Tax return filing is a strenuous process for many people. Although preparing tax returns may feel unpleasant, it is crucial to avoid making mistakes. While mistakes may not necessarily involve an audit from the Internal Revenue Service (IRS), they may invite additional penalties or smaller refunds. Due to these factors, it is imperative to be aware of the common errors people make when filing their tax returns and ensure to avoid them.
Not following the latest tax news
Changes in tax laws may impact how you file your returns. Therefore, it is essential to keep up with the news. You should know which tax return you are filing and have access to the most current information about the same. For instance, people over 65 qualify to file for Form 1040-SR, while non-resident aliens who earned their income through work efforts in the country during the tax year must file Form 1040-NR. Tax preparation software can help you choose the correct form.
Being unaware of your filing status
Knowing your tax filing status can help you save time and money. For instance, filing as the head of the household (someone who has a dependent and pays for over 50% of all household expenses) offers more favorable tax rates than filing as a single taxpayer. Read up on the rules for dependents to know if you qualify.
Not including all earned income
All your income is usually reportable, even if you did not receive a W-2 or 1099 form for the money. So, keep good records of your income throughout the year. If unsure how to proceed, speak with a tax professional and have your concerns addressed before filing your returns.
Not calculating eligibility for tax credits
Tax credits subtract from your tax liability (or what you owe the IRS at the end of the return), meaning you pay less in taxes. Child Tax Credit and Earned Income Tax Credit are two popular refundable tax credit categories. Ensure you research well to check if you are eligible for such credits. Since these calculations can often be complex, it is advisable to use a tax calculator provided by the IRS for the process.
It is very easy to transpose numbers or miss a digit, which could entirely change the information you report. So, be extremely careful when filling out details like your name, Social Security number, and the details of your dependents. Making typos or entering incorrect details can lead to a lot of confusion later.
Making math errors
According to the IRS, math errors are among the most common tax filing mistakes. These can range from simple addition or subtraction errors to more complex calculations. So, double-check your math when filling out your forms, or employ the help of tax professionals or software to do the calculations for you. The IRS instructions also vary by form when working with negative numbers, so ensure you check the details and insert the numbers in the correct format (using either a minus symbol or parentheses).