Common Filing Errors on Income Tax Returns
How to Reduce Filing Errors on Income Tax Returns
The Department of Revenue cannot process a return unless all fields are complete and all supporting documentation is submitted. Be sure to carefully review the line-by-line guide for the 104 form and any FYI Publications referenced therein.
We highly recommend that you file your return electronically using Revenue Online, with specialized software or through a tax preparer. Generally, electronic returns reduce errors that can delay processing. The Direct Deposit option for refunds is also recommended to expedite your refund.
If the department is unable to process your return for any reason, a letter will be sent to request the missing information or documentation. Please note the following common errors:
1. Read publications and instructions. Before completing a return, taxpayers should read and follow each instruction that pertains to their tax situation. Additional information is available in the Tax Index and the FYI Publications. Both electronic and paper return filers should familiarize themselves with this information.
2. Use the correct form version. Individual Income Tax Return versions are available to download from the Taxation Web site. Be certain that the year of the return matches the year for which you are filing. Do not use the current year return to file for a previous tax year. Older years can be found on the Prior Version Web page.
3. Verify Social Security numbers and names. Be sure the nine-digit number and name exactly matches the social security card. If married, be sure each taxpayer is listed in the same order as your federal income tax return. Taxpayers who are new to Colorado income tax must be verified by the federal government. The verification process can take several weeks.
4. Paying with your return. We strongly recommend that you submit your payment using Revenue Online. This method reduces processing errors and provides you with a confirmation code to keep with your records. You can utilize Revenue Online to pay even if you file a traditional paper return. Revenue Online allows you to pre-schedule your payment via electronic funds transfer (EFT) before it is due, so you can file your return early and delay your payment until April 15th. However, if you file your return electronically and wish to remit your payment with a check or money order, submit form DR 0900 with your payment. DO NOT send a copy of your electronically-filed return with your payment, or you may receive a bill. If you file a traditional paper return, you may remit your payment in the same envelope as the return. Make sure the Social Security number and the tax year of the payment are clearly written or typed on the check.
5. Submit the required documentation. Proper documentation must accompany each return you file (original or amendment). Submit electronically using E-filer Attachment on Revenue Online, as an attachment to your e-filed return if your software allows (or with DR 1778 if it does not), or attached to your paper return.
DO NOT assume that the documentation is not required because a credit has been taken before, that a credit is being carried forward from a prior year, or that your 104X amended return is not changing the credit already allowed.. Keep your records for tax credits established in prior years and carried forward for at least four years past the due date of any return claiming the credit. Submit all relevant documentation for the credit, including documentation from prior years to support any credit carried forward.
6. Complete required schedules. Be sure to complete all fields on any related schedules, and that all information is descriptive. For example, the capital gains subtraction can be delayed or denied because form DR 1316 is not complete, the property description is too vague, or the acquisition date is omitted.
7. Guidance for amending a return –
Use the correct form. To change or correct a return that has already been filed, be sure to use the Amended Return (form 104X) for the specific tax year. DO NOT file another 104 form. Each return has different lines from year to year. Using the correct year’s form is very important.
File electronically. For tax years 2009 and later individuals can file amended returns electronically through Revenue Online to reduce errors and problems. Corporations, partnerships and trusts can amend returns on Revenue Online for tax years 2010 and later. Certain information from your original return is pre-populated to eliminate potential confusion.
Form structure. Prior to 2005, the department used a 3-column method to report amended income tax. However, we now use a method that looks quite similar to the original income tax form. This means that the 104X should report figures “as amended”. This revised form also eliminates the need to submit copies of the return “as originally filed” or “as amended” that can cause confusion if not properly submitted.
Check the correct boxes. For example, if the amended return is carrying back a net operating loss, be sure to properly indicate this at the top of the amended form.
Make sure schedules are attached. Be sure to submit all schedules used to compute your amended tax, such as th 104CR or 104PN. It is also important to attach any documentation that is required for many credits and subtractions. You must submit these attachments even if you the credit was already approved and you are not amending it.
8. Injured spouse claims. DO NOT mail an injured spouse claim with the return because it will likely be overlooked during processing. Injured spouse claims must be mailed separately to: Injured Spouse Desk, Room 238, 1375 Sherman Street, Denver, CO 80261.
9. Other subtractions. Everything usually has a specific place on the Colorado income tax form. It is a rare exception to have a tax situation that is not already covered by the line-by-line instructions or an FYI Publication. Therefore, “miscellaneous subtractions” should not be made on the Other Subtractions line. Doing so or making a deduction without an explanation will cause your return to be delayed or adjusted.
10. Submitting documentation. Submit required attachments to your electronically-filed return via Revenue Online regardless of whether you submitted your return via Revenue Online, specialty tax software, or through a tax preparer or accountant. Find the E-Filer Attachments icon, read the provided instructions, and attach as many documents as required. This is the preferred method of submitting the documentation because the electronic files will go directly to the taxpayer's account. If your return is filed using software that supports the attachment of the required documentation, this is also an excellent method to submit attachments. If for some reason Revenue Online cannot be used, the e-filer Attachment Form (DR 1778) should be completed and mailed with any paper supporting documentation. If you cannot Efile, attach your paper documentation to your paper return.
11. Taxes paid to another state. Proper calculation of this credit can be confusing and we therefore highly recommend that the return be filed electronically. Revenue Online in particular can be very helpful if your tax situation requires this credit. If supporting documents must be included with the filing and the tax software you are using does not allow for attachments, see item 10 above for assistance.
When filing a paper tax return, attach the 104CR credit schedule to the 104 along with copies of the returns for each state. The other state's return must include all schedules needed to identify the gross income sourced to the other state along with the calculation of the other state's tax. If tax was paid to more than one state, a separate 104CR credit schedule must be completed for each state. Attaching a spreadsheet or worksheet in lieu of the 104CR is not acceptable. If returns are filed on paper, there is no need to use the DR 1778.
Common errors in computing this credit that should be avoided to prevent delays and adjustments:
not including losses from other states in the overall credit computation
including income from the other state that was not taxed by Colorado, the most common example being bonus depreciation that is added into AGI in the other state but not in Colorado
not using the lesser of the combined limitation and the total of the individual state calculations.
12. Enterprise Zone credits. Colorado has various Enterprise Zone credits available, each with their own requirements and paperwork. Review all instructions and publications when claiming these credits. Visit www.AdvanceColorado.com/EZ for more information about the Colorado Enterprise Zone program. Be sure to identify names and account numbers of any pass-through entities. Some credits have maximum amounts that can be claimed, and no EZ credit can exceed the tax liability (non-refundable credits). All supporting documentation should be submitted with the return – see item 10 above. Identify any credit amount to be carried forward to a subsequent tax year where indicated on the return.
13. Child Care Contribution credit. Only 50% of the qualifying donation may be claimed as a credit on the return. Submit form DR 1317, Child Care Contribution Tax Credit Certification when claiming this credit. Donation confirmation letters alone will not fulfill the documentation requirement. Be sure to see the Tax Index and FYI Income 35 for the latest information including conditional availability of this credit.
14. Alternative Fuel Tax credit. Submit a copy of the bill of sale showing the vehicle is registered in the primary income tax filer's or spouse's name. Only vehicles listed in our FYI publications are eligible for the credit.
E-85 vehicles are NOT eligible for the credit.
the credit must be claimed in the tax year that it was purchased (if purchased in 2011, it cannot be claimed on the 2012 tax return).
leased vehicle must have documentation that indicates the lessor has passed the credit to you (the lessee). The lessor often claims this credit on leased vehicles.
15. Complete accurate returns. Completing all relevant fields of a return is important. If lines on returns are left blank, it may be assumed that the number for that line should be “0” and can result in calculation errors and result in a balance due instead of a refund. The department will closely examine returns for accuracy and completeness. Math should be double-checked before submitting the return. Revenue Online returns will help catch and prevent common errors before the return is filed. For example, be sure the credits on the 104CR add up to the amount used on the Form 104. Excess credits on the 104CR may result in future errors in credit carry-forwards. Additionally, corporations must accurately indicate the apportionment method used and include a complete apportionment schedule with the return. Errors may result in the corporation being taxed on the full federal taxable income.
16. Credit schedules. Make sure any amount intended to be carried forward is correctly calculated. For example, an individual taxpayer with a $700 tax liability and combined credits totaling $1,500, must clearly show on the 104CR which credits are being used to offset the tax and which credit(s) are being carried forward on line 50 of the 104CR. Failure to specify which credits are being used may result in a different allocation than what the taxpayer desires.
17. Negative numbers. Rarely are negative numbers used on Colorado income tax returns. For instance, reporting a federal taxable income of less than $0.00 would be cause to list a negative number on an income tax return. However, a subtraction of credit designation should be reported in whole, positive numbers.
18. Select correct apportionment methods. Select the appropriate box that matches the apportionment method the corporation is using. For example, do not select the gross Colorado sales apportionment method if the corporation is electing to be taxed on its gross Colorado sales.
19. Federal Employer Identification Numbers (FEIN) must be correct, if required, on income tax returns or the return may not be processed and no refund will be issued. Also, be sure to use the correct name of the taxpaying entity on the tax return as this will make it is easier to verify the validity of the (FEIN).
20. File with the correct Individual Taxpayer Identification Number (ITIN). Individuals who do not have a Social Security number must file using an ITIN that is assigned by the IRS. It is suggested that the Colorado return be filed only after the ITIN is available to reduce problems and delays. Payments can be made prior to availability of an ITIN when necessary to prevent penalty and interest charges.
21. Documentation Requirements for Capital Gain Subtraction. When claiming a capital gain subtraction on a Colorado individual income tax return, you must complete and submit the DR 1316, “Colorado Source Capital Gain Affidavit.”
Revenue Online and many available tax software packages require you to specifically enter amounts from the DR 1316 as part of the return. Therefore, simply attaching the DR 1316 to the electronic return or mailing a paper copy with form DR 1778 will not suffice. When the Department verifies this credit, we will look for the following information. We suggest that you submit it with your return when you file:
A completed DR 1316 form
A copy of the closing statements for both the purchase and sale of the property, or official documentation from the county detailing purchase date and price and sale date and price
Copies of the first two pages of the corresponding federal return, Schedule D and any Schedule D attachments
If the capital gain was received via a pass-through entity, documentation that the interest in the underlying business satisfies the required five-year holding period
If the capital gain is claimed on a 2009 or prior year return and was due to the sale of stock or ownership interest, documentation verifying it was held for at least five years prior to the sale, that the company was a Colorado company, and that the stock was acquired after May 9, 1994.
While the department makes every attempt to obtain verification through county Web sites and other means, we may eventually contact you for additional information.