In 1789, Benjamin Franklin famously wrote, “In this world nothing can be said to be certain, except death and taxes.”
What Franklin failed to mention, however, is how complicated tax preparation can be. Even in the age of sophisticated tax preparation software, mistakes and miscalculations can still happen. A slip of the hand or transposing of numbers can end up costing you time, money, and put you on the IRS’s radar for future returns (never a good thing).
Before you send your taxes off to the IRS, take a minute to review these common pitfalls.
Wrong or Missing Social Security Numbers
Because so much of your identity is tied to your Social Security Number, it and the data tied to it are, understandably, important to the filing process. So, when a finger slip causes that “56” to become a “65,” it can lead to a huge headache when filing.
Wrong or Misspelled Names
It may sound strange that someone could possibly get their name wrong, but it does happen. Name changes and simple typos can result in tax return delays. This is especially common in newlyweds and the newly divorced. Whenever a person changes their name, the Social Security Administration should be notified so that name on the tax return matches the tax identification records on file with the IRS.
Wrong Direct Deposit Numbers
More numbers, more problems. If you choose to have your refund directly deposited into your account, it’s extremely important that you use the correct account and routing numbers, or it could end up in someone else’s account or returned to the IRS. And, because there’s currently no procedure for replacing electronically transferred funds, your refund may be lost completely.
Whether from adding wrong or incorrectly transferring figures, math errors are the most common mistakes made on tax returns. When a miscalculation is found, IRS examiners will correct the mistake and refigure your taxes – which may adversely affect your tax refund amount and the speed in which it is received.
Filing Status Errors
You have five filing options, each with its own stipulations and benefits: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) With Dependent Child. Also note that your marital status as of December 31 determines your tax status for that year. For more information on determining what status is appropriate for you, check out this explanation on the IRS website.
Deduction or Credit Errors
As stated earlier, doing your taxes is anything but simple. Even when credits or deductions seem appropriate, it may not be applicable due to income or other restrictions adversely affecting your tax return.
For instance, if you are paying for higher education, you can take the tuition and fees deduction or the American Opportunity Tax Credit, but not both. On that same note, the $4,000 deduction may sound like a better deal than the $2,500 credit, but that may not necessarily be true when you consider the deduction reduces your taxable income while a credit is a reduction in taxes owed.
Not Being Prepared
In addition to your W2s, there are a number of documents that you should have on hand, whether having a third party prepare your taxes or doing it yourself. Anything from charitable contribution records to home improvement invoices can positively affect your return.
There are also things that must be completed prior to filing in order to avoid penalty. For instance, according to AARP, one of the most common errors among older Americans is not taking required minimum distributions (RMDs). After the age of 70½, retirees must take RMDs from traditional IRAs and 401(k)s – and failing to do so can lead to a 50 percent tax on the amount that should have been withdrawn.
If you’ve earned at least $600 through investments or a side hustle, you (and the IRS) will receive a 1099 form. For instance, if you’re an independent contractor or self-employed, each client will have to send you a 1099-MISC form, which you will have to report as income and pay taxes on. Other common sources of taxable income include interest and dividends on stock investments or mutual funds, income tax refunds or unemployment compensation from the government, withdrawals from retirement accounts, or debt cancellations.
It seems so simple, but it’s extremely common. The IRS won’t process claims missing dates or signatures. If you’re e-filing, you must sign it with your PIN, which is verified against the adjusted gross income or PIN used in your previous year’s return. If you’re mailing in your return, make sure you (and your spouse, if filing jointly) remember to sign your 1040 envelope.
Missing the Deadline
This year, taxes are due on Tuesday, April 17. Next year, they will be due on Monday, April 15. And in 2020, they’re due on Wednesday, April 15.
Whether you chose to not file because you don’t have the money to pay or didn’t think you earned enough to file a return, you should still file. If it’s a matter of money, the penalty for not paying is less than the failure-to-file penalty. If your wages were below the filing requirement, you can reclaim any money you’ve paid only if you file. In fact, the IRS has more than $1 billion in unclaimed refunds that become the property of the US Treasury after three years.
Tax season can elicit a number of emotions from the eager anticipation of a tax refund to the stomach-churning realization you owe money – but fear of making a mistake on your return shouldn’t be one of them. With these common mistakes in mind, you can get through tax season without experiencing any costly or time-consuming pitfalls.
Additional tax information and sources can be found at irs.gov.
Associated Bank – Corp and its affiliates do not provide tax, legal, or accounting advice. Please consult with your tax, legal, or accounting advisors regarding your individual situation.
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