11 most common tax-filing mistakes, OR, cross your “Ts”
and Dot your “Is”
Tax preparation mistakes can happen to anyone. Putting this off to the last minutes is the number one offender, trying to do your tax returns on the neighbor’s kitchen table to save money is another. You don’t need to be a tax accountant, to file your 1040 tax return; but you need to know how to avoid some of the most common mistakes people make when filing their returns.
Now, all taxpayers need to follow all the tax rules. And you need to make sure that in your final rush to get your 1040 completed you don’t make any of these common tax-filing mistakes.
Math miscalculations, the most common error on tax returns, year after year, is bad math. Mistakes in arithmetic or in transposing figures, transferring figures from one schedule to another will get an immediate correction notice. Math mistakes also can reduce your tax refund or result in you owing more than you thought.
If you are not using a professional, using a tax-software program to file your return can help reduce math errors. The built-in calculators do the work for you, adding, subtracting and inserting numbers on additional forms as needed. But, garbage in, garbage out, you still must make sure your initial numbers are correct. Getting the numbers right is crucial because you can be sure the IRS will be double-checking numerical entries against its copies of your tax statements (W-2, 1099s and the like).
When IRS examiners find a discrepancy, they’ll let you know and, in many cases, will correct your mistake and refigure your taxes for you. Don’t give the IRS that position, make sure your math entries are right.
Computation errors are closely related to the standard math mistakes. In these computation cases, taxpayers make mistakes in figuring such tax-return entries as taxable income, withholding and estimated tax payments.
Credits and special deductions also create problems. Errors regularly show up, says the IRS, in figuring the earned income credit, the taxable amount of Social Security benefits or in calculating the larger standard deduction for taxpayers who are age 65 or older or blind. A common connection in these errors is added worksheets or forms before the amounts are transferred to the taxpayer’s Form 1040.
Misspelled or different names. The IRS is all about numbers, but words, specifically names are important. When the names of a taxpayer, his or her spouse or their children don’t match the tax identification number that the Social Security Administration, or SSA, has on record, that difference will cause the IRS to kick out or slow down processing of the tax return.
This often is a problem for new wives. Many women change their surnames when they marry. That’s also an option for spouses in same-sex marriages, which the IRS now recognizes. If you didn’t alert the SSA of your name change soon after your wedding, do so now to ensure that your new name won’t cause a problem when you file your first joint tax return. And if the marriage doesn’t last and you change your name after a divorce, make sure Social Security and the governmental agencies know that, too.
Direct deposit dangers, yes DANGER!
Taxpayers can have a refund directly deposited into multiple bank accounts. This option is a great way to save your refund money, but the more numbers you enter on a tax form, the more chances you have to enter them WRONG! And a WRONG account or routing number could cause you to lose your refund entirely.
You can divide your refund into 3 accounts by filing Form 8888 along with your individual return. It’s not a difficult document to complete, but if you put in wrong account numbers, your refund could end up in someone else’s account or be sent back to the IRS. Either way, you might not be able to retrieve your refund because there is no IRS procedure for replacing lost electronically transferred funds.
Incorrect account numbers aren’t just a problem when a refund is split multiple ways. Your name must be on that or those accounts also. Even if your refund is going to just 1 account, make very sure you enter your account and bank routing numbers correctly.
Additional income, additional filing work
Did you have a side job this year? If so, as a contractor you probably received a Form 1099-MISC detailing the extra earnings. What about savings and investment accounts? For these, you should have received Form 1099-INT and Form 1099 DIV statements. In each 1099 instance, the IRS knows precisely how much extra money (either as wages or unearned investment income) you made as soon as you did, thanks to the copies of your 1099 forms that went to the tax agency.
If you forget to include any of these earnings on your return, the IRS examiners will let you know you owe taxes on them, too. And depending on when your oversight is discovered, penalties and interest on the unreported earnings start mounting up.
Filing status errors. Make sure you choose the correct filing status for your situation. You have 5 options, and each could make a difference in your ultimate tax bill.
Married and got a divorce? Spouse died? Or, got married? Or, single again with a child? Or, Single and now have a child? And what if you’re still married, but you and your spouse are thinking about filing separate tax returns? That works in some cases, but not all. Please, make sure you know what each tax-filing status entails, and choose the one that best fits your personal tax situation.
Social Security number oversights happen regularly. Long ago, the IRS has stopped sending tax packages, that had the taxpayer Social Security numbers on them in response to privacy concerns, so, some taxpayers forget to write in their identification numbers. Your tax ID number is crucial because there are so many transactions — income statements, savings account interest, retirement plan contributions — keyed to this number. The 9-digit sequence is vital to claim several tax credits, such as the child tax and additional child tax credits, as well as ones for educational expenses and dependent-care costs.
Complete charitable contributions
Do you give to charitable groups? All types of donations, from cash to cars, could be valuable tax deductions, so make sure you count them all when you file. Be sure to follow the donation tax rules, the most important being that you give to a qualified organization — that is, one that has tax-exempt status with the IRS.
NON-CASH Contributions. Be careful when calculating any gifts of clothing and household items. Tax law now requires that these donations be in good or better condition or the deduction is disallowed. And remember that the amount you can claim for donated goods is the fair market value of the items; that’s what a willing buyer would pay for it in its current condition, not what you paid for it.
Remember, that Per the IRS: You can’t deduct contributions made to a political candidate, a campaign committee, or a newsletter fund. Advertisements in convention bulletins and admissions to dinners or programs that benefit a political party or political candidate aren’t deductible.
Signature required!!!!!!!!!!!!!!!!!!!! Sign and date your return. The IRS won’t process it if it’s missing a personal signature, and that means on e-filed returns, too. Taxpayers filing electronically must sign the return electronically using a personal identification number, or PIN. To verify your identity, you’ll have to provide the PIN you used last year or your adjusted gross income from your previous year’s tax return. Tax software should walk you through the e-signature process, but if you’re still mailing your return, don’t be in such a hurry that you stuff your 1040 in the envelope without signing it. And if it’s a joint filing, both you and your spouse must sign.
Missing the deadline. Don’t do this! Don’t miss this. If you don’t make this extended October filing due date, then the IRS will start assessing non-filing penalties and interest on any tax you might owe.
If your final filing Workpapers show you owe more than you expected, pay what you can and contact the IRS to establish a payment plan. Set yourself up for some relief and the tax collector knows you’re diligent in fulfilling your annual tax obligation.
2016 © Joan McNeil, EA; Allied Accounting & Tax Service, Inc; Vancouver, WA