Video: Common costly tax mistakes

By Tom Costello Correspondent
NBC News
updated 4/6/2006 7:47:40 PM ET 2006-04-06T23:47:40

Pamela Goldson is expecting a big check from the IRS this year. It's a "surprise" the South Carolina high school teacher counts on each spring.

"I don't feel like I'm losing anything by having the government take out more money during the year, as long as I'm getting it back at the end," she says.

But tax experts say having too much money withheld from your paycheck is the the No. 1 mistake Americans make — providing Uncle Sam with an interest free loan. The IRS says more than 100 million Americans will do it this year, with an average refund of more than $2,300.

Money experts say your goal should be to get nothing back and pay nothingextra at the end of the year. To do that, go to line 63 of your return showing your total liability, then tell your payroll department to withhold no more than that amount.

"For most people, if you pay at least as much as your liability was the previous year, you're protected from any penalties or interest," says Tom Ochsenschlager with the American Institute of CPAs.

Other common mistakes:

  • Failing to deduct charitable donations. You should keep receipts for any donation of more than $250.
  • Failing to calculate the alternative minimum tax. It's no longer just the rich who have to pay it. Do the math on line 45.

"A lot of Americans are going to get a nasty surprise, because when the IRS service center computes your return, you're going to find that you're subject to AMT,"says Ochsenchlager.

  • Careless mistakes: The IRS says the average 1040 contains dozens of math errors. The solution, say experts, is to use tax software.

"On returns that are prepared by hand, one in five has some sort of mistake when you do the form by computer," says Jean Chatzky, the editor-at-large of Money magazine. "Using software, one in 100 has a mistake. That's a huge difference."

Especially since the tiniest mistake can delay the refund you've bankedon.

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