns, as applications for many common types of loans, including mortgages and student loans, require past tax information.
If the return shows a balance due, payment must be included – a check or money order payable to the “United States Treasury” – that includes the taxpayer’s name, address, social security number, daytime telephone number, tax form, and the tax year relating to the payment.
Also, for taxpayers that moved in the past year, it is likely that the appropriate IRS filing office has changed, so be sure to check the table in the back of the instructions for where to file the return.
10. Failure to enclose negative amounts in parentheses
Negative amounts on the federal return are to be indicated with parentheses; don’t use the minus symbol. This ensures that IRS computers read the negative entry correctly.