6 Mistakes You Don't Want to Make on Your Tax Return
6 Mistakes You Don't Want to Make on Your Tax Return
Electronic tax filing doesn’t prevent all errors
The widespread adoption of electronic filing has dramatically reduced the number of errors on tax returns, especially when it comes to mathematical mistakes. After all, tax preparation software generally does all of the calculations for you.
On the other hand, there are some errors you still have to worry about, and here are six you should make sure to avoid.
ALSO READ: Are There Benefits to Filing Taxes Electronically?
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Typos
Some of the most common errors are also those that could cause the most damage. Particularly typos. For example, if you accidentally enter your Social Security number incorrectly, it will likely cause a delay in getting your return processed. Or if you enter a number wrong, it could even lead to an audit. It’s easy enough to accidentally enter $10,000 for a deduction when you meant to type $1,000.
The point is that although you probably file your taxes electronically, it’s still important to review your return carefully before you hit the submit button. Double-checking each number you entered can take a little while, but it’s certainly better than what could happen if you submit an erroneous tax return.
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Assuming you can’t take any other deductions if you don’t itemize
The Tax Cuts and Jobs Act greatly increased the standard deduction to $12,000 for singles and $24,000 for couples filing a joint return for the 2018 tax year. As a result, experts project that 95% of all filers will use the standard deduction instead of itemizing.
However, just because you use the standard deduction doesn’t mean that you can’t take advantage of any other deductions -- just those that require itemizing. There are several deductions, known as “above-the-line” deductions, that you can use regardless of whether you choose to itemize. These include the deduction for IRA contributions as well as the student loan interest deduction, just to name a couple.
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Using the wrong filing status
There are five main filing statuses Americans can use. The two most popular: “single” and “married filing jointly” are pretty self-explanatory. The others are not well-understood. So, here’s a quick rundown of the five filing statuses and when you might want to use them:
- Single: You’re not married (as of the last day of the tax year) and don’t have any dependents.
- Head of household: You’re not married but have a dependent. Alternatively, married people with dependents can potentially use this if they have a dependent and have been separated from their spouse for at least six months.
- Married filing jointly: You’re a married couple and choose to file one tax return for the two of you.
- Married filing separately: You’re married but want to file your own return. In some cases this can be beneficial, but joint filing is generally the better way to go.
- Qualified widow/widower: If your spouse dies, you can still file as a
married person in the year the death occurs. For up to two subsequent years, if
you remain unmarried, you can use this status, which gives you the same
deduction and tax rates as married couples.
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Forgetting to report some income
Obviously, it’s unlikely you’ll “forget” to report W-2 income from your job. However, it’s a common mistake to accidentally omit some other kinds of income.
As a personal example, my wife and I had this happen a few years ago. When my daughter was born, my wife received short-term disability income for six weeks. What I didn’t realize was that this was reported on a separate tax form -- it wasn’t included in her W-2 income. The IRS received a copy of this form from the insurance company, noticed it wasn’t reported on our tax return, and sent us a bill for the difference.
This is just one possible example. Income from freelance or consulting work is another often-forgotten category, especially if it’s a relatively small amount of money. The IRS gets a copy of your income-reporting documents such as W-2s and 1099s, so they know how much you should be reporting. Be sure to include all of your income on your tax return, or you could end up with a surprise bill that includes interest and penalties.
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Incorrect bank information
If you have your tax return directly deposited into your bank account, you’ll have to enter your account number and your bank’s routing number. As you might imagine, people enter this information incorrectly from time to time. It happens often enough that the IRS has a help page dedicated to the topic.
So what happens if you type in your bank information wrong? It depends. If the account number or routing number doesn’t exist, the IRS will simply issue you a paper check. On the other hand, if the information belongs to someone else’s account, the IRS will deposit your refund into that account and you’ll have to work the matter out with the receiving financial institution and account owner -- the IRS will not intervene on your behalf.
The IRS clearly says that “the IRS assumes no responsibility for tax preparer or taxpayer error.” And bank information errors are the last thing you want to deal with.
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Not filing because you can’t pay
Taxes are due on April 15, and if you request an extension, you’ll have until Oct. 15. There is no reason whatsoever that you shouldn’t adhere to these deadlines. This is true even if it turns out that you owe the IRS money and can’t pay it.
Simply put, the penalty for not filing is literally 10 times worse than the penalty for paying late. The late payment penalty is 0.5% of the unpaid balance per month up to a maximum of 25%. Meanwhile, the failure to file penalty is 5% of the unpaid balance per month.
The point? If you can’t pay your taxes, file your return anyway. The IRS is more than happy to work with people who want to pay their taxes but can’t, and the penalty is far less severe.
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Don’t make these avoidable mistakes
These mistakes are rather common, but are 100% avoidable. Take the time to check your return for typos and bank account errors, report all of your income, make sure you’re using the appropriate filing status, and above all, file your return on time.
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