Top 10 Common Income Tax Mistakes

Many people dread this time of year - filing for income taxes. Before just going through the motions of filing this April, be sure that you are up-to-date on some very common mistakes made by income tax filers every year.

1. Not researching whether or not you must pay the Alternative Minimum Tax (AMT). This tax was originally designed to make sure wealthy earners couldn't take advantage of so many tax breaks that they ended up paying little or no tax. More people, however, are falling into this AMT bracket. Calculate your taxes by regular rules and by AMT regulations to see if you fall under AMT.

2. Forgetting to five-year average. If you took all of your money out of a qualified retirement plan in 2001 and didn't roll it over into another retirement plan or an individual retirement plan, then you may qualify for five-year averaging. In this case, you will pay the entire tax bill on the withdrawal, but compute it as if the payout was spread out over five years.

3.Forgetting to include your mutual fund re-invested dividends. When shareholders sell their fund shares, they should add the dividends and gains into their original investment. Otherwise, they will pay taxes twice on these profits.

4.Claiming your home-office deduction. Upon selling a home, taxes do not have to be paid on up to $500,000 in profit, but there may be some capital-gains tax paid on the home office portion.

5.Not calculating whether to file jointly or separately. Each couple should decide this based on their own individual situations.

6.Assuming you can't make more retirement contributions. If you didn't max out your retirement plan contributions last year, you still have several options. There are places where you can make additional contributions and places that your employer can make them to as well.

7.Forgetting to claim carry-overs and credits. For example, you can't claim more than $3,000 in investment losses in a single year, but you can carry the unclaimed amount over into future years.

8.Overpaying your social security. If you earned more than $72,600 working for two or more employers in 2001, you may be able to file a claim on your return for excess withholding. This is an option because wages over $72,600 are not subject to Social Security tax.

9.Failing to take gambling losses. Gamblers are allowed to deduct losses up to the amount of their winnings if they keep acceptable records of their losses.

10.Failing to do your homework. Research and review all allowable deductions and most importantly, keep good tax records.