Last-Minute Filers, Be Mindful of Mistakes

What’s more popular than baseball in the springtime? Procrastination, according to the Internal Revenue Service, which expects to get 27 million tax returns in the final week before the Tuesday filing deadline.

But as the tax code becomes more complicated, last-minute filers must be increasingly mindful not to miss valuable tax breaks or make careless mistakes that could be a red flag for IRS auditors.

“You used to be able to do a return by hand in a few hours. In most cases now, that’s impossible,” said Jeffrey Kelson, tax partner with BDO Seidman in New York. “This is not something you can just knock out at 8 p.m. on April 15.”

Here are some things late filers should keep in mind:

Careless Mistakes

Last-minute filers can make careless errors that can slow refunds or even tag a return for audit. The most common mistakes: mismatched or missing Social Security numbers, math mistakes and failing to have both spouses sign a joint return.

Whenever possible, taxpayers are advised to use the IRS’ reprinted address labels. Meanwhile, be sure to double-check the Social Security numbers of every dependent listed on the form, and check and double-check the math.

The IRS recommends that taxpayers file electronically, a process that will check the math and match Social Security numbers before accepting a return. As for making sure both spouses sign: If you don’t, you’ll get the return back -- and possibly get hit with a late-filing penalty.

War Rules

When the nation goes to war, several tax rules go into effect to help members of the armed services who are deployed overseas.

Filing extensions: Armed services personnel in a combat zone, or overseas away from their permanent duty stations to support those in a hazardous duty area, automatically get a filing extension.

The new filing deadline is 180 days after the last day of service in a combat zone. If the service member has been hospitalized as the result of an injury during service, the extension is 180 days after being discharged from the hospital.

Income exclusions: Military personnel in a combat zone or qualified hazardous duty area can exclude certain types of pay from tax, including active duty pay; imminent danger/hostile fire pay and pay earned while hospitalized as the result of an injury received in a combat zone; reenlistment bonuses; pay for accrued leave earned in a month served in a combat zone; and pay received for suggestions, inventions or scientific achievements made during a month when serving in a combat zone.

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New Lines

There are three new lines on the standard Form 1040 that reflect three new tax breaks many taxpayers are unaware of, said Mark Luscombe, principal tax analyst at CCH Inc., a Riverwoods, Ill.-based publisher of tax information.

Line 23 is for the new “educator expense” deduction, which allows teachers to deduct as much as $250 annually to cover the cost of buying classroom supplies.

Line 26 is for the higher education deduction, which allows singles with adjusted gross income of as much as $65,000 and married couples with adjusted gross income of as much as $130,000 to write off up to $3,000 in college tuition and fees paid during 2002. This is not to be confused with the Hope and Lifetime Learning tax credits, which have lower qualifying income thresholds.

Line 49 is for the retirement savings credit, a special tax credit for lower-income individuals and families who save for their retirement.

This marks one of the few times you can get two tax breaks for one expense, said Fred Grant, a certified public accountant and senior tax analyst with Intuit Inc., the makers of Turbo Tax software, in San Diego. Qualifying taxpayers who contribute to a tax-deductible IRA, for example, would be able to claim both a deduction and a credit for that contribution.

The credit is staggered, ranging from 10% to 50% of retirement plan contributions of as much as $2,000. It is available only to married couples earning less than $50,000 annually; single filers earning less than $25,000; and heads of household earning less than $37,500. Claiming both the credit and the deduction means that the after-tax cost of contributing $1,000 to an IRA would be $350 for an individual earning $15,000 annually.

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New Rules

Several existing deductions and credits were revamped, enriched or opened up to a broader swath of taxpayers, making this another area where potential mistakes can occur.

Student loan interest expense deductions were broadened in 2002, allowing those with loans of any duration to deduct interest of as much as $2,500 as long as the taxpayer earns less than $50,000 when single or $100,000 when married, filing jointly. Deductions begin to phase out once adjusted gross income exceeds those thresholds and are eliminated when income hits $65,000 for single filers and $130,000 for those who are married.

Tax breaks for adoptive parents also were revamped and enriched in 2002, allowing taxpayers to take a credit of as much as $10,000 to recover expenses for adopting a qualifying child.

Earned income tax credit qualification standards were changed and income thresholds increased, allowing substantially more taxpayers to qualify. In particular, military families, who previously were locked out of the break because of the imputed value of military housing, may now qualify for the credit.

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Get More Time

Submitting a Form 4868 gives taxpayers until Aug. 15 to file their returns, although those who owe are still supposed to pay by April 15.

Those who can’t pay should still file their returns, or at least file for extensions, tax preparers say. The penalty for failing to file on time is 5% of the tax owed per month. If the taxpayer is more than 60 days late with a return, without filing for an extension, the minimum penalty is $100, the IRS says. On the other hand, those who file but don’t pay face a much smaller penalty, which amounts to interest plus 0.5% of taxes due per month.

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Get Help

IRS help lines are open from 10 a.m. to 3 p.m. today and from 7 a.m. to 10 p.m. weekdays to help last-minute filers. To have questions answered or to find where you can get in-person help, call the IRS at (800) 829-1040.

Twenty-seven post offices in Southern California will be open until midnight Tuesday to accept returns. To get the address of the nearest location, call the Postal Service’s toll-free help line at (800) ASK-USPS.

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Times staff writer Kathy M. Kristof, author of “Investing 101” (Bloomberg Press, 2000), welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012; or e-mail kathy.kristof@latimes .com. For past Personal Finance columns, visit The Times’ Web site at www.latimes.com/perfin.