Experience is simply the name we give our mistakes. - Oscar Wilde
As parents know, some lessons are best learned the hard way. Taxes, however, aren't one of those times.
Messing up on taxes is common. In the best cases, it could mean a delayed refund. But it could also mean a smaller refund, spending extra money and time to amend your return, or in the worst case, facing an audit.
Tax software helps avoid a lot of errors – especially the math kind – but it can’t fill out personal information or replace common sense. These days, that’s where the most frequent mistakes happen.
In the video, Money Talks News founder and CPA Stacy Johnson covers some of the most common tax errors. Check it out, and learn more on the other side….
The tax code runs thousands of pages and is constantly changing, so it’s easy to make mistakes. But experience shows we tend to make the same ones, over and over. Here’s a checklist to help you out…
1. Social Security info
What’s on your Social Security card goes on the return – if your name is wrong there or has been changed, contact the Social Security Administration. Getting your number wrong, or that of a dependent or spouse, is even worse: The number might belong to someone else. This kind of error can completely stop the whole process.
Software can help, but not every program spells out every step of the process. In some cases you may still have to tally numbers on the side to enter totals. When you do, triple-check your work.
It’s like turning in homework without your name on it: no name, no credit. Make sure you sign your return – and the check, if you’re sending one. Otherwise you may face delays or penalties.
4. Wrong form
Again, software often helps here by picking the relevant forms. But sometimes using a 1040EZ won’t get you as much money as a 1040 or 1040A. And certain situations require additional forms or numbers in different places. For instance, where you claim a home office deduction differs depending on whether you are an employee, self-employed, or a business partner.
There are a lot of tax software options, with varying fees for preparing, filing, and amending, not to mention state returns if that applies. But if your income is under $51,000, chances are you can get your taxes prepared and filed for free. Check out 4 Ways to Get Your Taxes Done Free.
6. Going pro
If you have a simple tax situation that hasn't changed much since last year, there’s no reason to pay a professional: All they’re going to do is use the professional version of software you can buy (or get free) yourself. Check out 9 Tips to Pick a Tax Pro– If You Need One.
7. Waiting on a check
Filing your return electronically through the IRS Free File is always free, no matter your income. But however you file, do it electronically and sign up for direct deposit and your refund will most likely hit your account in less than two weeks. Just don’t forget to triple-check your bank account number to make sure the money doesn’t end up in someone else’s account.
8. Hiding income
This can happen accidentally if you have multiple employers, or if a W2 or 1099 goes missing. So take your time, think it through, and make sure you report everything – not just from your job but also investments and anywhere else that might be reporting to the IRS. Ideally you’ll track this throughout the year so you can’t forget.
9. Missing deductions and credits
Polonius from Hamlet said, “Neither a borrower nor a lender be.” He was a jerk.
But he was right too – don’t leave money on the table, at least not for the government. Did you buy a home in the past year? Go back to school? Life changes and major purchases may mean tax benefits. And don’t forget to see if you can claim a home office deduction.
10. Taking out a refund loan
If you’re desperate for your refund money, realize the interest charges on a refund anticipation loan or check only make things worse. Read why in our story from last year, Kiss Refund Loans Goodbye, and learn about a better idea: changing your tax withholding so you get bigger paychecks year-round.
Tax Day is April 15 – and many people have already received their refunds. From the date this article was published, you have 53 days to get the job done right. So don’t short-change yourself literally and figuratively by waiting until the last minute, and then rushing through it. That’s how you make dumb mistakes and forget things that could have lowered your bill or gotten you more back.
12. Blowing it
Once you get your refund, don’t make the mistake of misspending it. Use it wisely: to pay down debt, get tax advantages for next year, or at least do something memorable and fun. Whatever you do, don’t fritter it away. We’ll have a story next week on smart uses for your tax refund.