If you haven’t done your taxes, the clock is now ticking. Tax day is April 17, and if you are like most people, it’s in your financial interest to file soon. After all, the IRS says somewhere around 80 percent of Americans who file typically get a refund.
But as you start filling in those forms, don’t let haste make waste. Mistakes can cost you time, money or both. Here’s a look at some of the most common tax-time screw-ups.
Mistake No. 1: Paying for tax preparation when you can get it free
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Would you pay a couple hundred bucks for something you can get for free? Millions of Americans do it every year.
Depending on your income level, you may qualify for any number of free services.
- Volunteer Income Tax Assistance: Sponsored by the IRS, VITA offers free tax preparation by trained volunteers. You may be eligible for the VITA program if your income is $54,000 or less, you have a disability or you have limited English-speaking ability.
- Tax Counseling for the Elderly: Also sponsored by the IRS, the TCE program is intended for people age 60 and older.
- Free File: If your income is less than $66,000, you can use an online software program to prepare and file your federal income tax return for free.
- Free online filing: Many large software providers offer free electronic online filing for simple returns, often including state returns.
Mistake No. 2: Getting your Social Security numbers wrong
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On its list of common tax mistakes, the IRS puts incorrect and missing Social Security numbers at the top.
Long gone are the days in which you could claim dependents without a Social Security number. Today, every member of your household listed on your return needs to have such a number. Make sure to double-check all the numbers before submitting your return to ensure there aren’t any transposed or missing digits.
Mistake No. 3: Spelling your name wrong
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Sure, you know what your name is. But maybe you’re typing too quickly and hit a wrong key. Or you might be interrupted while filling out the form and start up again later at the wrong spot. There are plenty of scenarios in which people can — and do — misspell their own names on income tax forms. Such a simple error can lead to rejected returns and delayed refunds.
In addition, if you recently married or divorced and haven’t registered a name change with the Social Security Administration, be sure to use your previous name. The name on your forms needs to match the name listed in Social Security records.
Mistake No. 4: Making math errors
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This becomes less of a problem if you use software to prepare and file your taxes. The computer will do all the calculations on your behalf, which virtually guarantees you’ll get it right.
However, the computer can’t know whether the numbers you’ve entered are correct. Double-check everything to be sure your return is accurate. It should also go without saying that if you’re still doing a paper return, use a calculator and do the math twice to confirm the results.
Mistake No. 5: Forgetting your John Hancock
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There are two places this mistake can trip you up.
This first is by failing to sign a paper return before mailing it. The second is failing to sign your check if you’re sending in a payment. Either one can result in lengthy delays in processing your return.
You can avoid this mistake by filling in and signing your return electronically, and having tax payments directly withdrawn from your bank account. This saves on postage, too.
Mistake No. 6: Using the wrong tax form
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Most mistakes have the potential to affect how quickly the IRS processes your return and issues your refund, but won’t necessarily affect your bottom line. Using the wrong tax form, however, could mean lost dollars.
If you use the 1040EZ form, you get the standard deduction. For most people in 2017, that amount is $6,350 for singles and married persons filing separately, and $12,700 for couples filing jointly. This deduction is subtracted from your income so you don’t have to pay taxes on that amount.
However, if you have deductions that could exceed these amounts, you may be better off using a regular 1040 form so you can itemize them. Typical deductions for those who itemize include mortgage interest, home office deductions, significant health care expenses and charitable contributions,
Mistake No. 7: Selecting the wrong filing status
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Another costly mistake can be selecting the wrong filing status. This mistake may be most common for single parents.
For example, an unmarried parent who has a qualifying dependent and pays more than half the cost of keeping a home may be able to file as a head of household, a status that boosts the standard deduction. In addition, you can be considered unmarried so long as your spouse did not live with you for the last six months of the year.
Meanwhile, widows and widowers can still use the “married filing jointly” status for the year in which their spouse died. Then, if they have dependent children, they might be able to file as a “qualifying widow(er) with dependent child” for two more years, a status that allows the same standard deduction as those who are married and filing jointly.
Mistake No. 8: Missing valuable deductions or credits
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It’s not enough to simply use the right form and the right filing status. If you want to maximize your refund, you also need to take advantage of every tax deduction and credit available to you. There are plenty of credits and deductions that have the potential to reduce your tax liability by thousands of dollars.
Your tax software or tax professional should help ensure you don’t miss anything you’re entitled to, but here are a few of the bigger credits and deductions you don’t want to miss:
- American Opportunity Tax Credit: Available to college students of all ages, this credit is based upon college expenses and can provide up to a $2,500 tax reduction per year for four years.
- Earned Income Tax Credit: Offered to low-income families, this credit is refundable, which means the government will send you cash even if you don’t owe any taxes. Sometimes this is overlooked when eligible families have incomes so low they aren’t required to file returns, so they miss out on claiming the credit.
- Child and Dependent Care Credit: If you pay someone else to watch your children while you work, you may be able to claim a credit. According to the IRS: “The total expenses that you may use to calculate the credit may not be more than $3,000 (for one qualifying individual) or $6,000 (for two or more qualifying individuals).”
- State Income or Sales Tax Deduction: You can deduct state income tax you paid from your federal return. If your state doesn’t charge an income tax, you can use the amount you paid in state sales tax instead.
- IRA contributions: Contributions to Roth IRAs are not deductible. However, depending on your income and whether you have a retirement plan at work, you can deduct up to $5,500 if you put money in a traditional IRA. If you’re age 50 or older, the limit is increased to $6,500.
Mistake No. 9: Failing to claim all your income
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You might also make the mistake of thinking you don’t need to claim income unless you receive a W-2 or 1099 form. You’re supposed to claim all income for the year, including side jobs, gambling winnings and just about any money you have made in any other way.
Cheating Uncle Sam may seem like a victimless crime, but you’ll feel victimized if you’re ever audited and such omissions are discovered.
Mistake No. 10: Sending your return through the mail
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If you insist on being old-school and sending your return through the U.S. mail, you’re making the final mistake on our list.
Filing through the mail is a mistake for many reasons. First, if you’re filing a paper return, you increase the chances of making one of the other mistakes listed above. Using software means lower odds of missing Social Security numbers, forgetting to sign your return and making math errors.
In addition, a good software program will help you root out deductions and credits you might otherwise miss. It should also guide you to the right filing status.
Filing electronically means you could have your refund cash in hand much sooner. If you’re not already e-filing, it’s time to get on this bandwagon.
Which mistakes have you made when filing taxes? What was the impact? Share with us in comments or on our Facebook page.
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