Do you want to get your full tax refund? Every year numerous taxpayers do not receive their full tax refund or end up owing even more money on their taxes because they make these 5 common - yet easy to fix - mistakes when filing their returns.
1. Misprints and Math Errors
Misprints and math errors are the most common mistakes taxpayers make on their tax returns. Frequently, taxpayers misspell names, enter incorrect bank deposit information, make miscalculations, and misprint the numbers listed on their W-2s. If the information on your W-2 forms does not match your tax return, the Internal Revenue Services (IRS) will have difficulty processing your tax return. These mistakes may also cause you to pay too much or too little tax. If a mistake
causes you to pay less tax than owed, the IRS may impose a penalty or collect interest on your underpaid tax liability.
The good news is that misprints and math errors are easy to correct. Here are some suggestions that could help ensure that the information entered on your return is correct:
- File early. It is best to file early so that you can double check your return for math errors and misspellings. Employers usually give you your W-2 forms in the beginning of the year, so it is possible to file several months before the April 15th deadline.
- File electronically. Using tax software is another good option because it performs the calculations for you. However, tax software calculates the numbers you entered, so you must still make sure these numbers are correct.
2. Failing to File or File Timely
Missing the April 15th filing deadline is another mistake taxpayers frequently make. If a taxpayer does not file their taxes on time, the IRS will charge a penalty and interest will start accruing immediately.
Common reasons for failing to file or file timely are that the taxpayer does not have the cash on hand to pay his or her current tax liability or the taxpayer waits until the last minute and runs out of time. However, there are options if it seems impossible to file timely:
- The taxpayer can file a Form 9465, in which the taxpayer sets up an installment plan. For this option, interest still accrues but, it is less than the interest and penalties from filing late or not at all.
- The taxpayer may also get a 6 month extension by filing Form 4868.
- The taxpayer should set aside money for taxes in the beginning of the year, so he or she does not spend it before taxes are due.
- Prepare tax returns early to allow time to budget before taxes are due.
3. Failing to Account for All Income
Many taxpayers have multiple income sources. Some taxpayers hold multiple jobs or earn extra money from stock investments. The IRS may impose penalties and/or interest for unreported earnings if you fail to include all of your income on your return. Taxpayers should keep records of their additional earnings for the year and include that income on returns.
4. Failing to Include Deductions and Credits
Tax deductions, or reductions in tax liability, are available to many taxpayers. Tax deductions are sometimes available for common expenditures, such as:
- Casualty and theft losses
- Medical and dental expenses
- Charitable donations of both cash and items donated to qualified organizations.
- Interest paid on student loans and mortgages
Taxpayers should keep records of theft losses, medical and dental expenses, cash or items donated, and interest paid to ensure they are reporting the correct amount on returns. It is important to note that taxpayers may only deduct up to the fair market value of donated items. Fair market value is the selling price of the item if you were to sell it today, not what you paid for it.
Taxpayers should also include any applicable tax credits on their returns. Tax credits, like deductions, decrease tax liability. A common tax credit is the child tax credit, which may allow the taxpayer to reduce their tax liability by up to $1000 per child.
Keeping track of expenses and ensuring you properly account for tax credits may significantly reduce your tax liability and increase your tax return.
5. Filing under the Wrong Status
Lastly, filing under the incorrect filing status may increase your tax liability. For example, filing as “head of household” instead of “single” could get you a higher standard deduction. The various filing statuses have very specific requirements and may have changed from the previous year depending on your family status. People who have recently divorced or had any other change in family status during the year should speak with a tax professional to determine which filing status would yield the best tax consequences.
It always feels satisfying to receive a large tax refund. To maximize the amount of your refund, be sure to avoid these 5 common mistakes this tax season.
Authored by Robin Sheehan, LegalMatch Legal Writer