Although tax laws change every year, you can count on certain things to be timeless. That includes the same common mistakes taxpayers with simple and complex returns make every year. Knowing what those common errors are will help keep you in the clear.
Not reporting all of your income. Employers send Form W-2 to their employers reporting income earned throughout the year, but what if you do freelance photography or business consulting on the side for extra spending money? You may not receive a Form 1099 for that work, but you still have to report the income on your tax return.
"This type of income is reported on IRS Schedule C as part of your Form 1040," says TaxAct CPA and tax analyst Andrew Oswalt. "DIY solutions like TaxAct make it easy – just answer simple questions about your income and expenses. The program will take care of the calculations and tax forms while helping you get all your deductions to maximize your refund."
- Not taking full advantage of IRA contribution limits. Individual Retirement Account (IRA) contributions are one of the few tax benefits you can still take advantage of through the tax filing deadline (April 17, 2018). For tax year 2017, traditional IRA contributions up to $5,500 ($6,500 if you're age 50 or older) are tax-deductible. The same contribution limits apply to Roth IRAs as long as your modified adjusted gross income (AGI) is below $118,000 ($186,000 for joint filers). Incomes above that are subject to a reduced deduction.
- Not double checking bank account and routing numbers. Whether you're getting a refund or you owe Uncle Sam, double check account numbers. Just one or two incorrect digits can mean a lost refund or penalties and interest because the IRS didn't receive your payment.
- Miskeying SSNs or using unofficial names. Believe it or not, these are one of the most common reasons tax returns are rejected. The IRS verifies Social Security numbers and names with the Social Security Administration when processing returns. If the numbers don’t match up, the return is flagged and potentially rejected. Importing last year's tax return information helps avoid these type of errors, but always double check that the numbers and names exactly match Social Security cards. If you realize you made a mistake on your return after you file, you can correct that mistake by filing an amended return using Form 1040X.
- Paying too much to do your taxes. Everything you need to prepare and file your taxes is right at your fingertips. Whether you file on a computer, tablet or smartphone, you can affordably and accurately file your federal return using one of TaxAct’s filing solutions.
- Not e-filing. Electronic filing is the fastest, most accurate way to submit your tax return to the IRS. Advanced encryption and transmission methods keep your information secure. Typically, the IRS typically processes returns e-filed during the last 48 hours within minutes, which means you'll have your refund sooner. E-filing also allows you to receive email and text notifications as soon as your return is processed.
- Procrastinating. Rushing leads to errors. Chances are you won't regret taking a little extra time and care completing one of the most important personal finance tasks you do each year. Reduce your stress and being the filing process once you receive all your tax documents.
Start your tax return as soon as possible. You may need to request information from your employer or financial institution if you don’t receive the documents you need. If you experienced a few life changes throughout the year, you may need a bit more time to claim additional deductions and credits. If you owe taxes, you can schedule an electronic payment for any time before the filing deadline to avoid paying penalties and interest.