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How to avoid mistakes on your tax return Every year, during its annual spot check audits, the IRS reports finding glaring mistakes on professionaly prepared tax returns, despite all the automation from software that all but does your taxes for you. This is a list of the most commonly reported tax mistakes:
Simple Math Basic arithmetic errors rank as the number one mistake of taxpayers. Take it from the IRS, which says that the average 1040 form contains dozens of math miscalculations. These include basic errors in addition and subtraction, as well as transposing digits ($3,027 vs. $3,207). Tax software can certainly help, but remember that the software only uses information you provide for it - so if you type in the wrong number, it will accept the wrong number. Overlooked deductions First off, it's almost always better to itemize your deductions instead of taking the standard deduction. It is estimated that nearly two million taxpayers overpay their taxes every year by not itemizing. If you already itemize your deductions, make sure you're squeezing every cent out of them. Some important deductions you won't want to overlook are: - Charitable contributions (donations)
- Health insurance premiums
- Medical expenses
- State sales tax or state income tax deduction
- Volunteer work expenses
- Investment expenses
- Home office expenses
- Electric vehicle credit
- Gambling losses
- Expenses for cleaning your work clothes/uniforms
- Clean-fuel deduction (for hybrid car users)
- Bonds-buying expenses
- Job-search expenses
- Job expenses not reimbursed by employers
- Education expenses
- Tax return preparation expenses
Overlooked documents Don't forget to attach all informational forms to your tax return. These include all W-2 and 1099 forms that show you had taxes withheld from those accounts. If you had more than one employer, don't forget to attach wage statements from all employers. If you file online, make sure to save all tax documents for up to 7 years (just in case…) Tax form errors These include lines you forget to fill in, entering information on the wrong lines, or spelling errors. Watch out for these mistakes: - Social security numbers that are incorrect, missing, or don't match your name.
- Missing signature/s. Sign and date your tax return; if it's a joint return, make sure your spouse's signature is there, too.
- Wrong or no filing status. Read the instructions to make sure you qualify for a certain filing status...and choose only one!
- No exemptions entered. Also, make sure to enter the correct social security numbers for each listed exemption.
Refunds If you receive tax refunds, then you need to rethink your withholdings on your W2. If you claim more allowances, then the amount deducted for taxes every paycheck will be reduced – putting more money in your pocket. If you give it to the IRS, they get to keep it, and earn interest on it, for up to 15 months. If you consider that your money could be earning approximately 4% in a money market fund – or even be used today to pay off credit cards debt that’s charging you up to 20% - you are throwing money away by pre-paying your taxes. Deadlines This is very simple advice: Don't miss the deadline for filing your returns! Don't get charged a penalty for filing late. If you can't make the deadline, be sure to file an extension. Not thinking about taxes all year round If you enjoy a fixed monthly income, then half your problem's solved. But if you're self-employed and have a fluctuating monthly income, recording them dutifully is imperative for a less hassle-filled filing time. The other half of the problem lies with tax deductions. You'll need to keep tabs on your receipts, donations, health bills, and other pieces of evidence all year round! Falling for tax scams Scams. Why are they so popular? Because they work for the scammers -- they ensnare lots of unsuspecting people every year. Know your foes and avoid them. Every year, major news organizations, such as CNN, publish the latest scams on their websites: visit them to check for yourself. Fixing the Mistakes How can you rectify the tax errors you've committed, if any? You can revise your tax return by using the Form 1040X. This form allows you to, among others: - Recalculating any extra amount you owe the IRS
- Recalculating any extra refund you are entitled to
- Claiming additional or removing previously claimed dependents
- Changing your filing status
Also, a great way to minimize typographical errors, math errors, and overlooked deductions is to use tax software, consult a tax adviser, and hire a tax professional to prepare your returns. Just make sure you also check on the pro's work when he's done! Best Practices After Tax Season After tax return filing time has passed, don't slack on watching over your income/s and possible tax deductions. Record them all dutifully, to avoid cramming the next tax season. Don't forget the just-finished tax return and your experience in filing it. When preparing next season's return, review the previous one. It should remind you of which deductions to use, as well as guide you in properly filling up the lines, filing status, and signature/s. Keep yourself up to date with tax-related news and notices issued by the IRS. These include changes in filing status qualifications and tax deduction updates. And last but not the least, spend time reading and re-reading tax help articles like this, even when it's not close to tax return filing deadline. The better you get acquainted with tax mistakes, the better your chances are for more dollars saved! |
