Experience is simply the name we give our mistakes.
– Oscar Wilde
Some lessons are best learned the hard way, as many parents know. But when it comes to Uncle Sam, you’re better off getting things right the first time.
Messing up on taxes is common. In the best case, it may just mean a delayed refund. But it can also mean a smaller refund, spending extra money and time to amend your return, or (in the worst case) facing an audit.
Tax software helps avoid a lot of errors – especially in math – but it can’t fill out personal information or replace common sense. These days, that’s where the most frequent mistakes happen.
In the video below, Money Talks News founder and CPA Stacy Johnson covers some of the most common tax errors, which thankfully have easy fixes. Check it out, and learn more on the other side….
The tax code runs thousands of pages and is constantly changing, so it’s easy to make mistakes. But experience shows we tend to make the same ones, over and over. Here’s a checklist to help you out…
- Social Security info. What’s on your Social Security card goes on the return – if your name is wrong or changed, contact the Social Security Administration. Getting your number wrong, or that of a dependent or spouse, is even worse: The number might belong to someone else. This kind of error can completely stop the whole process.
- Math. Software can help, but in some cases you may still have to tally numbers on the side to enter totals. Triple-check your work.
- Signature. It’s like turning in homework without your name on it: no name, no credit. Make sure you sign your return – and the check, if you’re sending one.
- Wrong form. Again, software often helps here by picking the relevant forms. But sometimes using a 1040EZ won’t get you as much money as a 1040 or 1040A. And certain situations require additional forms or numbers in different places. For instance, where you claim a home office deduction differs depending on whether you are an employee, self-employed, or a business partner.
- Paying. There are a lot of tax software options, with varying fees for preparing, filing, and amending, not to mention state returns if that applies. But if your income is under $50,000, chances are you can get your taxes prepared and filed for free. Check out Tax Hacks 2012 – 4 Places for Free Help.
- Going pro. If you have a simple tax situation that hasn’t changed much since last year, there’s no reason to pay a professional to input your information into the professional version of software you can buy (or get free) yourself. Check out Tax Hacks 2012 – Should You Hire Help?
- Waiting on a check. Filing your return electronically through the IRS Free File is always free, no matter what your income or situation. Then sign up for direct deposit and your refund will most likely hit your account in less than two weeks. Don’t forget to triple-check your bank account number, however.
- Hiding income. This can easily happen accidentally if you have multiple employers, or if a W2 or 1099 goes missing. But take your time, think it through, and make sure you report all income – not just from your job but also from investments and anywhere else that might be reporting to the IRS.
- Missing deductions and credits. Polonius from Hamlet said, “Neither a borrower nor a lender be.” He was a jerk. But he was right too – don’t leave money on the table for the government. Check out 8 Easy-to-Miss Deductions and Home Office Deductions.
- Taking out a refund loan. If you’re desperate for your refund money, realize the interest charges on a refund anticipation loan or check only make things worse. Read why in Kiss Refund Loans Goodbye and learn about a better idea: changing your tax withholding so you get bigger paychecks year-round.
- Procrastinating. Tax Day is April 17 – and many people have already received their refunds. From the date this article was published, you have 55 days to get the job done right. So don’t short-change yourself literally and figuratively by waiting until the last minute, then rushing through it. That’s how you make dumb mistakes and forget things that could have lowered your bill.
I've been giving financial advice for 40 years, and I'm a millionaire several times over. Here are the 10 best bits of financial advice I've both given and taken.