Little errors on tax forms can cause big headaches

By Deborah Adamson
Advertiser Staff Writer

Bu Chen isn't an easy man to confuse, especially when it comes to numbers. But changes in dividend tax rules stumped even him.

Chen suspected his return had a flaw after his taxes came up unusually small. He's a securities trader and he knew he owed more money. He corrected his return with help from a tax hotline. Total time spent: More than 40 hours.

The nation's tax code is notoriously complex, but add differences in Hawai'i regulations and you've got a formula for mass confusion.

It's worth your time to closely scrutinize your return for mistakes.

"If you're due for a refund, your refund could be delayed," said Cathy Tokishi, tax information specialist at the Hawai'i Department of Taxation. "Your tax return could be pulled for greater scrutiny."

Tokishi said that mathematical errors or entering figures on the wrong line are sources of incorrect returns. Check your return for simple typographical mistakes.

Nationally, this year, the Child Tax Credit is a particular source of errors. As of late March, 2.3 million taxpayers had forgotten to deduct their credit by the amount they received in advance last year, said IRS spokeswoman Shawn George.

If you don't have money for taxes, a common mistake is not to file a return, said Marilyn Gagen, a tax accountant in Honolulu.

But it's much better to file an extension or a return without payment rather than miss the deadline, she said. The penalty for late payment is 0.667 percent a month in interest by the state and 0.5 percent monthly on the federal level. For a missed return? It's 5 percent a month for both Hawai'i and the U.S. government.

For extensions, file state form N-101A or federal form 4868.

People also forget to deduct charitable donations, even if it's just a few cans to the food bank. But you need receipts, Tokishi said.

When consumers do remember to deduct what they've donated, they often underestimate the value, said Bill Titcomb, owner of Ohana Tax Service in Mililani.

They might put a value of $10 to $20 for a bag of clothes to Goodwill, he said, but the tax code allows deduction of the fair market value of those items. Thus, taxpayers should deduct what those clothes would sell for at a thrift store, which could be easily two to three times what they first thought it was worth, Titcomb said.

Hawai'i businesses also overlook differences in federal and state depreciation treatments, Tokishi said.

While the federal tax code lets businesses claim a 30 percent or 50 percent bonus depreciation, Hawai'i does not. Business taxpayers can mistakenly carry over federal amounts onto their state tax returns instead of making a new calculation.

For the self-employed who pay for their own health insurance, this year you can deduct 100 percent of your premiums even if you don't itemize, Gagen said.

Hawai'i businesses also should not forget to take the capital goods excise tax credit, Tokishi said. The 4 percent credit applies towards purchases of equipment such as cash registers and computers.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.