With the tax deadline nigh, it's still not too late to make these common mistakes—or to avoid them. Here are four frequent taxpayer errors:
1. Forgetting to take deductions and credits. Some deductions, such as those for the interest on mortgage payments, are obvious, but others—including donating clothes to charity, certain types of medical costs like birth control pills, and expenses related to finding a job—are more easily overlooked. Meanwhile, taxpayers can take credits, which subtract money right off the top of their tax bill (or add to their refund), for adoption costs as well as hybrid vehicle purchases.
2. Not saving enough. One of the best ways to reduce your overall taxable income is to put more money into tax-sheltered retirement accounts like 401(k)'s. While it's too late to make 401(k) contributions for 2007, it's not too early to start planning for 2008 by upping the amount of money that is taken out of your paycheck and placed into a retirement account. Taxpayers who are eligible to make contributions to traditional IRAs, which can be deducted from taxable income, have until April 15 to do so for 2007.
3. Making silly arguments. Henry David Thoreau might be disappointed, but the IRS does not allow people to engage in civil disobedience in the form of avoiding taxes. In fact, the agency even has a name for such tactics: frivolous arguments. The issue has been argued before courts, which have consistently ruled in favor of the federal government's right to assess taxes. "Frivolous arguments can expose you to penalties or worse. Tax protesters are in jail right now," says Barbara Weltman, contributing editor to JKLasser.com, an online tax resource.
4. Failing to keep a paper trail. While the chances of getting audited are higher for those who make more money and for the self-employed, they are still low, Weltman says. But with the IRA ramping up its enforcement, you never know. That's why it's always a good idea to keep receipts for items referred to on your tax forms. That way, a letter from the IRS doesn't have to be met with high anxiety.