In an ordinary year, filing taxes can be annoying, confusing, stressful, and costly. Throw in a COVID-19 pandemic, and all the financial chaos that has followed, and it can be completely overwhelming. The tax year 2020 seems to be throwing many tax preparers for a loop. Many taxpayers are in desperate need of their stimulus checks and tax refunds. Others who had amazing years (financially) in 2020 are getting some shockingly high tax bills (or estimates- there is still time to lower your 2020 tax liabilities).
We are all busy, and it may be tempting to rush to try and complete the onerous task of filing taxes as quickly as possible. However, do your wallet a favor and take the extra time to try and avoid these 10-annoying tax filing mistakes. Falling for just one of them could cost you a small fortune, or worse, increase your odds of the dreaded Internal Revenue Service (IRS) audit.
Here is a list of 10 tax filing mistakes that you should work to avoid.
1. Typos on Your Social Security Number
Social Security typos are one of the most common tax mistakes. I am shocked at the number of tax returns that the IRS receives each year with either the wrong Social Security number or no Social Security number attached. You should have your own Social Security number memorized, but errors can also occur with your spouse’s or dependents’ numbers. For those using professional tax preparers, they can also make mistakes, so check your Social Security number before signing your tax return.
2. Failing to Include All Income
If you received tax forms from your employers, the IRS should also be receiving a copy of those forms as well. Be sure to include all your W-2 forms, as well as 1099 forms, from bank accounts or investments accounts. Leaving income off your tax return is a great way to make the IRS think that you are trying to hide income. You will also need to declare income received in the form of unemployment, but depending on your overall income, the first $10,200 of benefits will likely be tax-free for 2020.
3. Making Math Mistakes on Your Taxes
Using a tax professional or tax software should help eliminate most math mistakes when filing your taxes. All the same, many taxpayers still file their returns manually. Check your math. Also, make sure to check your math when filling in your tax organizer for your fun financial planner and CPA. An $800 deduction is worth a lot less than an $8,000 deduction.
Even a small math error (or typo) could leave you vulnerable to IRS penalties. On the flip side, if you make a math mistake and overstate your income or understate deductions, you could end up overpaying on your taxes. Double and triple check your math, or use tax filing software, when you file your taxes. Software is relatively cheap. It should help you avoid mistakes and, in my opinion, reduce tax filing stress.
There are tax credit for homeowners and parents. Make sure you get all the tax breaks you are … [+]
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4. Ignoring Your Eligible Tax Credits and Tax Deductions
Claiming too many or too few tax credits and tax deductions is one of the biggest mistakes a taxpayer can make. Every year, many taxpayers attempt to claim tax credits or rebates that they are not actually eligible to take. That being said, do not be afraid to capitalize on all of the tax deductions and credits that you qualify to use.
5. Not Signing and Dating Your Tax Return
You put in the time to track every single cent of tax deductions. You then agonize over filling in every line of your tax returns. Then when all is said and done, you submit your tax return to the IRS but forget to sign and date it.
You may say, “What is the big deal?” The big deal is that the IRS will not accept tax returns that have not been signed and dated. Without a signature and date, it will be considered as not having been filed at all. Once you realize your mistake, your return may be considered late, and this could mean you are stuck paying IRS penalties and interest.
Side Note: The IRS is still working on many 2019 returns; if you fail to sign and date your tax returns, it could be over a year before you are alerted about this mistake. The hassle could overflow into the following tax year if adjustments, penalties, or fees are being levied against you. This will also delay any tax refund you may be owed.
6. Not Filing Your Taxes At All
If you want to file your taxes late, you must request an extension in advance. We all get busy, and taxes are the last thing we want to deal with. But, failing to file for an extension will often result in additional costs once you are ready to file. Keep in mind, filing an extension does not exempt you from having to pay any taxes owed by May 17, 2021. Filing for a tax extension just gives you more time to pull together all of your tax information and actually file.
7. Forgetting to Include Your Payment Information
Keep track of your payments to the IRS and state tax authorities. A few years back, I made a payment to my state tax authority that was not credited properly. Luckily, in this case, I paid online with a credit card, so I had an emailed receipt as well as the credit card statement as proof of payment. The more common scenario is simply forgetting to send payment altogether.
If you are sending a check or money order with your tax return, make sure it actually gets sent. Also, include your name and Social Security number on the check, as well as to which tax bill the payment should be applied. When you e-file, you can make payments electronically. Doing so avoids leaving it to the mercy of the mail carrier. Make sure you enter the correct bank information so the payments will actually clear.
8. Choosing the Wrong Filing Status
Which tax filing status should you use? Are you head of household, single, married but filing separately, or married and filing jointly? Choosing the correct status can be confusing. Picking the wrong one will throw off all of your tax numbers. Do not get sneaky by trying to use a tax filing status, for which you are unqualified, in order to artificially lower your taxes.
Big tax filing mistakes is missing tax deadlines.
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9. Check Direct Deposit Information
Why wait for a tax refund check from the IRS when it can be directly deposited into your bank account? Take time to make sure you are correctly entering your bank routing and account numbers. Typos could send your refund elsewhere and lead to a headache.
10. Missing IRS Deadlines
The tax filing deadline is May 17, 2021. If you are unable to get your tax information together, file an extension. Similarly, if you own a business, corporate taxes are due by March 15. If you are looking to make a retirement plan contribution either to an IRA or Roth IRA, it must be made by May 17, 2021, for the 2020 tax year. If you are looking at a 401(k) Profit Sharing, Cash Balance Pension Plan, or SEP IRA, you have until you file your taxes. Additionally, you still have time to open a SEP-IRA, but the 401(k) or pension must have been set up before year-end 2020.
Know the tax deadlines. Missing them will mean penalties and interest, which is a waste of money in most cases.
Taxes are difficult enough. Dodge these common mistakes to avoid having to rehash them down the road. A few extra minutes today could save you hours, and potentially thousands of dollars, in the future.