Now that "March Madness" is over we are summoned to another uniquely American rite of spring: "April Madness" — sparked by the mad rush to file our income taxes by the 15th.
From the numbers the IRS recently reported, millions of Americans actually got an early jump on things this year. As of the third week in March the Internal Revenue Service had already received more than 66 million tax returns — up 4% compared to the same time last year.
Could be because a lot of taxpayers realized that instead of owing the government money, they're actually due a refund, thanks largely to the cut in income taxes introduced last July. So far, the average refund is running around $2,000.
But despite the fact that some of us managed to file earlier this year, about half of the 132-million tax returns the IRS expects to receive will come in during the last two weeks. So don't feel like the Lone Ranger if you're still staring at a pile of receipts and W-2s on your desk.
The problem is, by waiting until the last minute to file, you run the risk of making stupid mistakes.
One mistake even the early birds made by the truckload concerns a new line on Form 1040: Line #47. That's where you get to claim a rebate for the new 10% tax bracket that kicked in last year. However, you can only claim this rebate if you did not receive a check last summer.
You remember: those checks that went out to the tune of $300 (single filers), $500 (single, head of household) and $600 (married, filing jointly)? Technically, it's called the Rate Reduction Credit. If you don't use Form 1040, you'll find it on Line #30 of From 1040A or Line 7 of Form 1040EZ.
Trouble is, some people who got their check think they're supposed to write in the amount on the "Rate Reduction Credit" line. This is incorrect. Only folks who either did not get their rebate check or who think they should have gotten more are supposed to enter an amount. If you received the maximum amount for your filing status, you leave this space blank.
Keep in mind, there could be a good reason why you didn't get a check: the money was withheld if you have outstanding government debt such as back taxes or student loans or are behind in your child support payments. Instead of sending you the check, the money was used to reduce your outstanding I.O.U.
Look, this isn't rocket science. Just read the directions in the tax booklet that comes with your form. There's even a handy worksheet which will walk you through the calculation. Forget how much your rebate check was for? Just call the IRS "Tele Tax" number: 1-800-829-4477. If you're thirsting for even more information, I urge you to visit the user-friendly IRS Web site. They've assembled a list of FAQs on this fascinating subject.
By the way, originally you were not entitled to a rebate if you were claimed as a dependant on someone else's return in 2000. But Congress decided that wasn't fair, so you might be eligible after all. For instance, a minor claimed as dependant on their parents' return but who had earned income from a part-time job was automatically excluded from receiving any benefit. Under the revised guidelines, he/she could qualify for up to a $300 rebate. Take 5 minutes, read the instructions and work through the calculation.
My point is, this Rate Reduction Credit issue is the Numero Uno mistake people are making on their tax returns this year and it's gotten the attention of the IRS- big time. In fact, spokesperson Don Roberts says the IRS "is checking all returns for mistakes" in this area. Roberts didn't say this, but think about it: if you've messed up this one calculation, don't you think your return just might be scrutinized more closely for other mistakes as well?
The good news is line #47 (or 30 or 7) disappears next year because the 10% tax rate is incorporated into 2002 withholding rates. So don't expect another rebate check. You're actually getting a little bit more money in each paycheck spread out over the entire year.
Thanks to the Rate Reduction Credit confusion, omitting or incorrectly entering your Social Security number has fallen to second place this year in the IRS "Dumb Mistakes Taxpayers Make" hit parade. (My title for the list, not theirs, but I think it's catchy, don't you?)
The folks at Nolo, a publisher that specializes in self-help legal books, have a few other helpful hints that might help you fly under the audit radar. Such as:
— Be neat. If possible, use a computer to prepare your return.
According to Nolo, "a messy return-- cross-outs, sloppy handwriting, smudges" is the IRS equivalent of waving a red flag in front of a bull. You're just inviting an audit because the IRS equates sloppy returns with sloppy record-keeping and therefore questionable deductions.
— When you list your deductions, don't use round numbers, be more specific. $1,000 makes it look as if you're guessing. $993 looks like you actually added up receipts.
— If you're taking a loss for a large and unusual deduction such as flood damages, attach a copies of your repair bills, cancelled checks and even photos of the damage to your return. Naturally, you will want to keep the originals.
You can find additional suggestions on Nolo's Web site. The one about listing income from a second job as "other income" (Line 22 of Form 1040) instead of the (more proper) Schedule C is a little iffy. In fact, even Nolo says you should only try to get away with this if the amount of income as "relatively small" and you're not claiming any business deductions against it. Their goal is to have you avoid filing Schedule C which, they say, "auditors go after... like bees toward honey."
While Nolo also suggests you not use the IRS-provided label on your return or file electronically, the IRS perennially and categorically denies that either will increase your chances of an audit. Believe whom you wish.
Finally, Nolo suggests you consider living in a part of the country that is less likely to be audited. Turns out, folks who live in Nevada are four times more likely to be audited than those who live in Wisconsin. I'm sure that is purely coincidental...
My parting pointer: Dig out last year's return. Often it will trigger your memory for a deduction or other item that you might have overlooked this year.
Now get going on that return!
If you have a question for Gail Buckner and the Your $ Matters column, send them to firstname.lastname@example.org along with your name and phone number.
The views expressed in this article are those of Ms. Buckner or the individual commentator, and do not necessarily reflect the views of Putnam Investments Inc. or any of its affiliates. You should consult your own financial adviser for advice regarding your particular financial circumstances. This article is for information only and is not an offer of the sale of any mutual fund or other investment.