Every 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.
Here 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 1-800-908-4490.
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 earned.
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.