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CNN Sunday Morning

Interview With Donna LeValley

Aired March 31, 2002 - 11:46   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDRICKA WHITFIELD, CNN ANCHOR: Well, once the Easter holiday is over and the championship is decided and the NCAA Championship is decided -- go Terps -- what's next?

Well, tax day is only 15 days away now. And if you're a procrastinator that's all the time in the world. For everyone else it's time to get serious. So let's get some tax tips from Donna Levalley, and she's a co-editor of J.K. Lessor's "Your Income Tax 2002." Well, thanks for joining us this morning.

DONNA LEVALLEY, CO-EDITOR, YOUR INCOME TAX 2002: Thank you.

WHITFIELD: Well, we don't have a whole lot of time for a lot of mistakes so let's get straight to what are the top five mistakes that people seem to make. The basics including a Social Security number sometimes missing from your tax return papers?

LEVALLEY: Missing or duplicate or not matching the name that it goes with. For instance, if you got married this year and you haven't changed your name with the Social Security Administration -- you continue to use your maiden name on the tax return so the names and the numbers match.

If the IRS gets a form without all of the Social Security numbers they'll refigure the tax without those dependency exemptions or standard deductions if you're a joint filer.

So that's one of the things you have to pay attention to. They've been enforcing that with very good -- with very good speed.

In addition to that, one of the most common mistakes that people make is forgetting to sign their tax return or to sign the check when they have to pay their taxes.

WHITFIELD: Because the paperwork just isn't valid without that signature.

LEVALLEY: Right. And they're going to send it back and there will be a delay in the refund you're going to get. So you're going to want to make sure that everything is -- all of your Ts are crossed and your Is are dotted.

WHITFIELD: And if you owe then, of course, you're going to be facing penalties, aren't you? LEVALLEY: Yeah -- you will wind up facing some penalties. And that's another mistake that people tend to make is if they owe and they can't pay, they don't file. And actually you're hurting yourself by doing that because if you timely file and you still owe, the interest rate that you'll be charged is going to be cut in half.

WHITFIELD: OK -- so let's talk about owing . If you owe and you know you owe a lot but you just don't have the money then what kind of recourse do you have?

LEVALLEY: Well, if you owe less than $10,000 the IRS is obligated to enter into a payment plan with you. And they give you about three years to pay off the debt that you owe. You have to make a promise to pay all of your future tax debts on time. And as long as you haven't had an installment payment plan for the last five years they'll automatically do that for you.

So the best thing to do is take it and meet it head on and don't avoid it because you'll save yourself money in the end.

WHITFIELD: OK -- now why does filing status always seem to be a problem? People are still not quite sure. Is it a greater advantage if you're married? Or do you file separately? Do you file jointly? And, of course, if you're single you're filing single. But there are so many different categories.

Why does this bring so much confusion to so many people?

LEVALLEY: Well, single people without dependents -- that's pretty simple -- you're going to be filing under single status.

Unfortunately some people tend to think of dependents only in terms of children but your elderly parents or parents can be dependent, other relatives and even non-relatives can be dependent. And you have to go through a relationship test and a residency test. And so you take a little more time to comb through the law to see if you qualify for these other statuses. But it certainly is to your advantage to look into that.

In addition, if you've recently lost a spouse you're entitled to file under joint status for the next two years. And that's certainly a better tax bracket than filing singly.

And in terms of whether you're married whether you should file jointly or separately, it's going to take a little bit of time but it's worth it to work out the numbers both ways because sometimes if the income is -- if the income spread between the two spouses is large it tends to be a better end game to file as jointly. But sometimes it's better to file separately if the income is close together.

And this way you can spread the deductions to one side or the other depending on who would be eligible to take them.

WHITFIELD: And don't laugh but I've heard the question asked, "Can I file my pet as a dependent?" LEVALLEY: No -- and it's not an uncommon question. I think Americans really love their pets and treat them like children. And certainly if you go to stores you can certainly spend as much on a pet as you can on a child. But unfortunately they're not -- they haven't been counted yet although the IRS certainly gets a lot of calls and letters to congressman about why they can't.

WHITFIELD: OK -- all right -- for the animal lovers out there we've satisfied them. So not reporting your U.S. savings bond interest. That's something people . . .

LEVALLEY: Well, that's one of the . . .

WHITFIELD: ... avoid doing.

LEVALLEY: Yeah -- and it's unfortunate. A lot of people use savings bonds as a way to fund future education for their children whether it be college or graduate school. And you can actually periodically report the interest. And that's good because children are definitely in lower brackets and they don't have income. And instead of getting to the point where they're 18, 19 -- have a job and then the interest is put on top of any income that they have you can report it periodically and they probably won't owe any tax on the interest.

WHITFIELD: All right -- thanks so much Donna LeValley. Thanks for helping us out with our taxes just 15 days away. Hard to believe. It just always . . .

LEVALLEY: I know.

WHITFIELD: ... seems to creep up on everybody.

LEVALLEY: It comes too fast every year.

WHITFIELD: I know, I know. You just can't avoid it. Thanks a lot and Happy Easter to you.

LEVALLEY: Happy Easter to you, too.

WHITFIELD: I appreciate it.

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