GAINESVILLE, Fla. — Tax season is one of the most stressful times of the year. And a University of Florida expert cautions against making common mistakes that can complicate matters as we go about accounting for our income with the federal government.
So Michael Gutter, an assistant professor in family financial management with UF’s Institute of Food and Agricultural Sciences, has compiled a list of Americans’ top 10 tax-season gaffes.
1. Not making use of VITA (Volunteer Income Tax Assistance) sites. If your taxes aren’t terribly complicated – you don’t own a business or have a lot of investment income to report – then VITA is an underused resource worth checking out.
“That’s the first thing I would tell people, is to make use of those sites. They have a lot of oversight by state regulatory agencies and the IRS and they’re audited internally before tax forms are sent up and approved and they’re e-filed for free,” he said. “It’s a free service, done by people who literally work with tax code day in and day out.”
Check with your local county extension office or the Florida Prosperity Campaign, prosperitycampaign.com, to find your closest VITA site.
2. Not keeping organized records and missing deductions or credits you deserve.
Gutter said taxpayers should keep in mind that the tax code is designed to promote and encourage good-citizen type behavior: Getting an education, taking care of your children, buying a home, giving to charity, etc.
“There are so many opportunities for people to try and save legitimately between deductions and credits,” he said. “A tax credit is a dollar for dollar reduction in your tax liability, so by not taking advantage of it, you’re really giving away your own money.”
3. Not using your kids to your best (tax-saving) advantage.
If you have children, Gutter said, a number of tax credits might be relevant for you. If you have college-age offspring, there are even more.
Go to www.irs.gov and search “education tax credit.”
4. Not realizing that if you’re struggling financially, you might be eligible for the Earned Income Tax Credit, a credit for low-income workers. Even if your income isn’t high enough to require a tax return, you can still get the credit.
Go to irs.gov “Earned Income Tax Credit” in the search box.
5. Spending your tax-refund windfall instead of filling out IRS Form 8888. The 2-year-old form can be used to automatically funnel your tax refund into one or more accounts, such as a savings account or an IRA or other safe place where you won’t be tempted to spend it on an impulse item.
Go to form8888.org
“It helps people with the self-control issue that we all have with money,” Gutter said. “It burns a hole in everyone’s pocket, it just depends on what temperature it burns in your pocket and how fast.”
He advises taxpayers to use tax refunds sensibly: Reduce debt first, put money toward retirement or pay bills.
6. Not realizing you can go back and amend previous years’ returns.
If you find this year that you haven’t been taking a tax deduction you’re legitimately eligible for, Gutter says, it’s perfectly acceptable to go back and file amended returns for those years.
7. Buying into the hype over speedy refund anticipation loans.
Unless you are in a true financial emergency, tax refund anticipation loans are “not typically in people’s best interest,” Gutter said.
The loans are similar to paycheck advance loans, he said. The “refund” you get is generally the refund you would have gotten if you’d waited – minus a fee or interest.
8. Not realizing you can make IRA contributions for the previous year up until tax filing day.
So until April 15, 2008, you can contribute to your IRA for tax year 2007.
9. Delaying filing a return without a good reason.
This just leaves your refund in the government’s hands when it could be accruing interest for you, Gutter said. There are some instances where it might make sense to sit on one’s tax return until the last minute – such as waiting to pay Uncle Sam if you still owe taxes, as a way to keep the money working for you until the last moment.
10. Breaking the law by lying on your taxes or not filing a return at all.
“We always tell people, even if you owe the IRS money, work on it – you’re not going to get away with this for very long,” he said. “And if you don’t know how to file your taxes, get some help. But not filing is not in your best interest.”