Now that we’ve enjoyed the holidays and New Year’s festivities, it’s time to start focusing on a more serious matter: taxes. Taxes are one of the certainties in life and as much as you might hate filing a return, it’s something that must be done every year without fail.
Unfortunately, filing a tax return is no easy task. Even if you use a tax software program, typos and misinformation can result in costly errors. That’s why it’s so important to double-check all of your information before you electronically file or drop your return in the mail.
Don’t hurry through your tax return. By spending time on it, you can discover overlooked areas and increase your refund or at least decrease the amount due, whichever situation applies to you. You can also double-check to make sure you’re not making these 12 common tax mistakes.
Taking the standard deduction.
Taking the standard deduction may be quicker and easier, but if you have substantial student loan interest, education costs or medical expenses, you could be better off itemizing your deductions. In fact, 20% of Americans lose out on an average of $400 by not claiming all their deductions.
Missing or incorrect information.
Make sure you fill out your tax return completely. Missing information can lead to delays. The same goes for incorrect information. It’s easy to enter the wrong Social Security Number or address. Make sure everything is accurate before filing.
Not keeping track of donations.
Most people donate at some point throughout the year, whether it’s money to a church or clothing to a thrift store. Make sure you’re keeping track of every donation you make, as they’re all deductible. However, there are specific rules for documenting charitable donations. The IRS guidelines are listed here and you can get your hand on a simple tax checklist to get you started on organizing your documents.
Not holding onto receipts.
Receipts show what you’ve spent, so if you’re trying to itemize deductions, you need receipts to prove you spent the money you claim you did. If you’re ever audited, the IRS will go off of your receipts, so if you don’t have any, you likely won’t get credit for the deductions. Hold onto your receipts for at least three years and you won’t have to worry.
If you’re using a pencil and hard copy form, then you’re prone to make math errors. Instead, use tax preparation software and ditch the calculator.
Missing out on credits.
College students and parents have valuable credits available to them. Even if you took just one college course last year, you may be eligible for a portion of the credit. The American Opportunity Credit is worth up to $2500 while the Lifetime Learning Credit is worth up to $2000. For parents, the Earned Income Tax Credit can be worth up to $6,242. Because credits reduce your tax bills, they are more valuable than deductions and should not be overlooked.
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Not keeping a copy of your return.
Once you file your return, it’s important to hold onto a copy for at least three years. That’s how long that IRS legally has to audit you. Plus, you should have a copy on hand in case you plan to apply for a loan or mortgage, as many lenders will want to see your previous year’s tax return as proof of income.
Not claiming children as dependents.
Even if your 16-year-old son works and earns an income, he is still a dependent. According to the tax code, you must provide at least half of your child’s support in order to claim him or her as a dependent. You can even claim your college student daughter as a dependent, as long as her income is under $4,050 per year. Your child doesn’t even need to live with you. You might be able to claim your child as a dependent much longer than you think, so don’t overlook this deduction.
Inputting the wrong account number.
If you’re due for a refund, you won’t receive it if you use the wrong account number. If you need to make a payment and use the wrong account number, the payment will fail and you’ll be charged late fees and other penalties. Verify the account number and routing number before proceeding.
Using the wrong tax forms.
The 1040, 1040A and 1040EZ forms are all different. Each has its own set of restrictions. You’ll want to make sure you’re using the right ones. Better yet, invest in tax preparation software and you won’t have to worry about making this mistake.
Not starting early enough.
Don’t procrastinate. Start on your taxes as soon as all of your W-2s and other documents come in. You never know if you’ll come across any issues that require professional assistance. These snafus can cause delays, so don’t wait until April. If you owe the IRS money and don’t pay by April 18, you’ll be charged interest.
Not filing at all.
Just because you owe the IRS money and can’t repay them now doesn’t mean you should just ignore your tax bill and hope it will go away. It won’t. You have to file your taxes every year, no matter your situation. If you don’t file your taxes, you could get hit with huge penalties. You could also get hit with tax evasion charges and be thrown in jail. It’s no laughing matter. File your return by April 18 and let the IRS know about your situation. They offer repayment plans to work with your budget.
Nobody wants to hear from the IRS. If you’re looking to avoid an audit, avoid the tax mistakes listed above. You could end up with more money in your pocket while avoiding hefty fines and even jail time.