Financial Education Blog

Common Tax Mistakes That Could Cost You

Tax season is here! Which means you have three options - paper, tax software or professional tax preparer- to file your taxes. While mistakes can be made regardless of the option you choose, filing a paper return increases your odds of filing with an error. Errors can lead to delays or loss of your refund, trigger an audit or cause you to pay more. Most of the mistakes that taxpayers make on their tax returns are fairly simple and easy to avoid. Here’s a list of some of the most common tax mistakes and a few tips on how to avoid them.

Not filing on time or at all
According to the Internal Revenue Service, 20-25% of all Americans wait until the last weeks before the tax deadline to prepare their tax returns. At such a late date, there are only two things taxpayers can do: file their taxes immediately or request an extension. While filling an extension will give you more time, you will still need to pay any taxes owed by the deadline, April 15, to avoid added interest.
If you know you’re going to owe money, but know you’re unable to pay your full tax bill by the deadline, don’t avoid filing your tax return. It can lead to penalties and potential tax evasion charges. Instead, file your tax return within the deadline and contact the IRS to start an installment payment plan.

Missing or incorrect information
One of the most common tax filing mistakes is leaving a box blank or giving incorrect information. It’s easy to transpose a number or leave out a digit. Before finalizing your information, take a moment to carefully look everything over (especially the spelling of your name), and be sure to double-check your Social Security number.

An easy way to avoid mistakes if you’re using a tax preparation software is to import last year’s tax return, as it limits manually keying in your information.

Oh, and don’t forget to sign your tax return before submitting!

Math errors
With all the subtracting, adding and dividing, math errors are a frequent problem with tax returns. Be sure to use the exact number that appears on your W-2, 1099 or other forms, and don’t round up or down. As for tax formulas, they can be difficult. Tax preparation software or professional tax preparers will do the calculations for you. But that still doesn’t mean you shouldn’t double-check!

Providing inaccurate account numbers
If you’re getting a refund or making an electronic tax payment, be sure to verify your bank account information. Entering incorrect information can delay or cost you your refund or result in penalties and interest on a late payment.

Missing a tax break
Not everyone can take advantage of a tax break, but nothing is worse than losing out on a refund because an opportunity was overlooked. To maximize your refund, you’ll need to take advantage of every tax deduction and credit available to you. A tax software or tax professional should help to ensure that you’re not missing anything you are entitled to.

Filing under the wrong status
The filing status you choose will dictate how much tax you pay on your income and what credits or deduction you’re entitled to. You can choose from the following:

  • Single
  • Head of household
  • Qualifying widow(er)
  • Married filing separately
  • Married filing jointly

You’re only allowed to choose one filing status, so be sure to pick the right one.

Bottom line: Taxes are hard and stressful. Taking a few extra minutes to review your work could save you time and money. If you want to truly avoid making a mistake, tax software is great alternative to trying to muddle your way through tax language and calculations. If all else fails, find yourself a professional tax preparer. The cost is well-worth the peace of mind.