Many of these tax mistakes are easily avoidable if you use Turbo Tax or H&R Block to prepare your taxes. I’ve personally used H&R Block for 15 years … this year could be my 16th … I’m planning to do my taxes this year with both sets of software, just to see if one works better for me. I’ll be sure to report my findings.
It’s easy to make a lot of these tax mistakes. We’re busy and our lives are taxing enough already (pardon the pun). When tax time rolls around, we can get in a big hurry to get it over with and in our rush, make a few mistakes. Here’s a list you can reference to make sure you don’t delay your refund or wind up paying penalties, interest, or fees.
1. Failing to report forgiven debt as income. Companies that cancel debt report it to the IRS on Form 1099-C and you’ll have to pay taxes on it.
3. Falling for a tax break scam. Just because some guy on the radio (or even in a blog article) says you can deduct something doesn’t mean it’s so, check and make sure.
4. Failing to understand IRA rules. They are complicated! Get sound advice from a respected expert when it comes to your IRA.
5. Failing to use the right status. If you’re married and filing separately, make sure you don’t check married filing jointly.
6. Failing to report debt paid by an employer. If your employer paid your student loan, that’s income according to the IRS.
7. Falling for the unethical tax preparer. You don’t want a tax preparer that is willing to push the envelope.
8. Failing to file altogether. Kind of the most basic mistake, I know, but tens of thousands of people “forget” to file their taxes. The statute of limitations expires after three years if you’re owed a refund, but NEVER expires if you owe.
9. Failing to realize that one spouse can be forced to pay another’s tax bill. If one spouse owes a bill for the past year and the other is due a refund, count on the IRS taking the refund to pay the outstanding bill.
10. Failing to read your entire return to check for accuracy. It is ultimately up to you to make certain everything is accurate. Double and triple check your return. If you use Turbo Tax or H&R Block, you shouldn’t have this problem.
11. Failing to file IRS Form 8822 (change of address) when you move. You’re still liable for any notices sent to your old address.
12. Failing to write your name and SSN on each form and schedule you send the IRS. If one page gets detached, it can be easily put with the correct return if your name and SSN is on it.
13. Failing to have written documentation for your charitable donations. The IRS is keen on this one. Any legitimate charity will willingly give you a receipt. If nothing else, your cancelled check may suffice.
14. Failing to maintain accurate records for your travel and automobile expenses. The IRS wants to see daily entries for your mileage and travel expenses. Don’t just list “500 miles – business” and expect that you’ll survive an audit.
15. Failing to file IRS Form 8829 if you’re claiming part of your home as a home office deduction. This deduction is highly audit-flagging anyway so make sure you have the proper documentation.
16. Failing to have a written agreement when you and your spouse have legally separated. Until you’re legally divorced, the money you send to your spouse isn’t deductible because it technically isn’t alimony.
16. Failing to deduct job search costs. The cost associated with searching for a job within your industry can be deductible, including copying your resume, travel for interviews, and The Inner View of Your Interview.
17. Falling for the refund anticipation loan. Waiting just a few days to get your refund will save you an unbelievable amount of fees that come with refund anticipation loans.
18. Falling for the ease of paying with a credit card. It’s easy to be sure, but even if you pay it off immediately, you’ll pay the 2.5 percent fee charged by the credit card company … cause the IRS certainly isn’t going to pay it.
19. Failing to correctly handle the “Making Work Pay” tax credit. This credit ($400 for individuals; $800 for couples) is filled with quirks sure to trip up taxpayers and tax preparers alike.
20. Failing to accurately calculate the Earned Income Tax Credit (EITC). The EITC gives low income families and individuals a tax credit for the dependents they support, but many people incorrectly calculate the credit they’re owed.
21. Failing to check your math! Another no-brainer, but the IRS gets thousands of returns each year that transpose numbers or that just don’t add up. If you use Turbo Tax or H&R Block, you shouldn’t have this problem.
22. Failing to use the correct tax table when calculating your taxes. If you’re still preparing your returns by hand, make certain you use the correct table. If you use Turbo Tax or H&R Block, you shouldn’t have this problem.
23. Failing to send in the proper documentation. Many returns will require documentation be sent to the tax authorities. Make sure you sent what’s needed EXACTLY.
24. Failing to sign and date your return. Another rookie mistake.
25. Failing to put the correct bank account routing numbers on a direct deposit request. Your refund could be in limbo for a long time if you don’t use the correct bank account numbers.
26. Failing to send payment. If you owe money, always send it in. If you can’t – call the IRS and set up some payment arrangements. You won’t get out of paying your taxes!
27. Failing to amortize any mortgage points paid over the life of a refinance. Mortgage points are deductible in the year they’re paid, unless you refinance. That’s a whole different story.
28. Failing to get your taxes filed on time. Timing is everything. Correct timing is critical.
29. Failing to make a copy of your return for YOUR records. If the IRS sends you a letter asking about an entry on your return, you better have a copy!
30. Failing to make certain the proper forms are filled out and sent in. No matter what, the onus is on you to send in the correct forms that are correctly filled out.
31. Failing to double check your social security number for accuracy as well as the social security numbers of your dependents. Read them aloud and make certain they’re correct. This trips up thousands of people every year.
32. Failing to include all people who are dependent on your income. If you support someone, you could call them a dependent.
33. Failing to file as “Head of Household” even if you’re single providing you have at least one dependent living with you. Using this filing status could result in a bigger refund.
34. Failing to check if “Married filing separately” is more beneficial than “joint.” Everyone’s tax situation is unique and you should make certain you use the correct status.
35. Failing to send in your W-2’s and 1099’s. The taxing authorities will want these so be sure to send them in with your return.
36. Failing to claim additional standard deductions if you’re blind or over 65. The government gives you an additional benefit if you’re in these categories.
37. Failing to sign the check you send to the IRS. Another seeming rookie mistake but many people get in a hurry or think they’ll delay having to make payment by not signing the check. The IRS won’t fall for it.
38. Failing to write your social security number on your check sent to the IRS. If that check falls out of the envelope, having your SSN on it will insure it’s properly credited to you.
39. Failing to check all 1099’s for accuracy. Just because you received a 1099 doesn’t mean it’s accurate. Check it against your own records.
40. Failing to claim a credit for any overpaid social security taxes if you worked for more than one employer. You can actually double pay your social security taxes so make sure that if you did, you get a credit for it.
41. Failing to accurately account for your state tax refund. State income taxes are deductible on your federal return. If you received a refund, that amount becomes taxable again since it artificially lowered your federal taxes.
42. Failing to accurately account for a refund of interest paid on a mortgage in an earlier year. Chances are very good you deducted that mortgage interest, so just like with your state income tax refund, it artificially lowered your taxes and you’ll have to make it up.
43. Failing to subtract assessments from your real property tax deduction. Assessments used to improve community property (if included in your property tax bill) are not allowable deductions.
44. Failing to get a spouses signature on a tax return. Both spouses must sign!
45. Failing to subtract your non-taxable social security benefits when your income falls below a certain level. If you’re below a certain income level, a portion of any social security benefits you receive isn’t taxable.
46. Failing to fill out IRS Form 8606 Nondeductible IRA Contributions for your contribution to an IRA even if you don’t claim any deduction for the contribution. The IRS wants to know what happened.
47. Failing to recheck your basis in securities you sold during the year (especially mutual funds). Automatically reinvested dividends and capital gains from your investments increase your basis in the fund and reduce its gain or increase its loss.
48. Failing to deduct front end loads or purchase fees for your mutual fund investments. These fees reduce your investment returns and are deductible.
49. Falling for the “forced savings” plan by overpaying your taxes all year just to get a bigger refund. Why give the government an interest free loan all year? Accurately pay your taxes all year and use the money yourself.
50. Failure to use Certified Mail when you mail your return to the IRS. That’s the best way to make sure your return was received. For additional peace of mind, send it “Return Receipt Requested.”
51. Failure to write legibly. Have someone else look at your handwritten return to make sure your handwriting is legible. Why tick off an IRS employee?
52. Failure to use enough postage to get the return to the IRS on time. Don’t think one stamp will do it. Have the Post Office weigh it to be sure. If your return is late for lack of postage, you’ll incur a penalty.
53. Failure to report and pay domestic payroll taxes for a nanny, in-home caregiver, or housekeeper. If you employ someone in this capacity, better make sure the proper taxes are paid. It isn’t just politicians that get caught.
54. Failure to figure if you’re liable for the Alternative Minimum Tax (AMT). Not everyone is liable, but if you are, you’ll be in deep water if you don’t pay it.
55. Failure to mail your return to the correct address. Again, it’s up to you to insure you put the correct mailing address to the IRS. Your return will probably make it anyway … eventually … but it could be late if the address isn’t correct.
56. Failure to itemize when it’s beneficial. Too many people use the 1040-EZ form and miss out on perfectly legal deductions as well as a larger refund. If you use Turbo Tax or H&R Block, you shouldn’t have this problem since both use an interview method to determine which form you should use.
57. Claiming ineligible dependents. I’ve actually seen people pass around SS numbers to friends in order to help them claim dependents that weren’t actually theirs. This is fraud and won’t be tolerated by the IRS.
You still here? Wow!
There are many, many ways to miscalculate your taxes and whether you over-pay or under-pay, they’re still inaccurate and guess what? You either lose up front or lose eventually either way, so insure that your taxes are accurate, your i’s dotted and your t’s crossed.