Get the Most Out of Your Tax Deductions

Feb. 9, 2010— -- Dreaded, despised, depressing. They're all words we use to describe April 15, tax day.

But here's another "d" word you should add to the mix: Deductions.

This year there are some new ways to save a lot of money on your taxes and "GMA" financial contributor Mellody Hobson has a round-up of some of the most important.

When completing your tax return, Hobson said to make sure your math is right. The best way to overcome this issue is to e-file.

According to the IRS, 95 million people e-filed last year. E-filing with a tax preparation software package allows you to ensure that proper computation takes place.

Of paper returns, the IRS said 20 percent have errors, whereas only 1 percent of electronically filed returns have them.

But remember, Hobson said if you enter the wrong numbers in the first place, e-filing will not catch this error, so make sure you double check your work. The IRS has resources to help you e-file for free on its Web site at www.irs.gov.

According to Hobson, another common issue is not having all of your paperwork in order.

If the IRS is unable to verify the information you provided then it makes their own adjustments to how much you owe. You could also be subject to an audit.

Make sure you organize all of your paperwork -- this includes W-2s, other forms that show taxes withheld during the year, and receipts for itemized deductions and charitable donations, Hobson said.

Two important things to remember about charitable donations, if the donation is over $250 then you must have a letter from the charity showing you made the donation of that amount. Additionally, if you receive a gift in thanks for your donation --for example a tote bag or a mug --then you can only deduct the amount you donated over the value of the item. For example, if you donated $150, and you received a $50 gift in return, then you can only deduct $100.

Also when you are submitting your tax return make sure you attach your W-2, other forms that show taxes withheld during the year, and any other applicable schedules, Hobson said.

Just because you didn't receive a 1099 form for your additional work does not mean you do not have to report that income, Hobson said.

If you get caught not reporting this additional income, the penalty is quite high. Not only will you have to pay taxes on that amount, but the interest will be about 6 percent per year and you could incur penalties of up to 20 percent.