Minor mistakes on your tax return can cost you a lot of money down the road. For example, you may miss out on significant refunds or wind up owing more taxes than you expected, with added interest and penalties. Moreover, tax return issues can invite scrutiny from the Internal Revenue Service (IRS) and may even trigger an audit. The best defense against these problems is to avoid errors on your return.
Here are some common tax filing mistakes and how to avoid them:
1. Blowing the Basics
The most common mistake people make when filing taxes is entering the wrong details. Always make sure your names and those of your dependents are entered correctly and the Social Security numbers are accurate. You also need to select the right filing status. For example, if you’re unmarried, you could file as single, so you can qualify for more favorable tax rates. Under certain circumstances, married couples may save more on taxes if they file separately instead of jointly.
It’s a good idea to proofread and check for typos before making your final submission. Also, ensure you’re submitting all the necessary forms, such as W-2, 1099, and K-1.
2. Incorrectly Reporting Income
When filling out your return, be careful to enter the correct amounts of wages, bank interest, dividends, and other income that was reported on your various tax forms (W-2, 1099, K-1, etc.). These forms have also been conveyed to the IRS, and the government systems are looking for this information. If you need to dispute anything that was reported to the IRS, contact the entity that made the payment, such as your employer, and request a correction.
3. Entering Items on Incorrect Lines
Always make sure your entries appear on the correct lines. For example, don’t put your taxable IRA distributions on the line meant for tax-free IRA rollover. Using reputable tax software should help prevent such issues, but always double-check your entries to ensure all information appears in the correct locations before submitting your final return.
4. Failing to Take Write-offs You’re Entitled To
Some taxpayers shy away from claiming certain deductions for fear that they could raise a red flag with the IRS. However, this often results in missed opportunities to save money. It’
s always a wise idea to take tax deductions as long as you meet the requirements for them. If you’re not sure if you qualify for certain tax credits or deductions, you should seek the advice of an experienced tax accountant.
The Bottom Line
Always make sure you keep a copy of your signed tax return plus proof of filing. You can keep a certified receipt for paper returns or an acknowledgment that the IRS accepted your e-filed return. Having such proof will protect you from incorrect claims that you filed late or failed to file at all. Besides, keeping the information will help you prepare your tax return for next year.