1. Filing late or forgetting to file.
If you are required to file an income tax return, be sure to file it on time to avoid a penalty for filing late. If you are missing important tax information when your return is due, file for an extension. Alternatively, you can also file a return with the best information you have, and amend it later if necessary.
Even if you have tax due that you cannot pay immediately – file your return. The IRS imposes separate penalties for filing late and for paying late, so it’s better to at least get the return in on time.
If you’re not required to file, it’s a good idea to prepare a return anyway. You may be entitled to money back from the government through various refundable tax credits and other tax benefits.
2. Not contributing to a retirement plan.
It’s not too late to contribute to some retirement plans. You generally have until April 15, 2021, to make contributions of up to $6,000 to an IRA (or combination of traditional and Roth IRAs) for the 2020 tax year.
If you were age 50 or older by the end of 2020, you can contribute up to a total of $7,000 to your IRAs. If you’re younger than 50, the maximum contribution limit is $6,000.
3. Forgetting about income for which you received a Form 1099.
You may receive Form 1099-MISC for freelance work you performed or Form 1099-S for proceeds from the sale of real estate transactions. It’s important to report all of the income you earned throughout the year on your return regardless of the source.
The IRS also receives copies of the 1099 forms sent to you. And while the agency may not notice immediately if you make a mistake and don’t report income for which you received a Form 1099, they will eventually. Sooner or later their computers compare your tax return to the 1099s they received. If it appears you did not report all your income, you’ll get a notice from the IRS with a balance due.
4. Inflating the value of charitable contributions.
Making noncash contributions to a charity can be a smart move. It helps the charity, plus you generally can claim a deduction for the value of the item.
What’s not a smart move – taking a larger deduction for your contribution than you should. That mistake may cause the IRS to disallow part of your deduction. As a result, you could owe additional tax plus interest and penalties. If you were substantially off in your estimate, the resulting penalty can be significant.
5. Mismatched names and Social Security numbers.
Before you file your return this tax season, review the names and Social Security numbers for you, your spouse, and the dependents your claim for various credits and benefits. Make sure each name is spelled exactly the same as it is on the Social Security card or other official identifying documents.
6. Direct deposit account number errors.
Triple check the bank account number where you want the IRS to send your refund. Otherwise, someone else could get your tax refund, or it could be sent back to the IRS.
7. Not using the most advantageous filing status.
For example, if you’re married and don’t have a reason to file separately, you’ll probably pay less total tax by filing jointly. If you are single and have at least one dependent, you’ll likely do better filing as Head of Household than as Single. That is assuming you meet the qualifications.
8. Not using your 2020 tax return to help plan for 2021.
Was there a credit or deduction you missed out on? Can you adjust your witholdings even further to impact your refund? Use your 2020 return to plan your best 2021 tax year possible.