Are you ready for tax time? Are you sure?
Every year, millions of Americans file their tax returns – and millions of them make mistakes ranging from small and inconvenient (misspellings, missing numbers, and so on) to large and costly ones (like improperly entering retirement-related income or even filing late).
And while it’s true that convenient options like income tax software have helped make it easier for average folks to prepare their taxes, those options don’t guarantee zero errors. The only real way to make sure that you don’t make tax mistakes is to take your time, prepare, and double check your work.
Not sure which mistakes to look for? Here’s a list of six common tax mistakes and how to avoid making them:
1. Typos, blank spaces, and missing numbers. A missing number might not sound like much, but one small mistake – like entering one wrong digit in your Social Security number, leaving a line blank, or forgetting to sign and date your return – can create some pretty serious problems.
What to do: These kinds of mistakes typically happen when you’re in a hurry. The best way to avoid small-but-serious errors like this is to take your time. Start early, and double-check your work before you submit your taxes. Make sure you double check all of the details – and make sure you sign and date the form. And, if you’re planning to get a refund via direct deposit, make sure you double check that you’ve entered your bank account and routing number, too.
2. Filing a paper refund. Okay, so this isn’t a mistake, exactly – but if you’re still mailing a paper refund instead of filing electronically, it’s time to think about making a change. First of all, traditional mail is super-slow, and you always run the risk of your paperwork getting lost in the shuffle. And second, it’s much easier to make mistakes on paper – most electronic tax-prep software will alert you to missing information, misspelled words, or a missing signature (and most of them will do the math for you, too!).
What to do: Go paperless. It’s easy – and if your household income for 2013 was $58,000 or less – it’s free! For more information about free e-filing, check out the IRS’ Free File page.
3. Retirement-related errors. IRAs, annuities, and pension plans are complicated — and it’s probably not surprising that it’s fairly common for folks to make errors when reporting taxable income from various retirement plans. Unfortunately, retirement-related errors can often mean costly penalties.
What to do: If you’re not sure how your retirement plans affect your income taxes, it might be wise to work with a tax professional. It might cost a little more than taking the do-it-yourself approach – but it’s much cheaper than paying for mistakes like improperly reporting your taxable retirement income.
4. Overlooking deductions. Deductions can help you keep more of your hard-earned money – what’s not to like about that? But are you claiming all of the deductions available to you? Most of us are aware of the obvious deductions – like the child tax credit or credit for any interest you paid on your student loans – but those aren’t the only ones. Is someone in your household a student? You might qualify for an education credit like the Hope credit. Do you give to charity? Have you made energy-saving improvements to your home, like replacing old windows or upgrading your water heater to a new and more efficient one? You might be eligible for a tax credit.
What to do: If you want to make sure you’re not missing out on any deductions, visit the IRS’ website and check out their list of valuable tax credits.
5. Choosing the wrong filing status. When you file your taxes, you can choose one of five possible filing statuses, including single; married filing jointly; married filing separately; head of household; and widow/widower with dependent child. Although this sounds fairly straightforward, choosing a filing status can get complicated, especially if your status has changed recently.
What to do: If you’re planning to e-file (which I highly recommend!), you may find that your tax software walks you through this and offers helpful definitions or examples of each filing status. If you opt for an old-school paper return, make a point to double-check the status you choose – and remember to choose the status that applied to you last year, rather than your current status.
6. Waiting until the last minute. The longer you wait to file your taxes, the more likely you are to wind up rushing to get everything done by the deadline (this year’s deadline, by the way, is Tuesday, April 15). And when you rush, you’re more likely to make mistakes, overlook money-saving deductions, and so on.
What to do: If you haven’t thought about your taxes yet, don’t worry: You’ve still got plenty of time to get organized. Start gathering all the documents, receipts, and other paperwork you’ll need, and give yourself a personal tax-prep deadline that’s well ahead of the April 15th due date. Need some help getting ready? Check out this post on getting ready for tax time.
And if, for some reason, you’re fairly certain that you can’t make the deadline, file for an extension. That way, you can get some extra time to get organized and get your taxes done – without penalties or rushing.
That’s it! Here’s to a happy tax season!