Many people feel that their taxes are too complicated to do on their own. While some people do have complex business transactions that need an accountant’s review, most simply over think the process. The truth is that on the huge majority of tax returns, the only possibility of making a mistake that will draw a penalty from the IRS is by making one through careless error. Here are the most common mistakes to watch out for
This is the most common mistake people make. When you complete your tax forms, the IRS requires you to sign them. By doing so, you attest that the information you entered is accurate and subject to penalties of lying under oath. The IRS places such a high importance on this step being completed that it will reject your return and consider it to never have been filed until you send in a signed copy. To avoid interest and fees until then, simply go over every page of your return and make sure you didn’t skip a signature blank.
Being married, having dependents, or being a dependent make a huge difference in your standard deductions and other calculations. Checking the wrong box could lead to a huge underpayment and fines from the IRS to match. They almost always catch this mistake because they check your claim against the other person’s return and immediately see when conflicting information was given. If another person affects your tax situation, be sure to talk to them as early as possible in tax season.
It’s very easy to enter something on the wrong line or to hit the wrong key while using your calculator. If you do, the IRS won’t fix the mistake for you or feel any sympathy. They’ll just send you a bill for anything you still owe them and, again, penalties and interest will be attached. Treat your taxes just like a math test in school. Go back, check your work, and do the calculations again just to make sure.
Taking the wrong credits or deductions.
The tax code is complicated and has countless credits and deductions. Many people may simply read the name of one and think it applies to them. It’s necessary to read the fine print, though. The rules for claiming them are complex and often include strict requirements about what eligible expenses are, and may include an income cap. Some credits and deductions cannot be taken together. Don’t skip taking them because it could add thousands to your tax bill, but do take the time to ensure you get a decision worth thousands of dollars right.
Income may not always be left off due to intentional fraud, although the IRS usually suspects the worst. If you have business income from many sources, you may simply forget a single source and 1099 may have gone to your old address. If you have irregular income, such as lottery winnings, you may not realize it was taxable. The IRS, however, will realize it’s taxable when they receive a report from the payer. Be sure to keep detailed records of all the income you receive during the year, and check to see if it’s taxable if you aren’t sure. Compare these records with the tax forms you receive at the end of the year and resolve any discrepancies before submitting your return.
When you’re preparing your taxes, you fill out pages of schedules, worksheets, and other forms. Some are required to be included with your return, and others aren’t. Depending on what you left out, the mistake could invalidate your entire return so the IRS considers it has not filed, resulting in deductions being disallowed, or leading to an audit. Carefully read all the instructions, and double check the packet you will send to the IRS before you place it in the mail.