Saturday, March 1, 2008

How to Avoid Costly Tax Mistakes This Filing Season

Disclaimer:Check with your CPA or Tax Professional about your Taxes!

Millions of taxpayers make mistakes on their tax returns each year even if they use professional tax preparers. The reasons range from sloppiness or ignorance about changes in tax laws to excessive caution or zeal when taking deductions. Mistakes could increase your tax bill, delay the processing of your return and/or draw the scrutiny of the IRS. What you need to know now to avoid mistakes when you do your taxes this year…

MISTAKE: Neglecting to follow new charity deduction rules. Recent changes in the law require more extensive documentation for charitable contributions.
All monetary contributions now must be documented by a bank record, such as a canceled check, or by a written acknowledgement from the charity. Merely noting the contribution in a log or a check register is no longer acceptable.
Donations of any kind of $250 or more must be documented by an acknowledgement letter from the charity.
If you donate a used car worth more than $500 to charity, your allowable deduction depends on how the vehicle is used for charity. If it is sold, you can deduct only the amount that the car was sold for as reported to you in writing by the charity. If the charity retains and uses the vehicle, generally you can deduct its fair market value.
If you donate noncash property worth more than $5,000 – other than stock—there are new restrictions and requirements on the appraiser you use to estimate the value. For further details of documentation rules that apply to donations you have made, see IRS Publication 526, charitable contributions.
MISTAKE: Sloppiness. The most common mistakes are inadvertent ones, such as math errors, reporting incorrect Social Security numbers, failing to attach required W-2s and schedules, and forgetting to sign returns. While these may seem minor, they can delay the processing of your return and arrival of any refund.
Britaney B. Saks, CPA PricewaterhouseCoopers LLP

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