5 Common Tax Filing Mistakes Almost Everyone Makes (But You Should Avoid)
To err is human but to err in filing your tax returns is a plain and simple hassle. Repercussions have often amounted to full-blown audits by the IRS when people have made mistakes in their tax filings while the humble consequences have stayed put to a total loss of the tax refund. You do want to be in either of these situations. No one wants an IRS audit and no one wants to lose a considerable part of their income. So, take note of these 5 common mistakes that people make while filing taxes and be extra careful when you fill out yours.
1. Rounding off or including a typo in numbers
The IRS offers an earned income tax credit to eligible Americans whose income is below $41,756 per year. The exemption can amount to almost $6,600. Now, you calculate and see that your income is coming to $41,758. You think what does $3 matter and you round that figure to $41,755 and claim the earned income tax credit. This will send the IRS a red flag. Even when your intention was humble, the IRS will think that you are trying to dupe the system. The same applies to typos like writing $41,764 as $41,746. Hence, always be extra careful with the numbers you write on the forms.
2. Itemizing payments that do not qualify
Claiming itemized deductions can seem noble, especially if you have been generous this year or made smart investments. But not everything comes under itemized deductions and the IRS can flag your form if there is a mention of some erroneous payment. Additionally, people mistakenly assume that itemized deductions can fetch them better tax results than standard deductions. This also leads to overinflating the itemized section that ultimately results in more tax payments. If you think that your itemized deductions will be more than the standard one, get the form reviewed by a professional.
3. Leaving out the extra income
Just because you did not receive a Form W-2 or 1099 against the payment. As per the law, you must mention every additional income that you have earned on the side apart from your monthly paycheck. These can become mammoth problems if the IRS suddenly decides to audit your tax returns. And if you do receive a W-2 or 1099 and decide to leave out the income anyway, be sure that the IRS will come knocking as they are also likely to receive a copy and can detect the anomaly easily. Even if someone gave you $50 because you took her dog for a walk, mention it in your tax returns.
4. Messing up the bank account numbers
Filling out the IRS Form 8888 might seem like the simplest job on Earth after you have managed to walk through the complicated sections of the other forms but this is where many people mess up by writing their account details wrong. You can include three bank account details in the 8888 and distribute your tax refund and you can thus go wrong in three ways. Best case scenario – after a lot of paperwork, the IRS ultimately sends you the refund in your corrected account details. Worst case – the refund reaches someone else’s account and you do not get the refund at all.
5. Miscalculating tax credit eligibility
Tax credits can become complicated but are excellent ways to reduce your tax amount owed to the IRS. The greatest benefit of a tax credit can also be your worst enemy as getting the eligibility wrong can either result in overpaying or raising a red flag. Tax credit happens in the dollar to dollar system. That is, if you are eligible for a $1,000 tax credit, the amount is subtracted from the sum you owe to the IRS and not your taxable income. As obvious, making a mistake here can be damaging so, get it reviewed by a professional before filing and be clear about the tax credits that you are truly eligible for.
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