10 Common Tax Mistakes to Avoid

A woman realizes she has made a tax mistake

Every tax year, the IRS is busy auditing millions of Americans. In 2020 alone, 1,600 investigations discovered $2.3 billion in tax fraud, much of which was from deliberate, organized schemes. On the other end of the spectrum, the same tax year saw 1,010,461 notices sent out for math errors on tax returns, 35.3% of which were simple miscalculations.

 

These are just a few of the things pointing to the fact that tax fraud, while costly, is rare, but mistakes are very common. While the IRS certainly knows this, mistakes can be a huge inconvenience for auditors and taxpayers alike.

Here are the common and simple tax mistakes to avoid.

1. Missing the Filing Deadline

This simple mistake leads to penalties and interest quite quickly. Both start accumulating right away if the deadline is missed, worsening with every day that passes. Also, for any applications for any tax refunds, filing late will also delay those payments.

So, the longer you take to file, the more you pay and the longer your tax refunds take. It’s as simple as that.

2. Missing Information

As the IRS statistics mentioned at the start point out, most mistakes are simply missing or incorrect information. This includes leaving an important box blank, adding one more or one less zero in your calculations, and things like that.

The only way to avoid this potentially time-consuming mistake is to take some time now to not have to reopen the same tax returns later. Simply making sure all necessary fields are filled in and double-checking the numbers should suffice.

3. Filling Incorrect Bank Account Number

This mistake is easy to make, but it often hurts taxpayers far more than it does the IRS. Many people choose a direct deposit option for their tax refunds. Why wouldn’t they? It’s the faster and more convenient option – unless the bank account number provided is incorrect.

Giving the IRS correct banking information ensures that dealing with them is always faster.

4. Filing Under the Wrong Status

Filing status is a critical detail in the taxpaying process. The IRS sets different rates, awards, and deductions for those filing under different statuses:

  • Single
  • Married filing jointly
  • Married filing separately
  • Head of household
  • Qualifying widow(er) with [a] dependant child

 

There are many individual differences between each status. For example, those who are married filing jointly have higher standard deductions but have more paperwork to fill out.

The rules surrounding tax statuses are complex and worthy of a separate article. But what every taxpayer should remember is the importance of filing under the correct status to save time and not have to deal with the IRS any further than necessary.

 

5. Getting Behind the Latest Tax News

The tax code is complicated. It already contains around 2,600 pages. Then, IRS regulations and revenue rulings contain another 6,300 pages. To make matters even more complicated, the tax code is subject to change, and changes are made quite often.

Changes to the tax code can be small, but in recent history, there have been comprehensive changes as well. 2017 saw the largest tax overhaul in 30 years, in fact.

Keeping up with tax news can help taxpayers miss new developments. Importantly, some of the areas that change the most are credits and benefits. Keeping up with the tax news can thus put more money into peoples’ pockets.

6. Forgetting to Back Up

Backing up your documents is important. Taxpayers need to attach all their documents in many cases, such as when claiming itemized deductions under Schedule A. So, taxpayers will want a backup copy of their 1040 in these situations. Without the backup, the IRS may return a letter stating that tax credits due to you are on hold.

Overall, this step is easier to handle when filing electronically. Just keeping the file on a desktop can suffice. 

7. Not Checking for Typos

The IRS cares about typos. While employees at the IRS may clearly understand what is meant when a simple mistake is made, it won’t normally matter. Most of the tax process is automated and not much will be checked if you aren’t audited. That means if you claim a $500 deduction where you meant to claim a $5,000 deduction, you’ve accidentally just robbed yourself of a lot of money.

8. Automatically Taking the Standard Deduction. 

It’s hard to go wrong by taking the standard deduction, as it’s especially easy to do. However, automatically taking the standard deduction can cost more due to alternatives offering larger write-offs. While it isn’t always the case, itemizing deductions may be the way to save more money. At the very least, it’s worth a check.

Some people choose the standard deduction out of laziness. However, now most tax software options make it simple to calculate which path saves the taxpayer the most money.

9. Making the Check Out to the Wrong Entity

Balances to be paid by check must be written out to the U.S. Treasury. Anything else, especially informal entity references or jokes will not be cashed. You cannot actually pay “Uncle Sam” or “the Government”.

When the wrong entity is written out on the check, it will not be cashed by the IRS. Worse yet, this can lead to late payments and their associated interest and penalties.

One way to avoid the mistakes associated with using checks is to simply not use them. There are electronic payment methods in many tax software. Alternatively, IRS Direct Pay is a fast way to pay dues.

10. Using the Wrong Social Security Number

This is one of the most important pieces of information on tax documents. Social security numbers are used in cross-referencing individuals’ information with that of their employers, their banks, and any other financial institutions. Using the wrong SSN will lead to problems, as the IRS will normally just reject the entire return.

This is another area worth double-checking, perhaps even more so than most other details.

 

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