An IRS idea that could cost you

Cross-outs, white-outs and wipeouts

Even the IRS warns you about this one: If you file a paper return, you cannot cross out or use white-out on any account or routing number entered on a tax form. If you do, the IRS will reject the direct deposit and send you a refund check.

That means you won't know until the check arrives that the deposit hasn't been made. If the check gets to you after April 15, you've lost the 2008 tax year's contribution, and at least part of your refund has been wiped out.

Wrong numbers

I'm a tax preparer. Believe me, it's easy to enter an incorrect number. If you're off by a single digit, the IRS will void your direct deposit and mail you a refund check.

The system makes it simple for you to screw it up. You have to input both your account number and the bank's routing number. Most people look at their checks to find their account numbers. But the last few digits on the bottom of a check reflect the check number and not the account number. It's an easy mistake to make.

As for the routing number, it may not even be the number on your check. IRS instructions warn that the actual check "may state that it is payable through a financial institution different from the one at which you have your account. If so, do not use the routing number on that check. Instead, contact your financial institution for the correct routing number to enter."

Duh! Who even thinks about such garbage?

At worst, your incorrect number is correct for somebody else, and the deposit goes into his account. Have fun trying to get your money back.

Errors and refund adjustments

We all make mistakes. I have an eraser even on my pen. Make a math mistake on your tax return, and all bets are off. You may not have enough of a refund to fully fund your IRA, or you may even be put into a tax-due position. In any case, your tax return now needs amending, and more money is being sucked from your pockets.

Alternatively, you may be subject to a refund offset. If you owe taxes from prior years, the IRS is going to grab those dollars from the last account designated. If that's your IRA, your retirement contribution and the current year's tax deduction will be reduced.

• Video: Check out Jeff Schnepper's filing system

Your refund could also be cut by offsets under the Treasury Department's Financial Management Service program. If you owe child support, spousal support, state income tax or even money on a student loan, the IRS is going to grab your refund dollars to pay those debts.

For offsets, the dollars are taken first from the account with the lowest routing number. Who thinks of these things?

Here is Schnepper's solution

Don't use direct deposit for your IRA contribution for 2008. Make that by check with specific instructions for your custodian. Your 2008 IRA contribution should have been made yesterday. The earlier you make the contribution, the longer the period of tax deferral and the fatter your account when you retire.

But use direct deposit on your 2008 return to make your contribution for 2009. That gets the money into your account early in 200i9, and, even if there are complications, you still have until April 15, 2010, to make amends.

Published Jan. 6, 2009

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