These Easy Errors Could Seriously Damage Your Tax Return
Tax season can be stressful and overwhelming. Unless you’re someone who enjoys working with numbers, you probably want to complete your income taxes as quickly as possible. However, rushing can lead to mistakes.
Even small errors can significantly impact your tax refund, so let’s review the mistakes that can really sabotage your tax return.
The Price Of Not Proofreading
Your taxes might be dry and monotonous, but it’s crucial to proofread every field. A minor mathematical error could delay your tax refund, so double-check your numbers.
It’s important to carefully enter your wages, dividends, and other income. Equally critical is ensuring you don’t mistype your Social Security number or banking information (if you’re requesting a direct deposit for your refund). Account numbers are often misentered, probably because people assume they have them memorized.
Even seemingly straightforward information, like your name, can cause serious issues if it doesn’t match your Social Security card. Always ensure your name reflects any legal changes since your last filing.
Choosing The Wrong Filing Status
Some taxpayers choose the wrong filing status, often due to miscommunication between couples or during a separation. This mistake can impact your standard deduction and eligibility for various credits, among other factors.
Fortunately, the IRS provides an Interactive Tax Assistant to help you select the correct status. Additionally, using tax software can help clarify any questions about filing status.
Forgetting Income And Donations
A common error among taxpayers is omitting or forgetting to include additional income. This income might come from secondary jobs or investment accounts. Failing to report these sources can lead to severe penalties and interest.
Another often overlooked amount is charitable donations. To claim these, you need proper documentation. For donations under $250, a receipt from the recipient is sufficient. For donations over $250, additional documentation is required.
If you have questions about charitable contributions you can claim, the IRS is ready to help. And speaking of deductions…
Failing To Itemize Deductions
Impatience can lead to mistakes on your income taxes and ultimately shortchange you. Many people opt for the standard deduction because itemizing takes time. However, itemizing deductions like state and local taxes can result in a larger refund.
Itemizing is particularly beneficial if you’ve incurred significant educational, medical, or real estate expenses over the past year. If you need more motivation to skip the standard deduction, consider the tax breaks highlighted in the next section that you can’t afford to ignore.
Ignoring Your Own Tax Breaks And Credits
Another way to sabotage your tax return is by neglecting the tax breaks and credits you’re entitled to. Many people overlook these opportunities, missing out on significant savings.
Savvy taxpayers take advantage of these breaks and credits to reduce their tax liability. Commonly overlooked deductions include the Child Tax Credit, Recovery Rebate Credit, Earned Income Tax Credit, Savers Credit, and Credit for the Elderly and Disabled.
You might qualify for these and other deductions, such as Energy Credits. It’s wise to consult with a tax professional to ensure you’re maximizing your eligible tax breaks.
Not Adjusting Past Tax Returns
That same ignorance can hurt us when it comes to past tax filings. If you’re overlooking tax breaks and credits on this year’s return, chances are you missed similar opportunities in previous years.
The IRS allows you to amend past returns and recover those lost savings within a specific timeframe. You can file an amended return:
- Within three years of the original filing date, or
- Within two years after the date you paid the tax.
Don’t Be An Early Bird
Everyone knows it’s a bad idea to file your taxes late. The IRS imposes a Failure to File Penalty, which is 5% of the unpaid taxes for each month (or part of a month) that the return is late, up to a maximum of 25% of your unpaid taxes.
However, it’s also important to avoid filing too early. The IRS starts accepting tax returns as early as late January, once the final paychecks for the previous fiscal year have been received. In their rush to file, some taxpayers submit their returns before receiving all necessary documents, which inevitably leads to processing delays.
And Don’t Forget To Sign It
Any tax return without the taxpayer’s signature is invalid. Forgetting to sign, or having one party forget on a joint return, results in a processing delay.
After all the effort and careful consideration involved in filing your taxes, having the process complicated by a missing signature can be quite frustrating. If this happens, the IRS will contact you to request the signature on a separate document.
Limit Your Risk For Mistakes
It’s human to make mistakes, which is why tax software exists to help calculate your return accurately. These programs make it virtually impossible to make many of the errors mentioned above.
Filing your taxes electronically is also more cost-effective than hiring a real-life tax accountant and often provides a quicker turnaround on your refund. Additionally, the software serves as a digital record of your yearly filings, keeping all your data in one organized place.
If your financial situation isn’t overly complicated, tax software can help you navigate tax season smoothly. However, if you have frequent tax questions throughout the year, you might benefit more from having a personal tax accountant.
