Filing taxes can be a tedious process. If you plan to do it yourself, either online or with an old-fashioned pen and paper, it can be all too easy to make mistakes. If you aren’t familiar enough with the tax code to take advantages of available tax breaks, you could lose money. Clerical errors and math mistakes can lead to tax audits, late fees and even jail time for tax fraud. Avoid the following common mistakes to ensure that you get through tax season unscathed.
1. Choosing the wrong filing status: Choosing the correct filing status is important because tax brackets, deductions and credits vary for each status. You may fare better filing separately even if you’re married, so make sure to calculate both scenarios before choosing a status. You should also consider filing as Head of Household if you’re single and have a dependent living with you. Your filing status is based on your status as of Dec. 31 of the filing year.
2. Not claiming all available deductions and credits: You could end up with a smaller refund or a larger tax liability than necessary if you fail to take advantage of the tax breaks available to you. Do your research and consider getting help from a tax preparer or software to make sure you’re not missing anything in your return.
3. Not claiming all dependents: You probably won’t forget to claim your children as dependents, but did you know you could claim your parents, too? Anyone you support financially (adult children, elderly parents or other relatives) more than they support themselves, may be claimed as a dependent as long as they meet the requirements. Even if your parents don’t live with you, you may be able to claim them.
4. Forgetting to claim carryover items: Some tax credits must be taken over the course of several years if they exceed certain thresholds. Common examples include charitable donations, capital losses and business write-offs. If you weren’t able to claim the entire credit in years past, make sure you’re claiming it this year.
5. Neglecting to calculate the AMT: The Alternative Minimum Tax is a parallel tax code with its own set of rules. Taxpayers are expected to calculate their tax burden two ways, once under the regular tax code and once under the AMT’s rules. Whichever outcome is higher is the tax they owe. Many taxpayers don’t calculate their taxes under the AMT because they assume they aren’t eligible, but the number of people required to file under the AMT is increasing. If you pick the wrong tax code, the IRS could come looking for the remaining balance.
6. Claiming the wrong credits and deductions: Make sure you actually qualify for the credits and deductions you claim. If the IRS catches on, you could face a tax audit, recalculation of your tax burden, or in extreme cases—jail time for tax evasion.
7. Not including all sources of income: If you worked at more than one job during the year, you should have a Form W-2 for each job. You should also include applicable Form 1099 for other income sources. Missing forms or leaving out income can lead to tax audits or a delayed refund. If you inadvertently leave something out of your return, you can file a Form 1040X Amended Return.
8. Math errors: It’s easy to make math mistakes when you’re doing your taxes by hand and flipping back and forth between forms. Double-check your math before filing, because a mistake could lose you money or get you in trouble with the IRS.
9. Direct deposit mistakes: You can now elect to receive your tax refunds via direct deposit to your checking or saving accounts. This election can help you save money and speed the process along, but it’s also another opportunity for error. If you input the wrong routing number, your return could go to someone else or be sent back to the IRS.
10. Forgetting to include your social security number: You must include your correct social security number in order to file a return. Failing to do so can hold up your return and subject you to late filing fees. You must also include your spouse’s social security number if you file jointly, as well as the numbers of any dependents you claim.
11. Forgetting to sign and date your return: Your return is not valid if you don’t sign and date it. Failing to do so could also subject you to late fees and delayed refunds. To remedy this, the IRS will send out a signature card for you to sign. Speed up the process by double-checking that your signatures are present.
12. Not including your payment: If you owe the IRS money, make sure to include what you owe when you file. If you forget, you may end up owing interest and late fees even though you had the return filed on time.
Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.
This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.
