Community Corner

Are You Making These Top 5 Tax Return Mistakes?

Connecticut agent Kristin Roberts names the most common tax return mistakes she has seen during her 16 years as a tax professional.

 

Tax professional Kristin Roberts, who runs the Roberts Tax Group in Northfield, said she has seen taxpayers lose a fair amount of money over the years through filing mistakes.

"It's just so convoluted," she said. "If tax codes aren't what you deal with on a day-to-day basis, then there's so much that you just don't know."

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It would take years to learn all the intricacies of the tax codes, but here are some of the top mistakes to try to avoid this season, courtesy of Roberts' professional experience.

1. Don't send in your return too early! Interest and dividend forms could arrive as late as mid-February.

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A taxpayer's 1099 forms could make an appearance as late as mid-February, according to Roberts, so she cautions people not to file too early in the season.

"Everybody else has to have things postmarked to you by Jan. 31," Roberts explained, "but the IRS gives banks and financial institutions a little more leeway."

And even if the 1099s for bank account interest and stock dividends arrive in February, Roberts warned that some financial institutions could send a second "corrected" copy of 1099 forms a few weeks later if they decided to reclassify dividends.

"You can prepare your return and then wait until Feb. 15 for your 1099s to arrive, but you can also contact your representative and ask if your 1099 is likely to be changed," Roberts suggested.

Taxpayers can also get confused if they accumulate interest from multiple bank accounts. Banks are not required to send a 1099 if the taxpayer's interest with them is less than $10, Roberts said, but if someone has multiple accounts with interest that amounts to more than $10 when combined, it still has to be reported, even if no 1099 form is received. 

In that case, the taxpayer should report the interest income on Line 8 of the 1040, according to Roberts.

2. Remember to report your stock sales, but make sure you don't overpay!

Taxpayers who sold shares should receive a 1099-B form from their brokers sometime in mid-February. However, like interest and dividends, some people forget to report the sales, Roberts said.

"I've seen people who don't know how much they paid or they just completely forget to include them at all."

Unfortunately, the mistake doesn't go unnoticed too often, since brokers also send a stock sales report to the IRS, Roberts said.

Taxpayers that do report the stock sales should also be sure to include the stock basis, the price at which they purchased the stocks, in the return. According to Roberts, taxes are only paid on the difference between the stock basis and the selling price, not the entirety of the sale price.

3. Divorced Parents: only one parent can claim the kids as dependents each year!

This one seems pretty simple, but Roberts said she sees a lot of confusion over who is claiming children as dependents in divorced couples.

Only one parent can claim the child, Roberts clarified. She recommends that parents communicate clearly and often about the issue, since she said she has seen lots of debates over which parent will be doing the claiming.

Roberts has also witnessed college-age kids causing lots of tax headaches over the years. If adult children file a return for part-time work, but do not note that they are still their parents' dependents, problems arise pretty quickly, she said. Parents paying tuition for students and generally supporting their college kids can still claim the child, Roberts said.

"It's always more beneficial to claim the child and that's the right thing, because they really are providing for that student if they're only making a  few thousand a year," she said.

4. Making a charitable donation this year? Great! Just make sure you can prove it.

Documentation is key to successfully filing charitable donations on tax returns, Roberts said. 

Taxpayers should get a receipt or form from the institute they donated to, which should have some sort of description of the donation's value. For example, Roberts explained, since the fair market value of clothing donations to Salvation Army could be up for debate, taxpayers should be sure the documents note that the clothes were designer quality or that they gave away entire wardrobes if they decide to claim hundreds for the donation on their return.

5. If you win big at the casinos, you have to claim it.

A great night at the casino means that there will be another item to add to your tax return! According to Roberts, any winnings over $1,175 require the addition of a W2-G.

The casino should hand these to winners before they leave the premises, Roberts said, but there's a good reason to keep track of all gambling winning and losses, whether they be at Foxwoods or with a scratch ticket at home.

For taxpayers reporting winnings, gambling losses can also be itemized on the federal tax return, according to Roberts. Scratch tickets and player cards all count as proof, Roberts said.

However, Roberts added that the Connecticut state tax return does not allow for itemizing of gambling wins and losses.

Need tax help? Check out these local professionals in Clinton for assistance this tax season:

H&R Block and Giordano Associates.


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