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10 Common Errors in Preparing Individual Tax Returns
By Heather Cozby & Christine Bruno
Here is a list of the top ten common errors in preparing individual tax returns.
#1 Math errors
Check your math when preparing the return; this is one of the most common mistakes.
#2 Correct name
Make sure that the name that appears on your tax return is the same that is registered with the social security administration.
#3 Filing status
You may be able to file “head of household” rather than “single” which is more beneficial. If you are married but would like to file separately from your spouse, you can not file as “single”, you must file as “married separate”.
#4 Certain types of interest
U.S. Government interest is taxable at the federal level, but exempt at the state level. Municipal bond interest is exempt at the federal level and exempt at the state level if it is sourced to your resident state.
#5 Massachusetts bank interest
There is a $200 deduction from Massachusetts bank interest on the face of Form 1. This deduction is only for Massachusetts bank interest, not for interest from out of state banks, mortgage companies or investment companies.
#6 Qualified dividends
Qualified dividends (in Box 1a of your 1099-DIV) are taxed at only 5% for taxpayers in the 10% and 15% tax brackets and 15% for taxpayers in the 25% and above tax brackets.
#7 Social security contribution deduction on the MA returns
This deduction includes not only the amount paid in Box 4 of your W-2, but it also includes medicare paid in Box 6 of your W-2. Also, government employees are able to deduct amounts paid into their retirement account in lieu of social security.
#8 Social security earnings are not taxable on the MA returns
Many times we see this income reported in the “other income” section of the return. This income is not subject to taxation in Massachusetts.
#9 Stock options
Many times the cost basis is not correctly stated on the tax returns, to the detriment of the taxpayer. This is because in some instances, an increase in the stock basis was given at the time of exercise. Review the stock option rules before attempting to report these transactions.
#10 AMT
Each return should be calculated using the regular tax method and again using the AMT method, whichever tax is higher is the one that is applicable.
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