I hope you had a wonderful weekend! How about that Superbowl?

LRPC’s Monday Morning Minute for this week, “Five Tax-Filing Mistakes And How To Avoid Them” (presented below) comes to you courtesy of Schwab. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share enlightening, useful information with you each week. This is a short piece I believe everyone can read in less than 60 seconds.

It’s time to start thinking about filing your taxes. If you are an early filer — which is smart since early filing reduces the likelihood of becoming a victim of tax filing fraud — or someone who files at the last minute, you will find these tax-filing tips helpful.

Have a wonderful week!


Five Tax-Filing Mistakes And How To Avoid Them


From Charles Schwab & Co., Inc.

When the IRS is reviewing your tax return, it doesn’t care whether a filing mistake is intentional or inadvertent. Any error can trigger a notice, says Rande Spiegelman, vice president of financial planning at the Schwab Center for Financial Research.

While a mistake won’t necessarily lead to an audit, you want to avoid as many red flags as possible — particularly if you’re a high-income taxpayer since they tend to be audited more frequently.

Understating income and overstating deductions are two potential problem areas for filers, Rande warns. But those aren’t the only places where returns can go off the rails. Here are five frequent mistakes people make, and ways to prevent them.

#1 – Reporting income inaccurately

With few exceptions, any income you earn — whether from an employer, a side business or an investment — is reported to the government. So the income you report needs to match what the IRS has on file.

How to prevent it

Keep track of your income throughout the year and make sure it matches your tax documents.

  • Your employer reports wages, salary and bonuses to the government on your W-2 form. Review your copy for accuracy.
  • Retirement income. Withdrawals from tax-deferred retirement accounts are taxed as ordinary income. Depending on your income, a portion of your Social Security benefits is likely to be taxable as well.
  • Self-employment income and investment income. These are reported on 1099s. If you receive a 1099 with an error, contact the source and ask for a corrected version. If you’re self-employed and made at least $600 from a client, that client will report it to the IRS. But it’s up to you to report amounts under $600.
  • You also must report income from prizes or gambling winnings.

#2 – Data entry errors and miscalculations

It’s surprisingly easy to transpose digits or read from the wrong line of a worksheet when you’re entering your information into tax preparation software. And if you’re still filing on paper, the chance that you’ll move a decimal, add incorrectly or make other computational mistakes only goes up.

How to prevent it

It may sound obvious, but “always check your numbers,” Rande says. Be especially careful when you work with tax credits and special deductions, or if you have to file a more complicated tax return that includes worksheets, tables or additional forms. If you’re really worried about making a sloppy mistake, your best option is to ditch the paper forms and use tax preparation software, or pay a tax professional to do the work for you.

It may sound obvious but always check your numbers.

#3 – Misreporting investment income

If you don’t know the correct cost basis of your investments, you could misreport investment gains or losses.

How to prevent it

“Be sure your return matches the 1099 your broker files, including cost-basis information — whether that was reported to the IRS or not,” Rande says. Cost basis is reported for most securities bought since 2011, but if you’ve been holding on to a stock for decades, the IRS won’t have the cost basis on file. Also, be sure to account for any subsequent stock splits, spin-offs or mutual fund distributions that might have been automatically reinvested along the way.

If there is a discrepancy between your records and your broker’s, fix it with your broker before you file. Make sure you have documentation to substantiate your cost basis; if you do, any discrepancy can probably be resolved even after filing, Rande says. Then, going forward, be sure your default preferences are on file with your broker (e.g., selling your highest cost basis shares first rather than “first in, first out”).

And watch out for wash sale rule violations, which will also show up on your brokerage record. You will lose the tax benefits of a trading loss if you have purchased a “substantially identical” security 30 days before or after the sale.

#4 – Excessive or unusual deductions

Certain deductions can be a red flag for the IRS — especially for self-employed taxpayers who itemize and for individuals with large charitable contributions relative to their income.

How to prevent it

Deductions can be tricky for self-employed filers because sometimes the line between business and personal expenses can feel blurry, particularly around home offices, entertainment, meals, transportation and phone use. If you’re ever in doubt, check the IRS guidelines for business deductions — they’re pretty clear. Follow them and keep thorough records, and check with a professional if you’re still not sure.

When it comes to charitable contributions, check the charity’s tax-exempt status first, and be sure you obtain a proper receipt. Be aware that the tax deduction for the donation of personal goods applies only to items that are in good condition. And deduct only the current fair market value, not the amount you paid for the item.

#5 – Erroneous personal information

Sometimes it’s the simplest things that trip you up: forgetting to sign your return, for example, or entering an incorrect Social Security number.

How to prevent it

Use this checklist to review a few key items.

  • Your name. Maybe your name is frequently misspelled. Maybe you changed your name in the past year. Whatever the reason, it’s important to make sure your name is correct here.
  • Your address, particularly if you’ve moved recently.
  • Your Social Security number and the Social Security numbers for all your dependents.
  • Your filing status, in case your marital or filing status has changed.
  • Your signature, to make sure it’s there.

What you can do next

With tax season starting, it’s time to gather and review all your tax documents so that you can avoid these common tax-filing mistakes, and reduce your chance of landing on the IRS’s radar for an audit.

If your tax situation is complicated, you may want to consult a tax professional.


About LRPC’s Monday Morning Minute

Lawton Retirement Plan Consultants, LLC (LRPC) Monday Morning Minute is crafted to provide decision-makers with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.

Additional Important Disclosures

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner or investment manager. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve. The Charles Schwab Corporation provides a full range of brokerage, banking and financial advisory services through its operating subsidiaries. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC), offers investment services and products, including Schwab brokerage accounts. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides deposit and lending services and products. Access to Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, maintenance, or for other reasons.