GROCO Warns of Common Tax Filing Mistakes
GROCO Warns of Common Tax Filing Mistakes
Tax return anxiety is on the rise as the federal tax filing date looms. The prospect of filing an erroneous return increases as more rely on tax software to help prepare their returns. For the week ending March 28, more than 10,000 electronic returns were filed from home computers, an increase of at least 10% from the previous year. Within the same week calls to the IRS increased dramatically as well- the IRS fielded close to a million and a half calls per day. To allay some of the fears, the Internal Revenue Service produces yearly advice on how to avoid common tax filing mistakes.
Reproduced below are the top ten common errors we have frequently seen among self prepared and filed tax returns.
6. Failing to pay and report domestic payroll taxes. Taxpayers employing household workers, such as a house cleaner, an in-home caregiver, or a nanny, must report and pay payroll taxes for those individuals when the payments exceed certain threshold amounts. Failure to pay and report payroll taxes may result in the assessment of additional tax due, interest on the unpaid amounts, and penalties. The Instructions to the Form 1040, Publication 926 (Household Employer’s Tax Guide), and Publication 15-A (Employer’s Supplemental Tax Guide) contain detailed information to assist taxpayers in determining whether an individual providing household help is a household employee for whom the taxpayer must report and pay payroll taxes.
7. Failing to report income because it was not included on a Form W-2, Form 1099 or other information return. Taxpayers must include on their tax returns income reported on a third-party information reporting statement such as a Form W-2 or Form 1099, or other similar statement. But even if income was not reported on a third-party reporting statement, taxpayers must still report all income. Failure to report all income may result in the assessment of additional tax due, interest on the unpaid amounts, and penalties.
8. Treating employees as independent contractors. Employers may not treat an employee as an “independent contractor” to avoid paying and reporting payroll taxes. Employers who improperly treat an employee as an independent contractor may be liable for additional tax due, interest on the unpaid amounts, and penalties. Publication 15-A (Employer’s Supplemental Tax Guide) contains detailed information to assist taxpayers in determining whether an individual is an employee or an independent contractor.
9. Failing to file a return when due a refund. Taxpayers must file a return to claim a refund of withheld taxes when a refund is due. Taxpayers will forfeit refunds of withheld tax if a return requesting a refund is not filed within three years of the due date.
10. Failing to check liability for the alternative minimum tax. Taxpayers should determine whether the alternative minimum tax, or AMT, applies. If a taxpayer is liable for AMT but does not include it on the return, the Service will determine the taxpayer’s liability and may reduce or deny a requested refund or assess any additional tax due, interest on the unpaid amounts, and penalties.
We hope you found this article about “GROCO Warns of Common Tax Filing Mistakes” helpful. If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or our website at www.GROCO.com. Unfortunately, we no longer give advice to other tax professionals gratis.
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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
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i(2007, 04 09). Common Mistakes on Tax Returns. Retrieved March 25, 2008, from Internal Revenue Bulletin – April 9, 2007 – Notice 2007-35 Web site: http://www.irs.gov/irb/2007-15_IRB/ar09.html
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