How to Avoid Common Tax Preparation Mistakes

Tax season is upon us, and with it comes the potential for errors when preparing one’s tax return, or even in gathering the pertinent information for your tax preparer/CPA.  To help you sidestep some of these mishaps, below are some of the more common tax preparation mistakes. While some may seem more obvious than others, they still are worth being mentioned.

  • Mistake #1: Excluding from your tax return or neglecting to tell your tax preparer/CPA about life changes. Did you get married?  Divorced?  Widowed? These are all changes in filing status.  Did your father move in and is dependent on you? Maybe you had a baby?  Congratulations, you have another personal exemption! Are your children in daycare now? You may qualify for the dependent care credit. Even if you changed addresses, that is important information to have when preparing your own tax return (if you elect a paper refund, you do want to receive it at your current address, don’t you?).
  • Mistake #2: Making math mistakes. Many people still choose to file paper tax returns.  While this may save you money, it also increases your risk of making computational errors.  Double checking your numbers with a calculator can lessen possible errors.  Using tax preparation software or hiring a tax preparer/CPA to prepare your tax return can also significantly reduce the likelihood of errors on your return.
  • Mistake #3: Making transposition errors. Even if you do use tax preparation software or a tax preparer/CPA, be sure to double check numbers, even Social Security numbers, to ensure that you did not transpose any numbers, which can delay the processing of your tax return. Try to use or provide original tax documents whenever possible to avoid human error.  And again, double check your numbers.
  • Mistake #4: Not having proper substantiation. If you’re going to take a deduction, make sure that you have substantiation. Let’s look at a couple different types of expenses:
    • Charitable Donations: Any charitable donations $250 or greater requires a letter from the charitable organization, but it is your responsibility to request one if you do not receive it. The same goes for quid pro quo donations of $75 or more. [For example, if a donor gives a charity $100 and receives a concert ticket valued at $40, the donor has made a quid pro quo contribution. In this example, the charitable contribution portion of the payment is $60. Even though the part of the payment available for deduction does not exceed $75, a disclosure statement must be filed because the donor’s payment (quid pro quo contribution) exceeds $75.]If you think that you will be donating property (excluding stock) to a charity that will total $5,000 or more for the year, check with your CPA before making the contribution.  You may need to have a certified appraisal of the donated property in order to claim the deduction on your tax return.
    • Medical Expenses: Having documentation of medical expenses is not difficult, though it may be a little time-consuming going through all the documentation that you receive throughout the year regarding your medical expenses. You want to deduct your insurance premiums, co-pays, deductibles paid, out of pocket medical expenses, and prescriptions.  One time saver is to contact your pharmacy and ask for a printout of your paid prescriptions for the year.
    • Business Expenses: Business expenses require more diligence on your part throughout the year. Keeping a written journal as backup to your receipts certainly helps with substantiation.  Be sure to include the reason for the expense, any attendees, mileage driven, etc.  If you find keeping a journal challenging, at least write on the receipt the purpose of the expense and if applicable, who were the other attendees.  Business gifts are limited to $25 per donee (any amount over $25 is nondeductible) per year—NOT per occasion, and remember that meals and entertainment are limited to a 50% deduction.
  • Mistake #5: Reporting wash sales. If you sell shares of ABC stock at a loss and then buy a substantially identical stock again within 30 days of the loss (either before or after the sale), you are not able to report that capital loss on your tax return.  This is called a wash sale.  Instead, the loss that you would have reported is now added to the cost basis of the new stock that you purchased.
  • Mistake #6: Calculating rental losses. If you have a rental property and are actively participating but are not a real estate professional, you are allowed rental losses up to $25,000. However, this loss is allowed only if your Adjusted Gross Income (AGI) is less than $150,000. If your AGI is greater than $150,000, rental losses will be carried over to next year’s tax return.
  • Mistake #7: Making Affordable Health Care Act errors. There are a host of errors that can occur this year now that some of the tax provisions from the Affordable Care Act have gone into effect. There are too many to list here, but the IRS has printed Publication 5187 which goes into detail about the different forms that you may have to file.
  • Mistake #8: Forgetting to claim your 529 plan contributions. For Missouri residents who have contributed to 529 plans (Missouri or non-Missouri) of which you are the owners: do not forget to claim the deduction up to $16,000 annually on your Missouri tax return.  Likewise, for Illinois residents, you can deduct up to $10,000 if filing single or $20,000 if filing married jointly for contributions to an Illinois 529 plan. This is one common mistake that CPAs make as well, so make sure to review the tax returns either after you have prepared them or after you have received them from your CPA.
  • Mistake #9: Incorrectly deducting your long-term care insurance. Similarly to the 529 plan contributions, if you are paying for long-term care insurance, make sure that you treat this as such on your federal and Missouri tax returns when you are deducting premiums. Missouri has a separate deduction for this apart from other itemized deductions.
  • Mistake #10: Forgetting your Illinois tax credit. If you’re an Illinois resident, don’t forget that your state provides a tax credit on a resident individual’s income tax return equal to 5% of Illinois real estate taxes paid on a principal residence. This is a simple tax credit to claim, so do not forget to take it.

Overall, just remember that the devil is in the details when it comes to taxes and taking the time to review your tax returns before mailing or e-filing can save you money. Even if you have hired a tax preparer or CPA, be sure to request a copy of your tax return for review before they are submitted electronically. Ask questions if something does not make sense and don’t assume that your CPA knows everything that is going on in your life (refer back to #1).

It’s also in your best interest not to wait until the last minute to work on your tax return or to give the information to your tax preparer/CPA.  If it is April 1st, do yourself a favor and file an extension.  Many people are afraid that extending your tax return is an automatic red flag to the IRS but this is not true.  Filing an extension does not delay payment of any taxes due—those still have to be paid by April 15th, but it does give you more time for preparation.

Last but not least, remember to sign and date your tax return or Form 8879, IRS e-file Signature Authorization and make any payments necessary, including first quarter estimates, by April 15, 2015.

As always, feel free to reach out to your Moneta Group advisory team if you have any questions or concerns—we are here to help!



© 2015, Moneta Group Investment Advisors, LLC. All rights reserved. These materials were developed for informational purposes only. The information herein was derived from sources deemed to be reliable but has not been independently verified, and no representations or warranties are made with respect thereto.


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