The Internal Revenue Service (IRS) and its agents are not known for their soft and compassionate side. Most people view the IRS as the agency you don’t mess around with and for good reason. The IRS is part of the Treasury Department and has been given legal abilities to ensure that their job of collecting taxes for the federal government is carried out. The deadline for filing federal tax returns this year was extended by the IRS to April 17th which is only days away. Those who have put off filing their tax returns will be scurrying at the last minute to avoid penalties for filing late. When taxes are done hastily, many filers will make some common errors that will cost them by increasing the likelihood of an audit or subjecting them to penalties. There are five common mistakes you should know about to reduce the likelihood of falling for these pitfalls.
The IRS uses a tax ID number to identify a person or entity. For most people this number is their Social Security number, which the IRS then uses to tie the financial world of that person together. In addition, many tax credits are tied to the tax ID number with one of the most common being the Child Tax credit. It is a common error of entering in the wrong tax ID number or not one at all, which will flag the return for a closer look. In the case of a Child Tax credit, a blank or incorrect number could allow the IRS to disallow the credit being claimed. Take the time to review these tax ID numbers to be sure they are accurate.
Another common error on tax returns is simple math miscalculation. There are many addition and subtraction calculations in the process of determining a tax liability or refund. With each step is the possibility that an incorrect key will be pushed or a math mistake will occur. With the increased usage of online tax preparation software, the chances of math miscalculation are reduced but at the same time the chance of keying errors rises. If filing on paper, be sure to double-check the math. If using software, be sure to double-check that the number on the screen matches your statement.
Overlooking unearned income is another error that is common among filers. Remember the first common error regarding the tax ID number? The IRS uses this to know just how much money was earned on your w-2s and 1099 forms such as 1099-INT or 1099-DIV. These statements should be collected and used to complete your 1040 form. Omitting this additional income won’t slip by the IRS, as they know about it already and that only increases the likelihood of an audit due to account discrepancies. When receiving tax forms from the various financial institutions, be sure to set them aside for tax preparation instead of throwing them away or filing them.
It is a common mistake for filers to fudge the numbers. This is where the filer believes they spent the money and wants to claim it as a deduction but they aren’t sure of the true number. Without complete and accurate records, many filers will guess or, even worse, inflate the figure in the hope of getting the credit. The IRS is not about guesses or hunches, as they will require the filer prove everything they are trying to claim. Take the time to dig up the records to provide an accurate number and if you are unable to uncover all of the records, only deduct those that can be proven. This type of error comes with some steep penalties that add up fast, so why risk it.
The last common error is forgetting to sign the return. Your signature is required at the end of the 1040, which states that you are declaring the return to be complete and true to the best of your knowledge. The IRS requires this so they know the filer’s part is done and that the filer is responsible for the return should the IRS find anything wrong with it. While not likely to cost the filer money besides postage, not signing a return will drastically increase the time it takes for the return to be processed. When the return is finalized and complete, be sure to sign it before mailing it out.
These common errors can result in costly mistakes when filing tax returns. Take the time to review your return, as a little bit of time spent now will save headaches and possibly money later. And, as always, be sure to check with a professional tax advisor if you have any questions or wish to receive tax help.