(MONEY Magazine) – Each year, 12.5% of the 58.4 million U.S. taxpayers who prepare their own federal returns make simple, easily avoided mistakes that may wind up costing them hundreds of dollars or even more. Consider the price you pay for making a goof or two on your 1040 for 1990: -- If your mistakes result in a substantial underpayment -- the greater of $5,000 or more than 10% of the proper tax -- you may be liable for a penalty of 20% of the underpayment plus interest of 11% a year, compounded daily, on both the penalty and the amount due. -- Your flubs can delay any refund you're owed by several weeks. That could be a considerable inconvenience: the Internal Revenue Service expects to make refunds averaging $900 to more than 70% of taxpayers this year. -- Most ominously, certain triggers -- such as high itemized deductions -- can shunt your 1040 toward an audit, which could raise the discomfort to a wallet- sapping level. Average recommended tax and penalties for 1989 audits: $4,290. To help you keep your 1990 return on the straight and narrow, MONEY questioned more than a dozen tax experts, including ones at the IRS, to identify the most common -- and costly -- mistakes made by individual taxpayers. The agency pinpointed four trouble spots that together account for more than 25% of the taxpayer errors caught each year by its computers. Few MONEY readers would encounter the most common failing of all -- miscalculating or overlooking the earned-income credit, a special write-off for households with adjusted gross incomes below $20,264. The next three mistakes that top our list, however, involve issues that might cause many of us to pause and chew our pencils: For example, can Donald Trump claim his children as exemptions even though they live with their mom Ivana? On the other hand, can Ivana qualify for head-of-household status? If you, like Barbara Bush, turned 65 last year, does it make more sense to claim the bigger standard deduction to which you're entitled or to itemize your deductions? (For answers, see points one to three below.) The 10 other entries on our list come from knowledgeable tax professionals drawing on years of experience in filing returns for taxpayers whose income and financial circumstances make them much like MONEY's readers. Here, then, are a baker's dozen of costly mistakes -- and how you can avoid them in doing your tax return:

1 Claim all your exemptions. Each one is worth $2,050 this year, which translates into a tax saving of $308 to $677, depending on your bracket. Taxpayers often overlook dependent exemptions for elderly parents, especially if they don't all live under the same roof. As a parent yourself, you are generally entitled to an exemption if you furnish more than half the support and if your child is under 19 at the end of the tax year, or under 24 if a full-time student. Warning: the kids can't also claim the exemption on their own tax returns. Let's say your dependent 18-year-old daughter files her own 1040. Instead of taking an exemption for herself, she must check the box on line 33b. If you're divorced, the custodial parent is generally entitled to the exemption unless a written agreement states otherwise. (Donald Trump couldn't take the exemption because no such agreement exists so far, says a C.P.A. who works for Ivana.) Your parent usually qualifies as your dependent if you contribute more than 50% of total support and his or her taxable income is less than $2,050. When the amount is over the limit but income is mostly from investments, you still may have room to maneuver. Nancy Anderson, senior tax research specialist at H&R Block in Kansas City, Mo., suggests one strategy: your parent might liquidate securities and reinvest the proceeds in Series EE bonds. Since the interest is not included in income so long as the owner holds the bond -- up to 30 years after purchase -- you could claim the exemption in the interim.

2 Don't overlook the higher standard deduction for age or blindness. An additional standard deduction of $800 for singles ($650 per spouse for joint filers) is allowed to nonitemizing taxpayers who are blind or age 65 or older; the elderly blind may take double that amount. Many of those eligible ( enter the figure on the appropriate line but forget to check the accompanying box on line 33a of the 1040 form, or vice versa. The IRS will generally write to point out the mistake, but correcting it requires needless paperwork. More damaging, many of those eligible overlook the tax break altogether, through ignorance or confusion. If this might apply to your parent, look over his or her return before it's filed. (Since they always itemize, the First Couple are denied this write-off.)

3 Double-check your filing status. While you aren't likely to forget a marriage or divorce, it's easy to slip in or out of head-of-household status without realizing it. ''The definition is sufficiently complicated that even the pros have to review the technical rules occasionally,'' says Kevin Greig, a C.P.A. in Eugene, Ore. You're a likely candidate if you're single, have a child or other dependent relative living with you, and pay more than half of the cost of keeping the home. The rewards can be substantial: filing as head of household would give a parent with a taxable income of $50,000 a tax saving of $1,579. (And, yes, says Greig, Ivana probably would qualify because alimony and other income permit her to pay more than half the cost of maintaining her household.)

4 Calculate your own underpayment. If you paid at least 90% of your 1990 tax liability or 100% of what you owed in 1989, you're in the clear. But if you fell short and owe $500 or more in taxes for 1990, then you are required to pay a penalty -- 11% annually for the period of underpayment. You could just let the IRS figure the penalty and send you the bill. Or better still, you could use Form 2210 to determine how much you owe. ''The IRS computes the penalty as if you had received the income throughout the year,'' says Los Angeles tax attorney Mary L. Sprouse. ''But if you got most of the income in the last quarter of the year, you would owe a smaller penalty.''

5 Check out the new rules for the self-employment tax deduction. If you work for yourself, you contribute to Social Security through the self- employment tax. For 1990 this tax rises to 15.3% (from 13.02%) on income minus expenses up to $51,300 (from $48,000). Maximum payment: $7,849, an increase of $1,599. Offsetting the higher rate are two new breaks. First, you may deduct half of your self-employment tax from gross income; enter the amount on line 25 of your Form 1040. Second, net income from self-employment (as reported on line 29 of Schedule C) can be reduced by 7.65% of the total amount up to $55,550. The aim: to give the self-employed the same tax breaks as others.

6 Chase that refund check. While you have no legal obligation to inform the IRS of a move, it pays to stay in touch. In 1989, more than 72,000 refund checks totaling $41 million were returned to the IRS because they could not be delivered. Last year the IRS introduced a formal change-of-address notice, Form 8822. You can get it at your local IRS office or call 800-829-3676. (In the event you think you're owed a refund from past years, call 800-829-1040.)

7 Don't ignore the dreaded AMT. You probably imagine that the alternative minimum tax -- a labyrinthine levy that in 1990 has a rate of 21% -- is reserved for fiscal fat cats, not the likes of you. But don't be too sure. Only 88,000 taxpayers were caught by the AMT in 1988, but the number rose to 130,000 in 1989 and is projected to hit 317,000 in 1991. One reason: the AMT climbs to 24% this year, closer to normal tax rates, making it easier to trigger. Among the taxpayers most at risk are large itemizers, including residents of high-tax states, and self-employed people with substantial depreciation write-offs. For example, say accountants at Arthur Andersen, the AMT is a threat to joint filers with four exemptions if their taxable income exceeds $50,000 and they have about 60% in adjustments (like hefty state and local income taxes) and tax preference items (like large charitable donations of appreciated property). If income hits $100,000, a mere 40% or so in adjustments and preferences raises a red flag. When in doubt, figure out what your tax would be under the AMT, using Form 6251. You pay the higher sum, the amount calculated for regular tax or the AMT.

8 Follow the rules about deducting state and local taxes. Although confusion is rife on this one, the basic rule is relatively simple. Itemized deductions are allowed for three classes of taxes -- income (state, local or foreign), real property and personal property -- in the year they are paid. ''People who owed $10,000 in state tax for 1990 but had only $6,000 withheld often think they can deduct the full $10,000,'' says Greig. ''In fact, they can deduct only $6,000 for 1990. They can deduct the remaining $4,000 for 1991.''

9 Don't overstate your capital gain from a mutual fund sale. If you calculate the tax basis (the cost on which your capital gain or loss is based) of your shares and come up with a round number like $5,000, you've probably made an error in Uncle Sam's favor. The reason is that almost everyone reinvests dividends and capital-gains distributions in new shares of the fund. Because you've paid taxes on those sums in previous years, the reinvestments raise your basis. To arrive at your correct cost, tot up your original investment plus the reinvested distributions reported on the final fund statement for each year you owned the shares. Add any amounts reported to you annually on Form 2439 by the fund as undistributed capital gains that you were required to report as income. Then subtract any nontaxable dividends that represented a return of your investment. The answer is your basis. Subtract it from the sale price to figure your taxable gain.

10 Make sure you round up all of your fund transactions. To avoid a letter from the IRS accusing you of negligence, carefully review all your 1099 forms. Reason: you may have more gains or losses than you think. Writing a check on an income fund is a redemption of principal and therefore a taxable event. You're also realizing gains or losses each time you pick up the phone and switch from, say, an equity fund to a Ginnie Mae fund in the same family.

11 Don't take what looks like a loss on a muni bought at a premium. When interest rates decline after a bond has been issued, its value increases so it trades at a premium. An investor may pay $55,000 for a muni with a face value of $50,000, for example, because it pays higher income than a bond that sells at face value. When the muni matures, many investors then try to deduct a $5,000 loss. No dice, says Joel Isaacson, director of personal financial planning with accountants Weber Lipshie in New York City. The premium is considered to have been paid back to you as part of the higher interest you received.

12 Figure out your Keogh contributions correctly. You may put 25% of your net earnings (gross income minus allowable business expenses) from self-employment, up to a maximum of $30,000, into a so-called money-purchase Keogh retirement plan. This means that if you had a net profit of $10,000, you could contribute up to $2,500, right? Wrong. The correct answer is $1,859. For figuring contributions, net earnings under $55,550 must be reduced by the deductible contribution and by half your self-employment tax. Thus, 18.59% is the effective rate. The hitch is that a money-purchase Keogh requires a fixed-dollar contribution each year. Instead, you may choose a profit-sharing Keogh plan, in which you deposit a variable percentage of net earnings. The drawback in this case is that your maximum contribution is only 15% of your net earnings, or an actual rate of 12.12% after reducing earnings by your allowable contribution. For maximum flexibility, you can elect a combination of both plans, with some professional help from a bank or other trustee. Then you get to chip in up to 18.59% a year and vary the amounts.

13 Do sweat the small stuff. Ignoring the filing mechanics can delay your refund, trap you in endless loops of correspondence with the IRS and cost you money: for example, $50 for failing to report Social Security numbers for your dependents age 2 and over; $50 if you fail to fill out Form 8606 for a nondeductible contribution to your Individual Retirement Account; at least $100 if your return is more than 60 days late and you have a balance due of more than $100. So double-check your math; make sure names and numbers match. Like the combination to a lock, your return should be arranged with every form and schedule in a precise order. Faulty sequencing, as the IRS calls it, means the whole package must be taken apart and restapled by a clerk at the processing center -- giving gremlins a great chance for mischief. Form 1040 is always on top, followed by the necessary schedules -- A through SE -- in alphabetical order. Next come numerical forms, which -- surprise! -- do not follow numerically, but according to their so-called attachment sequence numbers, marked in the upper right-hand corner. For example, Form 2106 carries a sequence number of 54; Form 2441 is 21, so it comes earlier in the roll call. Then come statements or unofficial documents -- descriptions of the clothing that you gave Goodwill, for instance. Finally, if you're married and filing jointly, decide whose name will be on top -- and keep it that way. ''I had clients who always filed with the wife's name on top; then they went to a tax preparer and he reversed it,'' says Sprouse. ''It generated miles of red tape and took us five years to straighten out.''

BOX: BEST LAST-MINUTE ADVICE FOR EARNERS, RETIREES, HOMEOWNERS AND INVESTORS

Tax-cutting prescriptives aren't as easy to come by this filing season as they were before the 1986 tax law, when write-offs seemed to fall at taxpayers' feet like fiscal plums. Full deductibility of sales tax and consumer loan interest? Income averaging? Fat tax shelters? All are gone. But some tax breaks endure -- and a few new write-offs are making their debut this year. You just have to know where to look. To help you in doing your Form 1040 for 1990, MONEY asked four leading tax pros to share their most useful tips for five types of taxpayers: employees, retirees, self-employeds, homeowners and investors. (Families with someone serving with the military in the Persian Gulf war zone will find more essential tax-time advice in Money Update on page 38.)

FOR EMPLOYEES: Steven Weinstein, chief of personal financial planning for the Chicago office of Arthur Andersen, urges clients to scrutinize their W-2s so that they don't bypass major write-offs recorded there. Also be sure that the numbers match those on your year-end pay stubs. If you have a 401(k) account, for example, your gross salary should have been reduced by the amount of your tax-deferred contributions. Weinstein's further advice: If you worked part of 1990 at a temporary location, now you can deduct commuting costs between your home and the temporary worksite as a miscellaneous itemized deduction. Job-hunting expenses are also deductible as a miscellaneous expense. You needn't have found a new position, but you must have looked in the same field.

FOR RETIREES: Weinstein recommends that retired taxpayers consider filing the 33-line Form 1040A, even if they haven't in the past. Starting this year, it can be used to report pension and annuity income, IRA distributions, taxable Social Security benefits, the credit for the elderly and estimated tax payments. More advice: If you turned 70 by last July 1, begin making withdrawals from your IRA before April 1. You can determine the minimum required with the help of IRS Publication 575, Pension and Annuity Income, which you can obtain free by calling 800-829-3676. Otherwise you will owe Uncle Sam 50% of the shortfall. If you moved to a new state, check whether you owe state taxes on income from pensions, profit-sharing plans and IRAs. Many states don't tax this income.

FOR SELF-EMPLOYEDS: Kevin Greig, C.P.A. with Kernutt Stokes Brandt & Co. in Eugene, Ore., urges entrepreneurs to report as many write-offs as they can on Schedule C rather than Schedule A. On Schedule A, miscellaneous expenses can be deducted only to the extent that they exceed 2% of your gross income. But all self-employment expenses reported on Schedule C are 100% deductible. Some further advice: It's too late to open a Keogh for 1990, but you have until April 15 -- later if you get a deadline extension to Aug. 15 by filing Form 4868 -- to set up a simplified employee pension plan (SEP). It's like a super-IRA in which you can stash, tax deferred, the lesser of $30,000, or 13.04% of business income minus allowable business expenses.

FOR HOMEOWNERS: Mary L. Sprouse, a tax attorney in Los Angeles and author of Sprouse's Income Tax Handbook 1991, notes that lenders must now report to the IRS on Form 1098 whether points on a first mortgage were paid out of the borrower's pocket -- and are thus deductible in the first year of the loan. Points paid from borrowed money must be deducted over the life of the loan. If you wrongly deduct points, the IRS will send you a notice. Points for a refinanced mortgage or one on a second home must be deducted over the term of the loan no matter how they are paid. Some additional tips: If you bought a home in 1990, comb your escrow papers for overlooked deductions, like payment to the seller for your prorated share of real estate taxes. What if you have sold a home and don't know whether you will buy another? Declare the sale on Form 2119 and check the box indicating that you plan to replace the house. If you later decide not to, file an amended Form 2119 for the year of the sale, and pay what you owe.

FOR INVESTORS: Martin Nergaard, a C.P.A. with Hansen Jergenson & Co. in Minneapolis, warns parents not to automatically report a dependent child's income on their own 1040. You are allowed to do just one filing only if your child is under 14, has interest and dividend income of $500 to $5,000 and has no federal income tax withheld. You must also attach Form 8814. But if you do a single filing, says Nergaard, you will boost your adjusted gross income, and you could be pushed into a higher state or local tax bracket, since those returns are usually based on your federal 1040. In addition, a higher taxable income reduces federal write-offs that are computed as a percentage of your AGI. Examples: medical and miscellaneous expenses and casualty losses. Also: Subtract from gross income any penalty you paid for cashing in a CD early. ^ Typically it's one to three months' interest on the amount withdrawn and it's reported to you on your 1099. Enter the amount on line 28 of your 1040. Don't forget to deduct any interest you paid in buying bonds in 1990. If you bought a bond in September, say, that pays $400 interest each June and December, you paid accrued interest of $200 to the seller at the time of sale. Enter the full $400 as interest, but subtract the $200 in accrued interest on Schedule B.