While filing your tax return may never be particularly fun, doing it right will protect your refund, help you avoid penalties and give you peace of mind. Every year, millions of Americans make small but costly mistakes on their tax returns. Fortunately, most of these mistakes are completely avoidable with a little preparation, accuracy and attention to detail. In this guide, we will cover eight of the most common tax-filing errors and show you how to avoid them, so you can file confidently and keep more of your hard-earned money.
Forgetting to Report All Income
One of the most common errors taxpayers make is not reporting all their income. Many report only their primary job wages while forgetting about side businesses, freelance work, or investment income. Most income documentation, such as W-2 forms and 1099s, is sent directly to the IRS by companies and banks. If the income you report does not match what the IRS has on file, this could trigger a notice or even an audit.
How to avoid it: Collect all your income forms before filing – this means all W-2s, 1099s and interest and dividend statements. Track income-related activities throughout the year and be sure to report all income on your tax return. If you use a paid tax preparer or CPA, provide all income tax forms to them and communicate about any new sources of income for the year.
Entering Incorrect Personal Information
Incorrect personal information, such as a misspelled name, wrong Social Security number, or outdated address, can delay processing or make your return invalid. This often occurs after a name change due to marriage or divorce, or when taxpayers complete online or tax organizer forms in a hurry without reviewing the details.
How to avoid it: Review your personal data column-by-column before submitting your return. Ensure your name matches your Social Security card and that your bank account and routing numbers are correct.
Filing Under the Wrong Status
Filing under the wrong status can result in higher taxes or lost deductions. Many assume “single” is the default filing status, but “head of household” or “married filing jointly,” may offer better rates and larger credits.
How to avoid it: Understand how each status affects your tax liability. Your status depends on your marital situation as of December 31 of the tax year and whether you have dependents. If you do not know which status you need to select, the IRS has an online tool that helps you determine the most appropriate filing status, or you can consult a tax professional.
Missing Out on Valuable Credits and Deductions
Every year, taxpayers leave thousands of dollars on the table by not claiming deductions and credits they qualify for. This includes the Child and Dependent Care Credit, Child Tax Credit, Earned Income Tax Credit, Education Credit and student loan interest deductions. Generally, taxpayers miss these opportunities because they are unaware of them or feel ineligible for the credits.
How to avoid it: Check IRS guidelines or use trusted tax software. For complex situations, consulting a tax professional can be well worth the cost.
Filing Too Early or Too Late
Filing your tax return early seems like the right thing to do, but if you have not received all your forms, you may file an incomplete return. On the other hand, if you file too late, you may need to pay penalties and interest, especially if you owe money.
How to avoid it: Confirm all necessary forms have arrived before filing. However, if you know you will need more time to get all the forms, file for an extension before the deadline. Remember, an extension only gives you more time to file, not to pay. Any taxes owed will need to be paid with interest and late payment penalties.
Making Math and Calculation Errors
Math errors are one of the main reasons why tax returns are rejected or delayed. This includes errors in miscalculating deductions, using the wrong totals or transposing numbers, which can change your tax balance and confuse the IRS.
How to avoid it: Spend time double-checking every number. CPA firms ensure accuracy by leveraging professional-grade tax software and execute thorough review processes for quality control.
Forgetting to Sign the Tax Return
An unsigned tax return is invalid, and the IRS will not process it. Your refund will be delayed until they receive a signed version.
How to avoid it: Sign your tax return before submitting it to the IRS. If you e-file, complete the e-signature or PIN verification step. It is such a small but crucial detail that many taxpayers forget in the last-minute rush of meeting a deadline. Software options like SafeSend simplify and secure the signing process, making it easy for clients to complete this step electronically, if they are not filing the return themselves.
Not Keeping Proper Records
Once you have filed your taxes do not throw your documents away. Many taxpayers make the mistake of disposing of receipts, forms or prior year returns too early. If the IRS has questions related to your filing or requests documents, you will need those records on hand.
How to avoid it: Keep a copy of your tax return and all supporting documents for at least 3-7 years, as the IRS may request documentation during this period. You can scan and save them on your computer, as long as your files are backed up and stored securely. Organized records make future filing and potential audits far less stressful.
In conclusion, filing taxes is not just about getting them done; it is about getting them right. Small mistakes can cost you money, delay your refund or even trigger an audit. With a little extra care, you can avoid these errors. Take your time, double-check your information and numbers and do not hesitate to ask for professional help if your situation is more complex. By understanding these common mistakes and taking steps to prevent them, you will not only reduce stress but also avoid costly errors and maximize your refund potential. Strong relationships and open communication with your CPA go a long way in ensuring returns are filed accurately and efficiently.
