It's tax season again, and you'll likely be required to file a tax return within the next few months. There is plenty of advice being published about tax deductions, strategies to save money, and ways to keep your personal information safe when you file. However, not much is said about all of the ways you could potentially screw up your taxes. With that in mind, here are 10 mistakes you'll want to avoid when preparing your 1040.
1. Mathematical errors -- If the numbers on your tax return don't add up, it could greatly increase the likelihood of an audit. The IRS receives a copy of all W-2 and 1099 forms mailed to you, so they check what you're supposed to report. For example, if you have two W-2s, one for $40,000 and another for $10,000, and you incorrectly report income of $41,000, it can trigger an audit.
2. Misspellings -- The IRS's computers may kick back returns if words are misspelled -- especially if names don't match up. For example, if I were to spell my name "Matthew" one year and "Mathew" the next, it could potentially create an unnecessary problem.
3. Incorrect bank account information -- You have the option of requesting that your return be direct deposited into one or more bank accounts. However, make sure to double-check the account numbers you enter. Incorrect bank information could cause your refund to disappear.
4. Forgetting to report some income -- It's tough to "forget" the income from your primary job, but smaller W-2s and 1099s are easier to forget about. For example, if you worked a part-time job last January, you may not even remember to look out for a W-2 and file your tax return without it. However, you can be sure that the IRS won't forget about that income.
5. Wrong filing status -- "Single" and "married filing jointly" are the most common, but did you know there are five options you can choose from. Specifically, one major oversight is filing as single instead of "head of household" if you have a qualified person living in your home. This can cost you quite a bit of money -- head of household filers qualify for an additional $2,950 standard deduction over singles, as well as more favorable tax brackets.
6. Not itemizing deductions -- Many people simply claim the standard deduction without checking if it's the most beneficial option for them. The standard deduction may indeed be the best choice for you, but it pays to take the time and make sure. Just to give you an idea, you would be better off itemizing if your deductions exceeded $6,300 (single filers), $9,250 (head of household), or $12,600 (married filing jointly).
7. Ignoring some charitable contributions -- Taxpayers who donate large sums of cash rarely forget to claim them at tax time. However, smaller cash donations are often overlooked, as are donations of property, which are often a hassle to document. Small donations -- even of a few dollars -- can really add up throughout the year, so it pays to save your documentation.
8. Not signing your return -- The IRS won't process an unsigned tax return, even if it was e-filed. This isn't a common mistake, but it's worth mentioning. After all, forgetting to sign your return is a silly reason for a processing delay.
9. Filing or paying too late -- The tax filing deadline for your 2015 return is April 18, 2016, and you must either file your return or request an extension by that date -- no exceptions. The penalties for not filing on time can be severe. If you owe the IRS money, it must be paid by the April 18 deadline even if you file an extension, or interest and penalties will begin to accumulate.
10. Not filing at all -- The penalties for filing late are harsh, but they're nothing compared to the consequences for not filing a tax return at all if you're required to do so. There are some individuals that will tell you that filing a return isn't necessary for a variety of reasons (it's unconstitutional, etc.). They are lying. Failing to file a return comes with a penalty of 5% of your tax owed per month or portion of a month you're late.
Take your tax return seriously
Some of these are admittedly rare, especially in the modern era of electronic filing. For example, few people submit an unsigned return to the IRS anymore (although it does happen). However, some of these are quite common, such as mathematical errors or misspellings -- and these are mistakes that could lead to an audit.
My point here is that when it comes to your tax return, it's worth the time and effort to get it right. Be sure to investigate what deductions you may be entitled to, document them thoroughly, and claim the breaks to which you are entitled. Check your return for errors several times before you submit it, and include any paperwork that backs up the information on it.
Anyone who has been through one can tell you that an audit is at best an inconvenience, so do yourself a favor -- don't screw up your taxes.
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