Avoid these 18 tax mistakes
These common tax preparation errors can cost you money or even lead to an audit by the IRS. Here's how to avoid them.
This post comes from Stacy Johnson at partner site Money Talks News.
As humans, we all have the right to make mistakes. But tax time isn't the time to exercise that right. In the best case, mistakes on a tax return could mean a delayed refund. In the worst, a smaller refund, an amended return or an audit.
Tax software helps avoid a lot of errors -- especially the math kind -- but it can't fill out personal information, sign your return or replace common sense. These days, that's where the most frequent mistakes happen.
The tax code runs thousands of pages and is constantly changing, so it's understandable mistakes will happen. But experience shows we tend to make the same ones, over and over. Here's a checklist to help you avoid the most common.
What's on your Social Security card goes on the return. If your name is wrong there or has been changed, contact the Social Security Administration. Getting your number wrong, or that of a dependent or spouse, is even worse: The number might belong to someone else.
This kind of error can completely stop the whole process.
2. Making math mistakes
Software can help, but in some cases you may still have to tally numbers on the side and enter totals. When you do, triple-check your work.
3. Not signing
It's like turning in homework without your name on it: No name, no credit. Make sure you sign your return -- and the check, if you're sending one. Spacing this out could mean delays or penalties.
4. Using the wrong form
Again, software often helps here by picking the relevant forms. But sometimes using a 1040EZ won't get you as much money as a 1040 or 1040A. And certain situations require additional forms or numbers in different places. For instance, where you claim a home office deduction differs depending on whether you are an employee, self-employed, or a business partner.
5. Paying for help
There are a lot of tax software options, with varying fees for preparing, filing, and amending, not to mention state returns if that applies. But if your income is $52,000 or less, chances are you can get your taxes prepared and filed free.
6. Going pro
If you have a simple tax situation that hasn't changed much since last year, there's no reason to pay a professional. All they're going to do is use the professional version of software you can buy (or get free) yourself.
7. Filing by mail instead of electronically
Filing your return electronically through IRS Free File is always free, no matter your income. But however you file, do it electronically and sign up for direct deposit. Your refund will most likely hit your account in less than two weeks. Just don't forget to triple-check your bank account number to make sure the money doesn't end up in someone else's account.
8. Hiding income
This can happen accidentally if you have multiple employers, or if a W-2 or 1099 goes missing. So take your time, think it through, and make sure you report everything -- not just from your job but also investments and anywhere else that might be reporting to the IRS. Ideally you'll track this throughout the year so you can't forget.
And don't assume a 1099 is correct. Make sure it matches the amount you were owed and what was paid.
9. Missing deductions and credits
Don't leave money on the table, at least not for the government. Did you buy a home in the past year? Go back to school? Have a child? Life changes and major purchases may mean tax benefits. And don't forget to see if you can claim a home office deduction.
10. Taking out a refund loan
If you're desperate for your refund money, realize the interest charges on a refund anticipation loan or check only make things worse. Read why in our story from 2012, "Kiss refund loans goodbye," and learn about a better idea: changing your tax withholding so you get bigger paychecks year-round.
Don’t shortchange yourself literally and figuratively by waiting until the last minute, then rushing through it. That's how you make dumb mistakes and forget things that could have lowered your bill or gotten you more back.
12. Blowing your refund
Once you get your refund, don't make the mistake of misspending it. Use it wisely: to pay down debt, get tax advantages for next year, or at least do something memorable and fun. Whatever you do, don't fritter it away. We’ll have a story next week on smart uses for your tax refund.
13. Using a pencil instead of a computer
There are still millions of Americans who fill out their taxes by hand rather than using software. While we humans still, for the time being, can do some things better than computers, adding numbers isn't one of them.
14. Picking the wrong status
While most of us know whether we're single or married, some of us might not realize that it's what we are on Dec. 31 that counts. If you were single that day, you're single for the year, no matter when you got divorced. If you were married on that day, you were married for the year.
Parents or adult kids moving in with you? You might have dependents you didn't know about. Sharing custody? Make sure you both don't claim the same exemption.
15. Not scanning your documents
Scan all the supporting documents you used to prepare your return, as well as the tax return itself, then store everything in the cloud. They'll be safe from fire, theft and loss, and they'll be easier to organize and retrieve. Your overstuffed drawers will thank you and so will whoever you hire to represent you if you get audited.
16. Not checking for updates
Just because something was deductible last year doesn't mean it is this year. So don't just copy off your old forms. Things change every tax year, and even more so in 2013. Don't assume: Check for updates.
17. Not filing something by April 15
While you're supposed to pay what you owe when you file your taxes, if you don't have the money, file your tax return anyway. The penalty for not filing is 10 times the penalty for not paying.
If paying will present a hardship, contact the IRS about setting up a payment plan.
18. Not being organized
We've all done it -- waited till the last minute, then did the minimum to get our taxes out of the way. Doing this is a good way to forget some reportable income and an even better way to space out some deductible expenses.
Keeping track of income and expenses all year will make tax time easier, prevent you from making costly mistakes, and ensure you get all the deductions you're entitled to. This time next year, you'll be glad you did.
More on Money Talks News
VIDEO ON MSN MONEY
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.