year, due to common mistakes, billions of dollars in refunds are left
uncollected by taxpayers from the Internal Revenue Service (IRS). Paying taxes
is hard enough but leaving money behind, that is rightfully yours, is downright
unacceptable. Especially when it’s preventable.
are the top ten tax mistakes made that cost taxpayers money:
1. Staying Up-to-date on the Tax Code. The biggest tax news of late is the
Affordable Care Act (a.k.a. Obamacare) and how Americans will be fined if they
do not have health insurance and are not exempt from the law. If you don’t have
health insurance, you could pay the penalty, which will be the greater of 1% of your income or $95 per
adult and $47.50 per child. You need to research the latest changes to the tax
code before filing your own taxes.
2. Not Claiming All Earned Income. Everyone should resist the temptation
to not report all income on their tax return. The IRS has examiners on staff to
track Form 1099 which details extra income. When they find the money that you
did not report, you could owe interest and penalties, in addition to the tax
that would be owed on the income.
3. Number Errors. Another common mistake that could cost
you is entering numbers on a tax form. Whether it’s a Social Security number or
a number for income, incorrect number transfers on the form could end up costing
you. A very costly error could be entering in the wrong bank account number
when requesting a refund to be direct deposited. The refund could actually get
deposited into someone else’s bank account. You should double check each number
entered on your tax return.
4. Math Errors. Careless math mistakes cost taxpayers
each year. Many taxpayers use tax software, and unfortunately if the wrong data
is entered, the software will not catch the error. As in the number transfer
mistake mentioned above, you should double check your numbers and then double
check your calculations.
5. Filing Under the Correct Status. With
five different options available under filing statuses, the most accurate one for
a taxpayer’s situation may not be easily determined. Each filing status could
have an impact on the tax liability outcome. For example, filing under “head of
household” is more advantageous than filing “single” if you are single claiming
dependents because the taxpayer gets a larger standard deduction.
6. Mismatched Names. This is a common mistake for
newlyweds, typically when the wife takes a new last name and the IRS isn’t
aware. The same issue may pop up for same sex marriages now that the federal
government recognizes their union. The opposite applies as well – divorcees
need to notify the Social Security Administration of a name change. If your
name does not match the name and Social Security number the IRS has on file for
you, the tax return could get kicked back or the process could slow down.
7. Paying Multiple State Taxes. Don’t forget that income earned in
another state must be reported. If you reside in one state and work in
another, a nonresident tax return must be filed in the state in which you work.
Only the money earned in that state needs to be reported. However, if you fail
to file this return, you could face fines, fees, and penalties, in addition to
the taxes owed.
8. Forgetting to Sign the Forms. It is an all-too-common mistake to
forget to sign on the bottom line. While this may not cost you money upfront,
it will cause a delay in receiving any anticipated refund. And if you’ve
earmarked your refund money to pay bills, waiting could cost you a late charge.
For those who owe the IRS and wait until the very last minute to file,
forgetting to sign their tax return could cost them a late fee and penalty when
the IRS kicks it back for signature and April 15th has passed.
9. Falling for Tax Schemes. One of the
fastest growing concerns for the IRS is tax refund fraud related to identity
theft. Taxpayers have lost hundreds of thousands of dollars because criminals
tricked them into believing they owed the IRS. The IRS will never send an
unsolicited email or contact you through social media channels. The IRS does
not ask for personal or financial information. If you
believe you may be at risk for identity theft, you should probably contact the
IRS Identity Protection Specialized Unit by calling their toll-free number at
10. Missing a Deduction or Tax Credit. While penalties and fees mentioned
above could cost you plenty, missing a deduction or tax break could cause you
to owe more than you actually should or get a lower refund than what you
If in doubt, leave your tax preparation to the Liberty Tax professionals. They
are the tax experts and stay abreast of the new tax codes and laws. There
are just some things you don’t want to do yourself. And if there is a chance
you’ll lose out on money – or it could cost you more – get peace of mind by
having an expert step in.
To find a local Liberty Tax office, call 1-866-871-1040 or
search for an office using our homepage office locator.
Disclaimer: Every effort has been
taken to provide the most accurate and honest analysis of the tax information
provided in this blog. Please use your discretion before making any decisions
based on the information provided. This blog is not intended to be a substitute
for seeking professional tax advice based on your individual needs.