10 Common Tax Mistakes That Could Cost You
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The U.S. tax code is nearly 4 million words. That’s a lot of complicated tax jargon.
However, even though the rules are complex, most of the mistakes taxpayers make on their returns are fairly simple. Read on to see if your making one of these 10 common mistakes on your tax return.
Here’s a list of the 10 most common tax mistakes and how to avoid them.
1. Not filing on time
The IRS estimates 20 percent of taxpayers wait until a week before the deadline to file their income tax returns. Unfortunately, waiting until the last minute can force some procrastinators to miss the deadline if they run into any problems while completing their forms.
While filing for an extension will give you more time, you still need to pay any taxes owed by the original deadline, which is typically April 15, or the next business day if that falls on a weekend or holiday.
If you don’t make the payments by the due date, the IRS will charge you interest.
2. Missing or incorrect information
One of the most common tax filing mistakes is leaving a box blank or fat-fingering your Social Security number.
The easiest way to avoid those mistakes is to import last year’s return so you don’t run the risk of a typo when manually keying in your information.
3. Math errors
The formulas on tax forms are notoriously tricky: “Add line 8 to line 32 and multiply by .356 if your AGI is greater than $50,000.”
Save yourself a headache and use tax preparation software that does the calculations for you. With TaxAct, all you have to do is answer a few simple questions, and the software will populate the numbers in the appropriate box on your return.
4. Falling behind on the latest tax news
Not only is the tax code complicated, but Congress changes it a little every year. Tax reform can make complicated tax matters even more confusing — just when you think you’ve gotten it figured out, things change.
Make sure to consult the IRS news page or subscribe to the TaxAct Blog for important updates so you don’t miss out on valuable deductions and credits or attempt to claim a tax benefit that no longer exists.
5. Not keeping a copy of your return
Tax experts recommend keeping a copy of your tax return for at least three years. That’s how long the IRS can legally audit you for gross under-reporting of income.
Luckily, you can review and print your TaxAct return for free for seven years after filing.
6. Inaccurate account numbers
You should always double-check your bank account and routing numbers if you want your refund direct deposited or if you’re making an electronic tax payment. Entering incorrect information can delay your refund or result in penalties and interest on late payments.
7. Missing a tax break
While the IRS isn’t famous for its generosity, there are a number of tax credits and exemptions available — especially to families and students.
Credits like the Child Tax Credit can lower your tax bill by as much as $2,000, so make sure you don’t miss out if you qualify.
Make sure you think twice before deciding to take the standard deduction. Homeowners in particular should itemize their biggest deductions to see if they add up to more than the standard amount.
8. Filing the wrong tax forms
The IRS now offers one income tax form for all filers to complete regardless of their tax situation — Form 1040. If you own a business and need to report the profits and losses, you will also need to complete Schedule C.
9. Filing under the wrong status
The IRS applies different income tax rates and awards different standard deductions according to your filing status: single, married filing jointly, married filing separately, head of household or qualifying widow(er).
Married couples filing jointly, for example, are entitled to twice the standard deduction of single filers. Also note that married couples filing separately are subject to different rules than joint filers. For instance, if you file separately, both spouses need to claim either the standard or itemized deductions but not one of each.
Use this tax bracket calculator to find out which tax bracket you are in and estimate your tax rate.
10. Not filing at all
Even if you can’t pay your full tax bill at the time it’s due, file a return and contact the IRS to start an installment payment plan. The interest rates are low, and it’s far better than failing to file, which can result in penalties and potential tax evasion charges.