TaxHawk™ Tax Tips
- Seven Common Tax Mistakes
- Non-Taxable Income
- Tax Advice For Parents
- Charitable Donations
- Divorce Tax Advice
Seven Common Tax Mistakes1. Dependents' Social Security Numbers
If you had a baby last year, you need to get a Social Security number for your child before you file your tax return. The IRS will not allow you to claim a dependency exemption, Child Tax Credit or Earned Income Credit without a valid Social Security number.
2. Head of Household
Don't file as Single if you qualify to file as Head of Household. You'll get a bigger refund if you file as Head of Household. If your ex-spouse claims your child as a dependent on his or her tax return, but the child lives with you, then you can probably still file as Head of Household. Also, if you can claim a parent, grandparent, nephew, niece, brother or sister as a dependent on your tax return, you can probably file as Head of Household.
3. File for an Extension
File an extension if you can't complete your tax return by April 17th. If you don't file an extension, you'll be charged an additional penalty of 5% a month. Many people who owe tax on April 17th make the big mistake of not filing an extension because they don't have any money to send in with their extension. By sending in an extension even without any payment, you avoid the large 5% a month late-filing penalty and only have to pay the much smaller late-payment penalty.
4. Custodial Parent
A custodial parent who has released the right to claim their child as a dependent to their ex-spouse still has the right to claim Head of Household status, the Earned Income Credit, and the Dependent Care Credit. However, if released, the non-custodial parent claims the $1,000 Child Tax Credit along with the dependency exemption.
5. Match Your 1099s
Make sure that your tax return numbers match the 1099s you receive from your broker, employer, or investment company. The IRS receives a copy of all 1099s issued to you so they can compare what's on your tax return with what is shown on the 1099s.
If you have a Traditional IRA or Simple IRA, you're required to receive a minimum distribution when you reach age 70 1/2. If your distribution is less than the minimum required distribution, a 50% excise tax may be imposed on the shortfall, so be sure to withdraw the required amount each year.. Minimum distributions do not apply to Roth IRAs.
7. Early 401(k) or IRA Distribution
If you're younger than age 59 1/2, think twice before you take an early distribution from your 401(k) or IRA account. A 10% early distribution penalty is charged along with federal and state tax on the distribution. A large distribution will bump a taxpayer up to a higher tax bracket, so you also end up paying a higher rate of taxes on your regular income.