What you need to know to prevent common tax errors
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When it comes to filing your taxes, avoiding common mistakes can be a big gain. Errors on your tax return can lead to delayed refunds, penalties, and even an IRS investigation.
“You don’t want to give the IRS an excuse to audit you,” says Mitchell Franklin, assistant professor of accounting practice at Syracuse University.
Following are some of the most common tax mistakes, and tips on how you can avoid them:
1. Missing the tax deadline
Know when your taxes are due. If you miss the April 15 deadline and owe the IRS money, penalties and interest start accumulating for each day you tarry. If you’re due a tax refund, failing to file on time could delay that refund. Requesting an extension gives you more time to file your tax returns. But remember—any payment still is due in April, meaning the longer you wait to file, the more you owe.
“What people don’t realize is that the penalty compounds daily,” Franklin says.
2. Arithmetic errors
Tax forms require you to input a lot of numbers and do some arithmetic. It's important to check and then double-check any calculations, and the figures you input. Errors can lead to penalties—even an audit. But you can decrease your chance of making arithmetic mistakes by using software or online tax programs that do the calculations for you.
“I don’t think anyone should be filing on paper anymore,” Franklin says.
3. Failing to claim additional income
Earning income from multiple sources makes your taxes more complicated. That’s true whether you work as a contractor or an employee, or if you simply earn interest on investment or savings accounts. Each job or account should issue you a Form 1099, which denotes how much you earned. The IRS receives a copy as well. Be sure to keep track of any additional income, and account for all of it in your return. Otherwise you may have to pay interest on the unreported income or face a penalty.
4. Skipping the signature
One of the easiest mistakes is forgetting to sign your taxes! The IRS doesn't process unsigned returns, so be sure to put your John Hancock where your forms require it. If you file electronically, you must use your personal identification number, or PIN, to sign your tax return.
5. Misdirecting your direct deposit
If you get a tax refund, consider having it directly deposited into your bank account. However, it’s crucial that you check the routing and account numbers you include on the tax forms. If you make a mistake here, you may not get your refund—and someone else might.
Filing your taxes properly and on time is key to avoiding penalties and receiving any refund you’re owed. A financial advisor or tax professional can help answer your tax questions and ensure that you don't make mistakes.
"According to the IRS, ignorance is no excuse," Franklin says. "Even small errors get expensive very fast.”
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
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