Unfortunately, even the most diligent taxpayers can make mistakes when preparing their returns; and even a small mistake can lead to penalties or delays in receiving a refund. In this blog, we’ll go over the most common tax filing mistakes and how to avoid them.
Filing Your Tax Return Too Early
Many taxpayers want to file their tax return early into the tax season and receive their tax refund as soon as possible. However, rushing tax filing without having all the required tax documents can lead to errors that may delay the refund and cause other issues.
For example, if you have significant investments in a brokerage account, you may receive a “Corrected” 1099 Brokerage Statement. This is a common occurrence for those with large and diverse portfolios, as not all investment information may be reported in a timely manner. The corrected statements may include reclassified dividends and other adjustments that can impact your tax return. Another example would be the taxpayers that are expecting K-1 documents since the deadline for filing K-1s is March 31st.
Therefore, it’s important to review all your tax documents carefully and to be aware of the potential for adjustments. Consider consulting a professional tax preparer if you have any questions or concerns.
Forgetting to Report All Your Income
It is crucial for taxpayers to ensure all required income is reported on the tax return, such as any self-employment income, rental income, gambling winnings, investment income, cryptocurrency gains, freelance income, and so on. To avoid penalties and interest, it’s critical to accurately record all income earned throughout the tax year and declare it on your income tax return.
In order to prevent this mistake, it is essential to maintain a record of all sources of income earned throughout the year and seek guidance from a licensed tax specialist if there are ever any doubts about what needs to be reported.
Filing with Incorrect Personal Information
Accurate personal information is essential to ensure your tax return is processed correctly and to avoid any potential delays or complications. In order to prevent this mistake, it’s important to double-check all personal information before submitting your return, such as Social Security numbers and addresses.
Moreover, if you have changed your name or address, it’s important to update your information with the Social Security Administration (SSA) and the Internal Revenue Service (IRS) to ensure your tax return is processed accurately.
Making Mathematical Errors
Filing a tax return with mathematical errors can be extremely costly for taxpayers, as the Internal Revenue Service may charge hefty fines and interest charges if any mistakes are found on the tax return. Some of the most common mathematical errors include addition and subtraction mistakes, incorrectly done multiplication or division, exceeding certain credit or deduction limits, or inconsistent entries. Errors like these will need to be resolved with the IRS, which can exceed the time to receive a refund and if not corrected, these can even cause more serious issues like legal action.
In order to prevent making mathematical errors on a tax return and ensure a hassle-free tax processing experience, it is advised that taxpayers either utilize a tax preparation software or work with a professional tax preparer.
Filing Separately When You Could Benefit From Filing Jointly
As a filing status, married couples have the option to choose between filing jointly or separately. If you and your spouse should be filing jointly, opting for separate filing status may result in a larger tax payment. Generally, filing jointly tends to be the more advantageous choice for most married couples. This is because they can take advantage of a lower tax rate, larger standard deduction, and qualify for several tax credits, including the Earned Income Credit, Child Tax Credit, and tuition credits, among others.
However, filing jointly is not always the best option for all and there are specific scenarios, where choosing to file separate tax returns could be more beneficial. For instance, if spouses wish to keep their finances separate, or if their comparable incomes place them in a higher tax bracket when combined.
If you’re uncertain about which filing option, either jointly or separately, would be more suitable for your particular situation, it would be beneficial to seek guidance from a tax professional.
Not Updating Your Tax Return After a Life Event
Events in life such as marriage or divorce, having a child, purchasing or selling a house, unemployment, or funding education can have important effects on your tax return. For instance, you may qualify for specific credits or deductions by paying for tuition or student loans, and adding a dependent to your tax return can enable you to qualify for the Child Tax Credit. It’s essential to understand how major life events like these can impact your taxes, so you can take advantage of any potential tax benefits and avoid any errors or penalties.
Assuming That Filing an Extension Gives Additional Time To Pay
A common misconception about filing a tax extension is that it gives you additional time to make your tax payment. However, an extension only extends the filing deadline, not the payment deadline. Hence, not paying the taxes owed by the initial due date will lead to additional charges for penalties and interest. If there are any taxes owed, it must be settled by the original tax due date.
Not Reporting All Available Deductions and Credits
Many tax credits and deductions that could lower the tax burden often go unnoticed because either people are unaware of them or keeping up with the most recent deductions and credits becomes challenging as tax laws frequently change. Therefore, it is advised to seek guidance of a licensed tax professional to ensure taking advantage of all available credits and deductions which can result in significant savings in the long run.
File Your Tax Return with Manay CPA
The idea of preparing your own tax return may seem attractive, especially if you’re looking to cut down on expenses associated with tax preparation. However, it’s important to remember that even small mistakes can have serious and costly consequences. Preparing your tax return with the help of many CPA tax professionals can help you avoid these common tax filing mistakes and many more. With our extensive expertise and dedication to client satisfaction, you can trust us to provide personalized and reliable tax services tailored to your unique needs. Don’t wait until the last minute, contact us today and let us help you file your taxes with confidence!