How to Avoid the Most Common Tax Filing Mistakes
Americans e-filed more than 122,164,000 million tax returns for the 2016 Tax season by the end of April 2017. During this time, more than 51,763,000 million individuals self-prepared and filed returns. With the help of tax software, more individuals are completing taxes without the help of a professional, which can lead to costly mistakes.
A few of the most common mistakes made when filing taxes include the following:
-
Failing to File on Time
When you owe the IRS money, you pay both penalties and interest when you fail to file by the tax deadline. Those receiving a refund do not pay the penalty for filing late on a federal return. However, the IRS does not pay interest on refunds, and some states require a federal extension to receive one from the state. Another reason to file for extra time is to protect yourself against mistakes and future amendments to your return. If you need to make a change and later owe taxes, you will be subject to a late filing penalty, if you did not file the extension.
For the 2017 tax season, you must file your tax return by midnight April 17, 2018. Those needing more time can push back the filing deadline by six months, free of charge. It is important to remember if you owe the IRS money you must still estimate the taxes due and pay that amount by the April deadline. The extra time gives you more time to file a final return, but does not extend the time to pay your bill.
If you do not pay the full amount due, the IRS charges interest on any unpaid balance. Twenty percent of individuals procrastinate and file their taxes in the last week.
Delays in filing taxes can be necessary at times. For instance, if you are a partner in a business and have not received your Schedule K-1 in time, you may not have the information required to file by the April deadline. Other common delays include delays in contribution confirmations from charities, personal emergencies, or travel schedules.
An extension gives you time to determine whether you are better off taking an election in the past or current tax year. The additional three or six months gives you a clearer picture of the current year’s income, before determining the most advantageous option.
-
Double Checking Your Math
Tax software helps with mathematical calculations, which can be a challenge to tabulate manually. However, one wrong input will result in a mathematical mistake, even with software programs.
To ensure accuracy, use tax software and then double check all the numbers you input for accuracy. Use the help tab or call for guidance if you are unsure how to answer a specific question.
The IRS website offers an abundance of free resources. They also provide links to free tax software and filing through third-party providers, if you meet income thresholds.
Leaving a box empty, or incorrect social security numbers are among the most common mistakes made on tax forms. You can reduce errors by importing the previous years return and then updating employment, income, and deductions. The import process saves time and reduces errors.
-
Not Filling the Correct Forms
There are three primary forms used to file taxes. They are 1040, 1040A, and 1040EZ. Everyone can fill out 1040. However, those with uncomplicated returns may benefit from the simpler 1040A or 1040EZ, which are shorter versions.
It is appropriate to use the 1040EZ form if you have W-2 income taking the standard deduction. The one-page form does not accommodate deductions or claiming dependents, which will require the longer 1040 form.
You cannot use the 1040EZ Form if any of the following apply:
- If you have one of the following filing statuses: widow(er) with dependent children, married filing separately, or head of household.
- Older than 65 or blind.
- Will claim the premium tax credit or have purchased health insurance through a government-sponsored marketplace and received an advance premium tax credit.
- Have credits other than the earned income tax credit.
- Taxable income over $100,000 or income from sources outside of a W-2, interest, dividends, or unemployment compensation. Unearned taxable income cannot exceed $1,500.
- Earned tips not included in boxes 5 or 7 on the W2 form.
- Itemizing deductions.
- A debtor in the Chapter 11 bankruptcy.
- Household employment taxes on wages paid to an employee of the household.
- Income adjustments such as deductions for IRA contributions or student loan interest.
- Claiming dependents, which can include a qualified dependent, child, or parent living with you.
Form 1040A allows for the input of more information than the 1040EZ, including claiming dependents. You can also claim credits above the Earned Income Tax Credit and capital gain distributions from an IRA.
All the forms available use the same tables to calculate your income tax responsibility.
-
Choosing the Right Filing Status
The filing status you choose impacts your tax obligation. You qualify for different rate schedules, deductions, and tax benefits based on the status you choose.
You will file using one of the following: single, married filing jointly, married filing separately, head of household, or qualified widow(er).
Married couples filing jointly, receive double the standard deduction of single filers.
Couples who file separately use different rules than those filing jointly and cannot claim certain credits and deductions.
The IRS bases the filing status as of December 31.
-
Failing to Maintain Records Which Correspond with Deductions Taken
You can only claim a deduction for what you can prove. For example, when you claim business miles or expenses, you must have documented proof in order to take the deduction. You should also maintain receipts for any itemized deductions including mortgage interest, taxes paid charitable donations and so forth.
The IRS recommends maintaining records for up to 7 years. Three years from the date you filed for most returns. Circumstances such as a bad debt deduction or claiming a loss on worthless securities extends the time you should maintain tax records and receipts due to audit risk.
If you are struggling with large amounts of high-interest credit card debt, contact the specialists at Finance Solutions today at (855) 331-4852 to receive a FREE debt analysis. They will review your current situation and develop a customized plan to help you reduce your credit card debt.