Due to common mistakes, billions of dollars in refunds are left uncollected from the Internal Revenue Service (IRS) every year. Paying taxes is hard enough, but leaving money behind — money that is rightfully yours — is downright unacceptable, especially when it’s preventable. Here are the top ten common tax mistakes that cost taxpayers money:
- 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 1099 forms, which detail extra income. If the IRS finds money you didn’t report, you could owe interest and penalties on top of the taxes you owe on that income.
- Numerical Errors. Another common tax mistake that could cost you is entering incorrect numbers on a tax form. Whether it’s a Social Security number or bank account number, incorrect numerals transferred from one form to another can end up costing you. It can be very costly to enter the wrong bank account number for receiving your tax refund via direct deposit. This could lead to the refund getting deposited into someone else’s bank account. Before submitting your tax return, double-check each number you entered.
- Not Staying Up-to-date on the Tax Code. One of the trickiest problems for taxpayers is the Affordable Care Act, also known as Obamacare. Many Americans are fined if they do not have health insurance. If you don’t have health insurance, you could owe a penalty. In 2016, the penalty was the greater of 2.5% of your income or $695. To prevent this and other similar issues, you can research the latest changes to the tax code before filing your taxes.
- Math Errors. Careless math mistakes cost taxpayers each year. Many taxpayers use tax software, which will often calculate for you. Unfortunately, if the wrong data is entered, the software will not catch the error. As with the number transfer mistake mentioned above, be sure to double-check your numbers and your calculations.
- Filing Under the Correct Status. With five different filing statuses available, the most accurate one for a taxpayer’s situation may not be easy to determine. 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 and claiming dependents because the taxpayer gets a larger standard deduction. Before choosing a filing status, do some research. See which statuses you could potentially use so you can choose which one is the most beneficial from a tax standpoint.
- Mismatched Names. This is a common tax 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 to you; at the very least, it may take longer to get your refund. To fix this issue, be sure to change your name on all legal documents and accounts at one time, long before you file your taxes.
- 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.
- Forgetting to Sign the Forms. It’s an all-too-common mistake to forget to sign on the bottom line. While this may not cost you money up front, it will cause a delay in receiving any anticipated refund. If you’ve earmarked your refund money to pay bills, waiting could cost you a late charge on the bill you had planned to pay. 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 a penalty when the IRS sends it back for signature after the tax deadline has passed.
- 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 contact the IRS Identity Protection Specialized Unit by calling their toll-free number: 1-800-908-4490.
- Missing a Deduction or Tax Credit. While penalties and fees alone can cost you plenty, missing a deduction or tax credit could cause you to owe more than you actually should or to get a lower refund than what you earned.
If in doubt, leave your tax preparation to the professionals. It’s their job to stay current on the new tax codes and laws. Instead of taking the chance of losing out on money or costing you more than it should, enjoy the peace of mind of having an expert handle things.
For more information on all things taxes, contact Liberty Tax® directly at 1-877-at-Liberty, or visit a conveniently located Liberty Tax® office near you. For real-time updates, follow Liberty Tax® on Facebook and Twitter.
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.