Update: This article was last updated on 23rd Jan 2019 to reflect the accuracy and up-to-date information on the page.
To err may be human, but to err with the taxes could be fatal. So, in the blog series aimed at improving your experience in this tax season, we are discussing some common mistakes that you must avoid.
Nobody enjoys doing taxes, and probably this is the reason most people leave it to the last. Even if you get extra days to submit the tax return, it is easy to make mistakes while rushing to get through the tedium of filing. These mistakes can slow down the process, or IRS may need to contact you, resulting in delayed refunds.
To help you with any headache tax filing can bring, here are five common mistakes made by people and the measures you can take to avoid the same.
1. Waiting to File
Various taxpayers wait to file their returns until the last minute. However, there are numerous reasons why you should not procrastinate from filing taxes until the last moment.
Firstly, your tax return may be far more complicated than you think. There can be instances when you may need additional data or paperwork or switch to hiring a professional to prepare taxes. In such cases, you need time to find the right person who can help you with taxes instead of going to whoever is available during this busy season.
Secondly, not filing early can make you a victim of identity theft, which is one of the common scams during the tax season. In such cases, the perpetrator files a tax return in your name and simply runs off with the refund. This would leave you giving explanations to the IRS of the tax fraud.
Unlike other forms of frauds, this scam cannot be prevented by freezing the credit card or blocking the account. So, filing as soon as possible is your best bet before someone else does it for you.
2. Doing the Math Wrong
With so many things to keep in mind, filing an error-free return can be a daunting task. In fact, the IRS receives many returns with calculation errors each year. If you make such errors, you might take comfort in the fact that it is one of the common errors made by taxpayers. Nevertheless, you will still have to pay the extra tax or get a reduced tax refund.
Any arithmetic error or mistake in transferring figures would get you a correction notice. One of the solutions is to use the tax-software program to reduce errors. The software has built-in programs which do all the addition, subtraction and insertion of numbers on forms whenever required. However, you still need to ensure that the initial numbers are accurate.
If you are filing a paper tax return, you may miss a number or two, so it is important to double-check your calculations. For instance, adding instead of subtracting is a common mistake, but it can drastically impact the actual tax liability. Also, you certainly would not want to miscalculate your income.
3. Missing or Incorrect Information
You have filled out all the forms, gathered all records and sent all the documents on time. Why are you not getting the refund check? There can be a possibility that your return was not fully filled, or something was not correct.
Or you incorrectly filled the routing information, in which case, your check would be sent by mail instead of your bank account. According to the IRS, forgetting to include the Social Security Number or entering the wrong SSN are common mistakes made by people while filling tax forms.
Although such mistakes are common and can be easily fixed, they can result in delaying of your return. You can avoid making these errors by double checking your information before sending the return.
4. Not Choosing the Right Person for Tax Preparation
There are many tax software products which makes it easy for you to file taxes on your own. If your Adjusted Gross Income (AGI) is less than $64,000, you can use free software to file taxes. However, it’s not easy for everyone to file their taxes and it becomes more complex if you have a small business, own an investment real estate or working in multiple countries or states.
Hiring a professional tax preparer can be a critical part of your income tax planning decision. Not all tax preparers are proactive in offering tax planning services. You can ask your tax professional if they can help you with tax planning strategies. Also, if you are working with a CPA or EA, make sure that they are in touch with your financial planner.
5. Not Reporting all Your Income
Failing to include any revenue which you have received will make the IRS think that you are hiding something. The IRS has a tracking system which determines which returns are to be audited. Unreported income is one of the ways the system flags the returns to be audited.
Failing to report any income or fudging small numbers will get the attention of the IRS. Moreover, depending on when it is discovered, you will be required to pay what you owe and even get penalties. The best way to avoid this is by reporting all the income to the IRS including independent contractor forms and employee W-2 forms.
The Bottom Line
Following a checklist before filing taxes is important to avoid errors. Spending some time to double-check all the information can help you save a lot of trouble of having important things missed. Pick an experienced and reliable auditor to ensure that any mistake with the taxes is checked and corrected in time.
Tax preparations firms who are catering to several clients during the season must have an efficient system in place. Technology-based solutions, such as tax software hosting on the cloud are some of the ways that can help you enact a flawless system.
To know more about hosting of tax software on the cloud for easier collaborations and document sharing, you can consult our experts over phone, chat, and email.
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