Beware Costly Tax Season Mistakes
Most common taxpayer mistakes? Missing a tax break, providing incorrect bank information or accruing penalties for failing to file on time.
NEW YORK – Tax season is in full swing. And if you’re tempted to rush through your returns, be careful not to make sloppy mistakes or you could miss out on a larger refund, owe more in taxes or face an IRS audit.
Some of the most common errors that filers make include missing a tax break, providing incorrect bank information or accruing penalties for failing to file on time.
If you’re expecting a refund but your basic personal information doesn’t match, it could take a minimum of four to six weeks for the IRS to notify you via mail that you need to respond and correct your mistake.
Here are nine common errors that taxpayers should avoid:
1. Missing a tax break. Tax credits and exemptions are available, particularly for those who were financially affected by the pandemic. The COVID-19 economic relief package signed on Dec. 27, created a special break for obtaining the Earned Income Tax Credit, a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children.
But the deal isn’t automatic. Filers and the people who help them with their taxes must be aware of the new option and take the time to review 2019 earnings, as well as earnings in 2020, to calculate the credit. And they cannot simply assume that they won’t qualify for it.
The payout isn’t immediate. Tax filers who claim the credit face required delays by law even if they filed as soon as the tax season starts.
2. Not filing on time. It’s tempting to put off filing your taxes until just before the April 15 deadline (May 15 this year thanks to an IRS extension), but making a silly mistake may wind up costing you. While filing for an extension will give you more time, you still need to pay any taxes owed by the original deadline.
Even if you can’t pay your full tax bill at the time it’s due, file a return and contact the IRS to start an installment payment plan. Failing to file can result in penalties.
3. Falling for tax scams. Be wary of unscrupulous individuals who may offer to prepare your taxes but could steal important personal information from you. As part of a hot scheme in 2021, identity thieves are targeting tax professionals by sending an email that appears to be from the IRS. The phony email refers to “IRS Tax E-Filing” and verifying key e-file information.
Paid tax return preparers completed more than half of the tax returns submitted to the IRS in tax year 2018, according to the agency. The Choosing a Tax Professional page on IRS.gov has information about tax return preparer credentials and qualifications.
4. Entering incorrect bank account numbers. Be sure to double-check the routing and account numbers on your return. Taxpayers anticipating a refund should choose direct deposit, typically the fastest way to get your money.
5. Failing to note a name change or a new address. Did you change your name or move to a new address? If you legally changed your name with the Social Security Administration, make sure it is reflected in your federal and state tax returns. A mismatch may delay the processing of your returns. Any correspondence and even your tax refund may be mailed to the wrong address.
6. Submitting unsigned forms. An unsigned tax return isn’t valid. In most cases, both spouses must sign a joint return. Exceptions may apply to members of the armed forces or other taxpayers who have a valid power of attorney. You can avoid this error by filing your return electronically and digitally signing it before sending it to the IRS.
7. Using an incorrect filing status. If you were legally married during the year, don’t forget your filing status may change from Single to Married Filing Jointly or Married Filing Separately. There are other filing statuses that you may not have considered, such as Head of Household or Qualifying Widower, that may yield tax benefits.
8. Failing to report all of your income. Individuals often don’t realize they generated income that is subject to tax, including unemployment compensation, rental income, or earnings generated from stock options, dividends and interest. Omitting income from a tax return can result in unpaid taxes subject to interest and penalties.
A person may be unfamiliar when they receive a new tax form, such as a 1099 or K-1, that includes income to be reported on an individual income tax return. It’s crucial to report your activities from these forms. The IRS generally receives a copy and can determine if any discrepancies exist from their records.
9. Making math mistakes. Math errors are among the most common mistakes that filers make. They range from simple addition and subtraction to more complex calculations. Taxpayers should always double-check their math. This is when tax prep software can come in handy since it does the math automatically.
Contributing: Susan Tompor, Detroit Free Press
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