Avoiding Tax Problems
Mistakes made on your taxes could cost you. Avoid IRS penalties by making sure you don’t commit these mistakes during tax time.
- Not staying up-to-date on the tax code. Research the latest changes to the tax code before filing your own taxes. New laws, such as the Affordable Care Act (also known as Obamacare), will affect many taxpayers and are constantly changing. Under the ACA, uninsured Americans who are not exempt from the law will be penalized. If you don’t have health insurance, you could pay the penalty, which will be the greater of 2.5% of your income or $695 per adult and $347.50 per child.
- Not claiming all earned income. You must report all earned income on your tax return. When money is found that you did not report, you could owe interest and penalties in addition to the tax owed on that income.
- Number errors. Whether it’s a Social Security Number or a number for income, incorrect number transfers on any form could cost you. Be mindful when entering bank account information when opting for direct deposit. The last thing you want is for someone else to receive your refund. You should double check all numbers entered on your tax return.
- Math errors. Many taxpayers use tax software, and most will not catch errors for incorrect data entry. You should double check your numbers and then double check your calculations.
- Filing under an incorrect status. With five different filing status options available, 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.
- Mismatched names. This is a common mistake for newlyweds, typically when the wife takes a new last name and has not notified the Social Security Administration. The same issue may pop up for same sex marriages now that the federal government recognizes their union. The opposite applies as well – divorcees who have a name change need to notify the Social Security Administration. If your name does not match the name and Social Security number the IRS has on file for you, the tax return could be rejected or the refund could be delayed.
- 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 interest and penalties, in addition to the taxes owed.
- 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. 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 sends it back for signature and April 15th has passed.
- Falling for tax schemes. One of the fastest growing concerns for the IRS is tax refund fraud and 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 1-800-908-4490.
- Missing a deduction or 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 earned.
Having your Liberty Tax preparer take control of your tax situation will lead to few mistakes on your return. Use our office locator to find an office near you.