6 common tax filing mistakes to avoid
It’s probably safe to say handing cash to Uncle Sam does not top the list of your favorite things. When it comes to filing taxes, making a small mistake can mean paying more taxes than you need to or forking over cash to cover penalties.
Fortunately, there’s an easy way to make sure your tax return is mistake-free: just take a little extra time to double check your work. Here’s a closer look at the six most common tax-filing errors and tips to help you avoid making them.
1. Mistake: Not reporting all income. Reporting your income is easy if your employer sends you a wage statement (called Form W-2) documenting what you made throughout the year. But what about the money you earned from any freelance work? Unfortunately, many people forget to report extra income from side jobs such as photography shoots, design projects, and Etsy shops.
How to avoid the error: Depending on how much you earned, you may receive an “information return” called Form 1099 from the institution that paid you. There are numerous 1099 forms that report different types of income earned during the year, but in some cases, you may not receive the document. For example, if you earn less than $600 as a freelance writer, the institution is not required to send you Form 1099-MISC. However, you still need to include the amount earned in your total annual income so it’s important to keep your own records of each transaction.
“To help accurately report your income, review last year’s return and match your income sources item by item,” says TaxAct Director of tax development, Mark Jaeger. “If you discover you haven’t received 1099 for your work, last year’s return will serve as a reminder to ask about it. Keep in mind, all freelance or side-gig income is reported on Schedule C as part of your Form 1040.”
2. Mistake: Mistyping bank accounts and personal information. Believe it or not, incorrect bank account numbers or personal information – like Social Security Numbers – is one of the main reasons tax returns are rejected. Using a nickname or a shortened version of your legal name also lands near the top of the list.
How to avoid the error: Double – or triple – check any personal or bank account information before you submit your completed tax return. “If you need help figuring out account information, don’t be afraid to ask your bank for assistance,” Jaeger says.
3. Mistake: Paying too much to file your taxes. Whether you tap a tax professional or choose a DIY tax provider that charges an arm and a leg for their product, paying too much to file your return is a mistake.
How to avoid the error: Fortunately, filers have more affordable options to choose from. When looking for DIY options, do some comparison shopping. The leading tax preparation software providers offer similar features and benefits, but the price points can widely vary. In many cases, prices increase as the filing deadline nears. Look for a provider like TaxAct that not only offers a low price but also guarantees your price won’t increase if you start your online return but wait to file later.
4. Mistake: Not e-filing. While 91 percent of tax returns were e-filed in 2016, there are still filers who file a paper return. Going the pencil and paper route often means longer tax return processing times.
How to avoid the error: Electronic filing (e-filing) is the quickest and most accurate way to file your tax return. In fact, the IRS typically processes e-filed returns within 48 hours. If you’re due a refund, you’ll get it quicker if you e-file and choose direct deposit.
5. Mistake: Incorrect calculations. When the IRS receives your tax return, one of the first steps the agency takes is to check the figures to make sure they add up. Unfortunately, it’s easy to miscalculate numbers – especially if you’re in a rush or aren’t sure what to add or subtract.
How to avoid the error: First, take your time and double check all numbers. Second, consider using DIY tax software so you don’t have to do the math on your own.
6. Mistake: Using the wrong filing status. Choosing the wrong filing status, like Head of Household instead of Single, can have a great impact on your tax rates, the number of personal exemptions you can claim, your qualifications for certain tax deductions, credits and more.
How to avoid the error: Before starting your return, review the five different filing statuses to help you select the one most appropriate for your tax situation. Carefully selecting the right one will help you feel confident you’re taking the right steps to maximize your tax outcome.
Article by BPT