Several possible mistakes are necessary when preparing a tax return. While specific errors only require a straightforward recalculation of the tax liability, others have the potential to start an extensive IRS audit.
However, Understanding the most common mistakes made while filing taxes is essential to avoiding errors and severe headaches. These can arise from an IRS investigation and result in assessments, interest charges, and penalties.
Here are a few common mistakes taxpayers and tax preparers make during tax preparation that both parties should recognize.
Use of the wrong Social Security number
The IRS utilises Social Security numbers to compare personal information with data from employers, banks, or other entities.
If you change a digit in your Social Security number, the IRS can reject your tax return. Therefore, make sure that every Social Security number on your tax return is the same as on the card.
Missing the deadline
Pay attention to the tax filing deadline. If you have to submit after the deadline and are concerned about the consequences of filing after the deadline, rest assured that the IRS generally accepts late filings.
To get additional time, file Form 4868 and request an extension before the tax filing deadline.
Moreover, doing nothing can result in a 5% penalty for late returns, up to 25%. Additionally, you may owe interest on outstanding taxes and face a 0.5% monthly late-payment penalty from the IRS.
Take the standard deduction automatically.
Itemizing involves more work than relying solely on the standard deduction, receipts, and other documentation, and you risk losing money if you do so.
Therefore, verify which option gives you the most write-off. Note that itemizing is now less likely to save you money because the Tax Cuts and Jobs Act almost quadrupled the standard deduction in 2018.4
Nevertheless, running the statistics both ways never hurts. Most tax software determines which approach is best for you automatically.
Missing a tax break
The IRS isn’t known for being charitable, but families and students can take advantage of several tax advantages and exemptions.
Ensure you take advantage of any available credits, such as the Child Tax Credit. These can reduce your tax liability by up to $2,000.
When choosing to accept the standard deduction, make sure you think about it twice. In particular, homeowners should list their most significant deductions to determine if they exceed the allotted amount.
Don’t check for typos.
It’s simple to mistranspose a number or omit a digit, which can skew your reporting data. For example, assume you made $5,200 contributions to your retirement account (IRA).
However, you can mistakenly claim a $2,500 deduction on your tax return, depriving yourself of a $2,700 deduction (which, if you’re in the 24% tax bracket, would cost you $648 more in taxes).
Forget about important documents.
As filing early entitles one to an early refund, many taxpayers are eager to have their taxes filed. After all, who wouldn’t want that?
However, hurrying through the procedure or submitting your tax return too early can result in errors that force you to change it later.
For example, organizations and institutions that issue tax forms may occasionally send them late or revised versions of forms a few weeks after sending the original document.
- Tax Filing Precautions
- Consider activities requiring tax documents.
- Consider new investment accounts, charitable donations, tuition payments, and student loans.
Ensure necessary documents are available before filing.
