Due to the rise of tax-software preparation programs, people are making fewer mistakes on annual returns. If you are starting to think about your taxes or are currently working on them, make sure you pay careful attention and avoid the common mistakes. Although these mistakes won’t land you in jail, they may cause a few headaches and delays on refund checks.
Brace yourselves for some of the most common tax mistakes made in no particular order:
Missing the deadline
As natural procrastinators it is no surprise that some people miss the deadline for filing their taxes. It starts with gathering all necessary documents such as W-2s, finding receipts and records of donations, and filling out the necessary forms. This process can take more than a day and often leaves you in a panic. The IRS has estimated that about 20 percent of taxpayers wait until a week before the deadline to file their income tax forms. The temptation to wait could be costly; the IRS charges a penalty fee of 5 percent each month.
Read more about What Happens if You Don’t File your Taxes.
Filing the Wrong Status
Filing status is dependent on your situation; there are three different forms to choose from when filing an individual tax return and two when you are married. Different income tax rates and deductions are applied by the IRS according to our filing status. For individuals there is the 1040, 1040A, and 1040EZ. 1040EZ is similar to the name, the easiest form to fill out and it is for the simplest situation. On the other end of the spectrum, form 1040 takes the longest to fill out but is for more complex situations such as those including IRA contributions and student loans.
For married couples there is the option to file jointly or file separately, each have their own benefits. For example, filing jointly couples are entitled to twice the standard deduction. Those who file separately need to claim either the standard or itemized deductions but not one of each.
Surprisingly, simple math miscalculations are one of the most common errors on tax returns year after year. If you are doing your tax returns without tax-preparation software your odds of making a mistake are slightly higher. The tax forms have tricky formulas such as “add line 8 to line 32 and multiply by .356 if your AGI is greater than $50,000.” You can save yourself the headaches all together and consult a tax professional such as Allied Tax Advisory. There are a series of procedures we go through with each tax return to ensure accuracy.
Something as simple as a misspelled name can cause the IRS to slow down the process of the tax return. When the name of the taxpayer or his or her spouse and their children do not match with the Social Security record, this can cause a problem. This problem generally occurs for new wives taking on their husband’s last name when getting married. If the Social Security Administration is not aware of your name change this can cause a discrepancy when you come to file your return.
Missing Tax Breaks
Tax credits and deductions can help people save a ton of money every year that had been left on the table. A spouse or a child who depends on you financially is a dependent that can be claimed on your taxes for exemptions or credits. Deductions include charitable donations, mortgage interest, and medical expenses. These deductions can be added up and lower your taxable income at the end of the year.
Choosing the Right Tax Preparer
It is important to find a professional who knows and cares about your needs. For instance, the professionals at Allied Tax Advisory Group try and find out what brings you pleasure in life, what kind of family you have, and for instance make sure you are meeting your retirement goals with smart tax planning. This way, you can be aware of the opportunities available every year and be prepared when the time comes.
Not Keeping a Copy of Your Return
Make sure to get a copy of your return and put it in a safe place, you never know when you’ll need to go back and take a second look. It is not uncommon that you can make a mistake on your previous return and need to file an amendment (Form 1040-X) and possibly receive a larger refund from the amended year. These previous returns can also be used for your own personal use, to see a trend in your income and to prepare your tax returns for the future.
Failure to Claim All Income
You are required to claim all income for the year regardless of the amount. Income such as side jobs, barter exchanges, gambling proceeds, and prizes for contest winnings must all be provided. The IRS has information at hand and this could be a possible reason for an audit.
Going Off of Old Numbers
As a taxpayer you cannot expect the numbers from last year’s form or the deductions applied last year to be applicable for the current year. Deductions, exemptions, and tax rates all change year after year so it is important to be thorough and organized. Use specific numbers pertaining to documents from the current year to ensure accuracy.
Forgetting your Signature
The simple mistake of filing a return without your signature could cost you a late return. This mistake is very common but the IRS will not accept it and will list your return as not filed. Take a minute to ensure this last step, if you are filing with a spouse their signature is required as well. If you are not mailing in the return, things are a little easier with an E-file signature that saves you the burden of mailing your return.