Reviewing your income tax return is the most important part of tax preparation. You may use paper forms or tax preparation software to prepare your tax return by yourself, or hire a tax professional to prepare your return. No matter how your return is prepared, you should review your tax return to make sure that it is error-free before your send it to IRS or state tax agency. Following are the steps to review federal income tax return Form 1040 with most popular tax lines covered. You can also use the same method to review Form 1040EZ, 1040A or state income tax returns.
Step 1: Prepare a worksheet to summarize your income and deductions by each tax line.
Prepare a taxable income and deduction summary sheet and use it to check the tax return prepared by your accountant or yourself to make sure that the numbers on your return agree with the numbers on your worksheet. If you use tax software to prepare your own return, you may think that you are doing double input work. However, this is an effective way to double check any input error and it will make your whole reviewing process much easier. You can use the worksheet below as a reference to build your own worksheet.
Step 2: Review general information section.
General information: Your name, address and social security numbers are correct and updated if there is any change after you filed last year’s return.
Filing status: You checked filing status that applies to you.
Exemptions: In addition to claim exemptions for you, your spouse and children, did you provide more than 50% support for anyone during the tax year? If you did, you may be able to claim this person as your dependent and take an exemption for him or her.
Step 3: Review income section from line 7 to line 22.
Line 7: The amount of wages on line 7 should agree with total wages from Box 1 of all your W-2 Forms. If there is a difference, figure out why.
Line 8: The taxable interest on line 8a ties to total interest income from Box 1 of Form 1099-INT and the tax-exempt interest on line 8b ties to total tax-exempt interest from Box 8 of Form 1099-INT.
Line 9: The ordinary dividend on line 9a ties to total dividend income from Box 1a of Form 1099-DIV and the qualified dividend on line 9b ties to total qualified dividend from Box 1b of Form 1099-DIV.
Line10: You generally should include the state or local tax refund as income on line 10 if you deducted in prior year tax return. However, depend on your prior year tax situation, you may only need to include part or none refund as income on line 10. If you use tax preparation software to prepare return, the software should help you calculate taxable refund amount. But you should check the following if you switch to a different software package this year or does not import prior year tax data into this year’s tax software:
1. Do not include any state or local tax refund as income if you did not take state/local tax deduction in prior year. For example, if you took standard deduction or deducted state sales taxes in 2014, you don’t include the 2014 state income tax refund that you received in 2015 as income on line 10 of your 2015 return.
2. Make sure to import last year’s tax data into this year’s tax software, so the software can help you calculate taxable refund on line 10. If you don’t have prior year tax data in your current year software, use Worksheet from Form 1040 instruction for line 10 or Worksheet 2 from Publication 525 to calculate taxable state/local tax refund.
Line 13: If you sold capital assets, make sure that the cost basis of the assets you used to calculate gain/loss are correct and the gross receipts from the sales agree with total amount on Form 1099-B. If you have a capital loss carryover from prior year, make sure that the beginning balance of capital loss carry over on this year’s return agrees with the ending balance of last year’s return.
Step 4: Review adjusted gross income section from line 23 to line 37.
Line 26: One mistake you could make about moving expense is that you think you don’t need to deduct moving expense if you get moving expense reimbursed from your employer. But in fact, depend on how your employer reported the moving expense on your W-2, you may still be able to take moving expense deduction. If you have job related move, be sure not to miss any moving expense you can deduct on this line.
Line 32: If you are qualified and want to take IRA deduction, you can make contributions before the original due date of federal tax return (generally 4/15) to a traditional IRA account so that you can take an IRA deduction on this line.
Line 34: Generally, you can get more tax benefit by taking education credit. You should only take tuition and fees deduction if it gives you more tax benefit or you are not eligible to take education credit.
Step 5: Review tax and credit section from line 38 to line 56.
Line 40: If you claim itemized deduction, make sure you deducted all the expenses you can deduct and the amount on each line of Schedule A agrees with the total amount from your supporting document for the deduction. Do not forget to include the following easy-to-miss deductions that may apply to you on Schedule A:
- Lodging and travel expenses to receive medical care including gas, parking and toll you paid when driving your own car.
- State and local income taxes you paid during this tax year for prior tax years, state and local estimated tax payment you made for this tax year and state or local tax refund you chose to credit to this tax year.
- State and local personal property taxes based on properties' value and charged on a yearly basis, such as car registration fee based on the car’s value.
- Out-of-pocket expenses to do volunteer work for qualified charitable organizations including gas, parking and toll you paid.
- Clothing and household items you donated to qualified charitable organizations.
Line 48 to line 54: Go through line 48 to line 54 and ask yourself if you had any life event during the tax year that related to any of these tax credits. If your answer is yes and you don’t see any credit shown on these lines, then check why you don’t get the credit.
Step 6: Review payment section from line 64 to line 74.
Line 64: The federal income withheld should tie to the total reported on Box 2 of your Form W-2s plus federal tax withheld (if there is any) on Form 1099 or Schedule K-1 you received.
Line 65: Your total estimated payment include estimated payments for current tax year plus overpayment you applied from prior tax year or amended return.
Line 71: If you get Form W-2 from more than one employer and your total social security wage is over taxable wage limit for the tax year, you social security tax maybe over withheld. You can take a credit on this line for the excess tax withheld. If you use tax preparation software to prepare your return, make sure to input all the information on your Form W-2s, so the software can calculate any excess for you.
Step 7: Compare this year’s tax return with last year’s tax return.
1. Compare the numbers on each tax line from both years’ return and figure out what caused the differences. Pay attention to large differences or inconsistent amounts.
2. When you review the two years’ return, never assume that your prior year return is error-free. If there is a difference, it is possible that you prior year’s return is wrong.
Conclusion
Reviewing tax return is not as hard as you think. Follow the steps above, you will be able to review your return like an expert does.
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