At a time when the entire country is grappling with a pandemic and economic recession, the last thing you need is a tax-related headache. As such, it's important to avoid the mistakes so many filers fall into when they work on their taxes. Here are a few big ones to keep in mind -- this year, in particular.
1. Not claiming credits you're eligible for
A lot of Americans are struggling financially because of the COVID-19 crisis. If you're having a hard time paying bills, a larger refund could be your ticket to a little less stress.
But to score one, you'll need to know which tax credits to claim. If you're not a particularly high earner and have children under age 17, you'll generally be entitled to the Child Tax Credit. And if you're a low earner, be sure to see if you're eligible for the Earned Income Tax Credit -- a credit that many filers inadvertently miss out on each year.
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2. Assuming you shouldn't itemize
Ever since the Tax Cuts and Jobs Act was implemented in late 2017, tax filers have enjoyed a higher standard deduction. For the 2019 tax year, the standard deduction is $12,200 for singles and married couples filing separately, $18,350 for heads of household, and $24,400 for married couples filing a joint return.
With such high numbers, it's easy to write off the idea of itemizing, but before you do, run the numbers. If you pay a lot of mortgage interest or have a large medical expense deduction to claim, then it could pay itemize, after all.
3. Failing to report earned income
Neglecting to include side income on your tax return is a good way to get yourself audited. Remember, it's not just your salary you need to declare -- you also need to report earnings from a second gig, investments (either dividend payments or capital gains), and bank account interest.
4. Filing a paper return
Doing your taxes on paper increases your chances of making an error. But that's not all. If you file a paper return this year, in particular, you may wind up waiting a long time to collect any refund you're due. Paper returns need to be manually processed, and the IRS is operating at limited in-office capacity due to the pandemic.
Generally, the turnaround for a refund on a paper return is about six weeks from receipt, but if you need money desperately (say, because you've lost your job and your unemployment benefits aren't helping enough), filing electronically is the way to go.
5. Filling in your bank account details too quickly
If you're due a refund, you don't need to wait for a check in the mail -- the IRS will issue your refund via direct deposit. If you're going to go that route, however, make sure you enter your bank account details correctly. If you don't, you may have trouble getting your money.
Also, any bank account information you provide may be used to process stimulus payments if a second round is approved. Americans already received a first round that went out in April, and those who provided bank account details got that money via direct deposit. A follow-up round would likely follow the same system.
6. Missing the filing deadline
Normally, taxes are due on April 15, but due to the pandemic, the IRS moved the deadline to July 15. If you haven't yet gotten around to doing your taxes, now's the time to light that fire. And if you can't complete your taxes by July 15, request an extension.
Doing so will buy you an extra three months to submit your return, giving you until October 15. Though there's no penalty for submitting taxes late when you're due a refund, if you owe money, you'll be slapped with a costly failure-to-file penalty for missing that deadline.
7. Forgetting you can file for free
At a time when many Americans are being forced to pinch pennies and cut corners, it pays to make the process of filing taxes as inexpensive as possible. And if you earn less than $69,000, here's some good news: You won't have to pay a dime to file your return. Just use the IRS's free online products to reap major savings.
8. Attempting to claim a special COVID-19 tax credit
The stimulus checks that went out earlier this year were technically an advance on a 2020 tax credit. But don't let that confuse you into thinking that there's a special COVID-19 tax credit you're supposed to be looking out for this year. No such tax credit is available for your 2019 return.
At a time when so many people are focused on the ongoing pandemic, it's easy to let taxes take a backseat. But at a time like this, it's even more important to avoid errors that could cost you money or create problems. As you sit down to tackle your taxes (which you really need to do ASAP), keep the above pitfalls in mind and steer clear of them.
