The Most Expensive Tax Mistakes You Could Be Making
Fewer things are more annoying than taxes. If you’re the type who likes to just get it done in a hurry without double and triple checking your returns, you could be making costly mistakes. Plus, it could put you at an elevated risk for getting audited by the IRS. Here are 15 expensive tax mistakes you might be making. Many can be avoided by paying just a little extra attention to what’s on your return before you file it.
1. You put the wrong Social Security number
You have to list the social security number of all your dependents on your tax form, which means parents have a lot of numbers to memorize. Fortunately, there are these handy things called Social Security cards that have the full Social Security number clearly listed for every person in your household. Use these, instead of your memory, to make sure everyone has the correct Social Security number attached to them on your return. If you’ve lost your card, you can request a new one from the Social Security Administration’s website.
Next: Why pay for something you can get for free?
2. You’re not taking advantage of free tax preparation software
You don’t need to spend hundreds of dollars having someone else prepare your taxes (though, that might be a good idea depending on what your situation is). And you also don’t have to suffer through preparing your taxes alone, without any help. Instead, you can use free tax preparation software from companies like TurboTax, H&R Block, and TaxACT. You might even qualify to have volunteers prepare your taxes for free if you’re eligible for one of the IRS’s many programs.
Next: Using a calculator isn’t cheating when you’re an adult.
3. Your numbers don’t add up
Making a math mistake in high school could get you a C on a test. Making a math mistake as an adult could royally mess up your tax refund, causing delays and even resulting in you paying more money than you owe to the IRS. Using computer software can alleviate this problem since the program will do the calculations for you. If you’re still getting by with good ol’ pen and paper, make sure to triple check your math using a calculator.
Next: What’s my name again?
4. You spelled your name wrong
Yes, adults spell their names wrong on their tax returns all the time. Usually, it’s a result of being in a hurry and making a careless mistake. People tend to focus on double and triple checking their math, not their name. But taking the extra five seconds to make sure your name, and the names of your dependents, are spelled correctly could prevent you from experiencing major headaches, including delays, when you go to file your return.
Next: Speaking of which …
5. You used a name that isn’t registered with the Social Security Administration yet
If you have recently gotten married or divorced, or changed your name legally for any reason, but haven’t yet gone through with filing your new name through the Social Security Administration, then use your old/current name on your tax return. Your name needs to match your Social Security records in order for your tax return to be valid.
Next: Say hello to Mr. John Hancock.
6. You forgot to sign
You’ve finished the paperwork and are getting everything ready to send in the mail. Don’t lick that envelope without checking for your signature in two places: on the paper tax return and on your check, if you have to submit payment. A missing signature in either of these places can significantly delay your filing. Hint: Avoid this mistake altogether by using tax software.
Next: Time for that college education to start paying you back.
7. You missed out on college-related expenses and deductions
Did you realize you can get tax credits and deductions if you’re enrolled in college? If you or a dependent are currently enrolled, make sure you apply the American Opportunity Tax Credit to get up to $2,500 for four years as an enrolled college student. The Lifetime Learning Credit is available for up to $2,000 per tax return for undergraduate and graduate students.
Next: Don’t leave free money sitting on the table.
8. You didn’t apply for earned income tax credit
Sometimes families have a low enough income that they don’t have to file taxes, which means they miss out on this important tax credit. The earned income tax credit from the IRS gives low-income families a credit up to over $6,000. You’re literally leaving free money on the table by missing out on this credit if you qualify.
Next: Don’t forget about the kids.
9. You missed out on the dependent care credit
If you paid someone else for childcare throughout the year so you could work, or look for work, you can qualify for a dependent care credit through the IRS. Childcare is expensive. You might as well get some credit for it!
Next: Don’t try to fool Uncle Sam.
10. You didn’t claim all your income
Neglecting to claim all your income for the year, including gambling winnings, side hustle earnings, and cash bonuses, like tips, might net you some extra cash in the short term. If you ever get audited, though, you could be in serious trouble when the IRS uncovers all the money you didn’t claim (and they’re pretty smart, so they will almost for sure find out).
Next: This status is more important than your Facebook status.
11. You checked the wrong filing status
If you’re definitely single or married, you probably won’t run into this issue. Checking the wrong filing status tends to become a problem during more complicated scenarios, such as if you became a widow or widower during the tax year, or if you’re newly divorced.
If your spouse died during the tax year, you can still file as married jointly for that year. If you have dependent children, you can probably continue to file as “qualifying widow(er) with dependent child” for at least two more years to get the same benefits as if you were married with dependents.
If your spouse did not live with you for the last six months, you can file as single. If you’re divorced and you pay more than half the cost of maintaining your household, you can file as head of household to boost your deductions.
Next: Don’t get greedy
12. You filed for credits and deductions you didn’t qualify for
There are a lot of tax credits and deductions, but don’t get greedy and start filing for everything. This is one sure-fire way to raise a red flag with the IRS, which will put a target on your back as someone who needs to be audited. You might end up needing to pay back taxes and penalties. Only file for credits and deductions that you can back up with a paper trail if you get audited.
Next: This is one deadline you don’t want to miss.
13. You filed your taxes late
Missing the tax filing deadline can end up costing you big time, even if you can’t afford to pay what you owe at the time of filing. You’ll pay an added five percent of the taxes you owe for every partial month you’re late, up to a maximum penalty of 25 percent of the taxes you owe.
Compare that to a penalty of just .5 percent of the taxes you owe, up to 25 percent, for failing to pay at all. If you can pay 90 percent of the taxes you owe, then file an extension and pay the remaining 10 percent on time, you won’t have to pay a penalty.
The IRS wants your money, and they’ll work with you to set up a payment plan so you can pay your tax debt responsibly.
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14. You threw away important tax documents
Your mailbox starts getting full in January as you get tax documents from your employer, banks, and anywhere else you earn money from. Hang on to all of it, as it will come in handy when you go to file your taxes. The IRS also receives copies of 1099s and W2s, so if something doesn’t add up, you could get audited.
Next: Don’t give away your hard-earned money.
15. You got a tax refund
Now, this seems counterintuitive. After all, don’t you want to get money at the end of the tax year? While getting a refund can feel like a positive thing, what it really means is that you gave the IRS an interest-free loan for the year. You could have used that money over the course of the year to pay down debt, make investments, or just have a cushier lifestyle. Use the IRS withholding calculator to see if you need to make adjustments before next year.