10 common tax-filing mistakes to avoid

10:30 AM avoid, common, mistakes, taxfiling No Comments

Business Week | By Kay Bell, Bankrate.com

Tax season is stressful enough without stumbling into one of these traps.

Thanks to tax preparation software, more of us are making fewer mistakes on our annual tax returns. But still, just one slip in entering information on your computer could end up costing you, either in the form of a larger tax bill or a smaller refund.

And even if a mistake -- either on your computer or paper forms -- doesn't cost you cash, it could delay the receipt of any refund you're expecting.

Tax changes also complicate the annual tax filing exercise. For the 2013 tax year, some higher income taxpayers (and their tax preparers) will have to decipher the 3.8 percent tax on investment income. Don't be surprised to see this new provision make the IRS list of specific problems during the 2014 filing season.

Special tax scenarios aside, there are still plenty of ways to mess up a 1040 form. Here are 10 common mistakes that show up every tax season. Don't make them this year!

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 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 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.

These are cousins to the standard math mistakes. In these computation cases, taxpayers or their tax pros make mistakes in figuring such tax-return entries as taxable income, withholding and estimated tax payments.

Credits and special deductions also pose problems. Errors regularly show up, says the IRS, in figuring the Earned Income Credit, the taxable amount of Social Security benefits or in calculating the larger standard deduction for taxpayers who are age 65 or older or blind. A common connection in all of these errors is added worksheets or forms before the amounts are transferred to the taxpayer's Form 1040.

The IRS is all about numbers, but words, specifically names, are important, too. When the names of a taxpayer, his or her spouse or their children don't match the tax identification number that the Social Security Administration has on record, that difference will cause the IRS to kick out or slow down processing of the tax return.

This often is a problem for new wives. Many women change their surnames when they marry. That's also an option for spouses in same-sex marriages, which the IRS now recognizes. If you didn't alert the Social Security Administration of your name change soon after your wedding, do so now so that your new name won't cause a problem when you file your first joint tax return.

And if marital bliss doesn't last and you change your name after a divorce, make sure Uncle Sam's appropriate agencies know that, too.

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.

Did you have a side job this year? If so, as a contractor you probably received a Form 1099-MISC detailing the extra earnings. What about savings and investment accounts? For these, you should have received Form 1099-INT and Form 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 you owe taxes on them, too. And depending on when your oversight is discovered, you also could owe penalties and interest on the unreported earnings.

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4 home insurance mistakes to avoid

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Business Week | By Donna Fuscaldo, Fox Business

It may be tempting if you need some cash, but it's best to leave your home insurance policies alone. Here's why.

For homeowners tight on cash, there are plenty of ways to reduce costs. But insurance isn’t the first place that should be trimmed, experts warn.

“We are all concerned with saving money and it is important to shop around when looking for insurance coverage,” says Loretta Worters, a spokeswoman for the Insurance Information Institute. “However some people are reducing their coverage or dropping important coverage plans altogether to try to save money and this can leave you dangerously underinsured in the event of a disaster.”

According to insurance experts, when it comes to homeowners insurance, people often make mistakes that leave them underinsured and holding massive bills if something goes wrong.

Navigating the insurance world to find the best coverage for your budget can be tough, but have the right coverage can prevent future financial headaches if something does go wrong.

Here’s a look at the top mistakes home owners make when it comes to their insurance.

Home owners often mistakenly insure their property for its real estate value instead of the cost to rebuild. When real estate prices go down, that enables them to reduce the amount of insurance on their home and save some money.

“You should make sure that you have enough coverage to completely rebuild your home and replace your belongings,” says Worters, noting that a better way to save is to raise the deductible. “An increase from $500 to $1,000 could save up to 25 percent on your premium payments,” she says.

Natural disasters can happen with little to no notice and can have devastating consequences. For instance, flood insurance is almost always a separate policy.

“One of the largest mistakes that homeowners make is assuming that their policy covers their home and belongings in the event of every potential risk - such as flood,” says Ben Saine, product management director, homeowners insurance at insurer USAA. “Sadly, many people find out the hard way after a major storm that they didn’t have the coverage that they truly needed.” Saine says homeowners need to check to see what natural catastrophes are common in their location and make sure they are adequately covered.

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Superstorm Sandy that barreled up the East Coast last October proved that homes not located in designated flood zones can still experience major water damage.

“Many homeowners are unaware they are at risk for flooding, but in fact, 25 percent of all flood losses occur in low risk areas,” says Worters. “Furthermore, with the significant snow fall this winter, spring related flooding may be particularly severe, thus increasing the importance of purchasing flood insurance.”

Everyone likes a deal, so it’s not surprising that many homeowners will go with the cheapest policy they can find—but that could cost them in the long run.

According to Saine, many of the lowest-priced polices only offer coverage at a depreciated amount and don’t give homeowners the best service if there is a loss. He says it’s better to choose a provider that can cover the home adequately and will be easily accessible if something goes wrong.

“You need to ensure that your policy covers all of your home and its belongings at the replacement cost, not at the actual cash value,” says Saine. “For example, if your insurance policy only covers your roof at actual cash value and it’s damaged in a storm, the insurance company would only pay the depreciated amount for your roof. This means you may be stuck paying thousands of dollars out of pocket to replace your roof.”

It’s also important to consider the financial health of the insurer to make sure the company is financial stable to cover any claims.

“It is important to choose a company with competitive prices, but also one that is financially sound and provides good customer service,” says Worters.

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7 of the most common mistakes, investments

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| By Mike Patton, Forbes

There is no computer program or individual making the right investment decisions all the time. Here are some common mistakes investors make.

Mistakes happen in life. This also applies to investments. With all there is historical data and experience that we have yet no computer program or single, get it equal all the time. This is because investing includes uncertainty. In addition the investment an emotional endeavor, especially, if the money was the product of years and years of hard work and discipline. In this article, we review some common mistakes investors make.

It is true that investments are part science and part art. For this reason, successful investing in General should contain elements of each. Decisions can bring disastrous results go to feel like decisions, which can represent a problem only from a computer program. Emotional decisions are often subject to prejudice. For example, can if investors buy a specific investment and it then rises, they believe they were sure apply, this would happen. However, rejects the investment, they can convince themselves that they had any idea, what could also happen.

This contradiction is because human behavior has a tendency to arrange our thoughts to fit the thesis of the moment. This is where "behavioral finance" enters the picture. Psychologists have identified a number of human inclinations to explain the inconsistent behavior patterns. The truth is, that contain good investment decisions elements of number crunching and human reason. And while it is important to recognize this, it is much easier said than done. Now we come to the error #2, owners lose one investment too long.

I've seen a few times over the years. The story goes like this. I bought an investment and lost it in value. Now it is around 20%. But when I bought it, I thought it was a good investment. So I'm pretty sure it will rest and if it breaks, I'm going to sell it. The truth is that she probably does not comply with. Why? Because if it comes back, she'll keep it, will believe that it will continue to increase, strengthen their original believe that it was a good investment decision. Here is the problem.

The individual would be there with loss to sell they forced to admit that she is a bad decision. And admit it is very difficult for some. In fact, it is sometimes the best your losses and move on. Now we look at bug #3, impatience.

Investment requires much patience. Vice versa which can be problematic hasty decisions in any effort. Most of us were trained by the company to expect "instant gratification." The truth is, life doesn't work that way, and nobody does invest. Investment requires patience. For example, there are an investment heavily to numerous cases in which for several years afterwards, before it turned and was a top performer.

That's not at all unusual. Therefore assuming that you quality selected who can play out an investment to maximize his return, what that you have, keep it through a full cycle of the Manager strategy itself. How long does it take for a complete cycle? This can be answered only in hindsight. It's the same in determining the end of the recession. It is usually several months after the fact, until we realize that a recession is actually finished.

Leave you when choosing an investment not only on past is. For example, if you buy a mutual fund it is important to assess how the Manager in a bad time in the markets, carried out such as 2008. My customers on average lost 16.25% that year.

There were a number of reasons why it's not worse, but here is the point. If you want an investment funds performance during a bad year look at, when you realize that she lost significantly less than similar funds, can be an indication, have strong risk management controls in place. The importance of this not overemphasize, especially the next downturn occurs.

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