Avoid These 11 Tax Mistakes When Filing
Taxes are not fun, but they’re one of the most important financial literacy areas to understand because the IRS isn’t the most forgiving bunch to people who make mistakes. The good news is, there are lots of ways not just to break even but actually save money on your taxes if you can eliminate the common tax mistakes people make.
Filing on Paper
Don’t even think about filing on paper. The IRS itself says the paper filings it receives are 20 times more likely to contain tax mistakes than the electronic ones.
I highly recommend you go with one of 2020’s most popular electronic tax softwares.
Tax forms are not opportunities to answer whatever questions you’re comfortable with and leaving the others blank. Instead, leaving a question blank can and will lead to costly and time-consuming complications. So unless you are absolutely positive a field can be left unfilled, you better do everything in your power to find out how to fill it in correctly.
Following Outdated Tax Law
We probably don’t need to tell you that tax law is extremely complicated. The deductions you can make and the forms you need to gather could fill an encyclopedia. And to make things worse, the laws change almost every year — sometimes subtly, but sometimes significantly. For example, you may be allowed to itemize a specific expense one year but then be in violation of tax law if you try and file it the next year, and vice versa.
The point is, you have to keep up to date on tax law changes every year to tax mistakes.
Filling in New Information
The information you put on your tax filing has to be the same as what’s on file with the IRS. If you moved a few weeks back and have not yet notified the IRS of your change of address, for example, remember to put your old address — the one they know about.
The easiest way to make sure you retain all your old info is by duplicating your tax filing from last year and then making any necessary changes.
Filing taxes requires a lot of math. For many items, you’ll need to add expenses, multiply by fractions if individual requirements are met, and calculate your own expenditures. Those who don’t have a good head for numbers are very likely to make some errors, even if they use a calculator.
Make sure to triple check all of your calculations.
Not all of the phrases used on tax forms are easy to understand. And there’s undoubtedly no wiggle room where the IRS is concerned.
For example, “head of household” and the other status options that make up one of the first questions on tax forms do not mean what you might think. Make sure to research exactly what the terms mean before entering one on your tax filing.
One missed letter or one wrong digit can invalidate your entire tax filing and make you guilty of tax fraud. So be EXTREMELY CAREFUL.
Most people have a blind spot when proofreading their own writing for typos, so my advice would be to have someone you trust — like a spouse or a licensed bookkeeper – look over your forms before submitting them.
Using Minus Signs for Negatives
You’ll almost certainly be using some negative numbers on your tax forms, and you have to remember that the machines which scan the forms cannot recognize those numbers as negatives unless you put the numbers in brackets. It’s natural to want to put a minus sign in front of the number and move on, but this will result in the negative number registering as a positive — one of the most common tax mistakes and one that can cost the filer huge amounts of money.
Itemizing When You Shouldn’t
The “status” you enter on your tax forms (single, married filing jointly or separately, qualifying widower, or head of household) will grant you a tax rebate, but only if you do not claim rebates via itemization.
Itemization can be a big money saver in some cases, but it saves less than not itemizing at all in others. Make sure you’re going with the better option. For quick reference, here is an article about what each status means and what it gets you.
This one’s a no-brainer. Filing late will cost you money because you’re charged a high-interest rate after the filing deadline.
Usually, the tax deadline is April 15, even though in 2020 it was June 15 because of the pandemic.
Tossing Your Tax Return
Believe it or not, the IRS makes mistakes! It sometimes loses track of people’s returns, so it’s good to keep a copy of your return and a record of receipt to prove you filed on time if you need to.
Keeping track of all these common tax mistakes can be a huge pain in the neck, especially for busy entrepreneurs. Unless you’re already well-versed in tax law, it’s usually a great investment to hire a bookkeeper or other tax preparer.
AVOIDING TAX MISTAKES IS ONE WAY TO SAVE ON TAXES, BUT FAMILIARIZING YOURSELF WITH TAX SAVINGS STRATEGIES IS IMPORTANT TOO! CHECK OUT THIS VIDEO TO LEARN A BIT ABOUT HOW TO SAVE LEGALLY!