Avoid These Tax Blunders
While most tax mistakes can be corrected, it’s easier to get things right the first time. Exercise caution and follow these tips to avoid costly errors.
As you check your account hoping to see that your tax refund has been direct deposited, you notice a letter marked “Internal Revenue Service” in your pile of mail. Wondering what it contains, you open it to find out that instead of getting a refund you actually owe hundreds of dollars because of a mistake made when filing. Your heart sinks as you start to think about how you’re going to come up with the extra money to pay what’s owed.
To avoid a situation like this, it’s important to exercise caution when filling out your taxes. Here are a few costly mistakes to watch out for that could really sting later.
Mistakes To Avoid
Getting The Credits & Deductions Wrong
The U.S. Tax Code is 6,871 pages, but when you include the federal tax regulations and the official tax guidance, the number of pages rises to approximately 75,000. Even if you consider yourself experienced in tax prep, there are bound to be breaks and rules you don’t know about. It makes sense to seek professional guidance – whether from software or a live tax expert. This is especially true if you have a business or make money from a side gig.
Making Math Gaffes
Are you a pencil-and-paper kind of person? If so, you need to be especially careful with your calculations at tax time. A tiny mistake in your numbers could mean a huge problem later. So double- and triple-check your data, and don’t be afraid to have another family member look at it to verify your work. Also, consider filing for free online at irs.gov to avoid mistakes.
Using Stale Personal Information
If you’ve been doing your taxes for a while now, it’s easy to get in the habit of just carrying over your data from the previous year’s return. But if you’ve had a child or changed your marital status in the past year and forget to include this information on your return, you risk costing yourself quite a bit of money.
Tax Savings For New Parents
Starting a family takes a big chunk of out your budget. Some of those costs can also bring new tax deductions bringing some relief during tax season.
It sounds basic, but you’d be surprised how often people forget to sign on the dotted line. And, if you’re married and filing jointly, you both need to sign. While you’re at it, add “Double-check Social Security Number(s)” and “Remember to include payment” to your pre-finalization checklist. You want to avoid a delay and the penalties and/or interest that can come with it.
Overlooking Charitable Giving
If you’re like most people, you give to different charities throughout the year. However, when it comes time to do your taxes, you may need to remember more than a few. So get in the habit of tracking your charitable giving, whether it’s by keeping receipts in a folder or scanning and storing them electronically.
If you’re not planning to file because your income was less than the tax filing threshold, be aware that doing so could mean missing out on an Earned Income Tax Credit (EITC). When the credit is more than what’s owed in taxes, you can get a tax refund. On the other hand, if you’re avoiding sending in your tax forms because you owe more than you can pay, be aware that you’re only making things worse for yourself by not filing. Instead, contact the IRS about an installment agreement or an extension so you can come up with the funds over time.
If you’ve ever dealt with the situation described in the first paragraph, you know how upsetting and frustrating it can be to get that kind of letter. However, by following the above advice and getting help when necessary, you can put yourself in a much better position to only get happy communications from the tax folks.
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