12 Common Tax Mistakes That Are Costing You Money
It’s officially tax season. Yep, everyone’s not-so-favorite deadline (April 17) is just around the corner. It doesn’t matter if you’re still building good financial habits or you’ve been making fiscally responsible decisions all year. You can’t get out of doing your taxes. But this year, you can make sure you aren’t missing out on money that should be yours with help from Linsay Thomas, a finance expert from DealsPlus.com. Below, Thomas shares 12 mistakes *way* too many people make every year so you know exactly what to double check before sending your forms to the IRS.
1. Taking the Standard Deduction: Taking the standard deduction may be quicker and easier, but Thomas notes that if you have a substantial student loan interest, education costs, or medical expenses, you could be better off itemizing your deductions. To prove her point? She says that 20 percent of Americans lose out on an average of $400 by not claiming all their deductions.
2. Submitting With Missing or Incorrect Information: “Make sure you fill out your tax return completely. Missing information can lead to delays,” says Thomas. “The same goes for incorrect information. It’s easy to enter the wrong Social Security number or address. Make sure everything’s accurate before filing.” Double-checking everything before hitting “e-file” will save you some major headaches later.
3. Not Keeping Track of Donations: Whether it’s the casualties of a closet clean-out or old furniture from a minor decor upgrade, most people donate at some point throughout the year. Those donations could be money in your pocket. Thomas says, “Make sure you’re keeping track of every donation you make, as they’re all deductible. However, there are specific rules for documenting charitable donations. The IRS guidelines are listed here and you can get your hands on a simple tax checklist to get you started on organizing your documents.”
4. Not Holding Onto Receipts: “Receipts show what you’ve spent, so if you’re trying to itemize deductions, you need receipts to prove you spent the money you claim you did,” notes Thomas. Plus, receipts provide protection. Thomas adds, “If you’re ever audited, the IRS will go off of your receipts, so if you don’t have any, you likely won’t get credit for the deductions. Hold onto your receipts for at least three years and you won’t have to worry.”
5. Making Simple Math Errors: If you’re like me and somehow graduated college without taking more than one math class, you might want to pay extra attention here. Thomas suggests ditching the calculator and pencil, which are way more prone to errors, and using tax preparation software. It’s absolutely worth the $30 investment.
6. Missing Out on Credits: “College students and parents have valuable credits available to them. Even if you took just one college course last year, you may be eligible for a portion of the credit. The American Opportunity Credit is worth up to $2,500, while the Lifetime Learning Credit is worth up to $2,000. For parents, the Earned Income Tax Credit can be worth up to $6,444. Because credits reduce your tax bills, they’re more valuable than deductions and should not be overlooked,” shares Thomas.
7. Not Keeping a Copy of Your Return: Once you file your return, the work isn’t over. Thomas suggests holding onto a copy for at least three years, explaining, “That’s how long the IRS legally has to audit you. Plus, you should have a copy on hand in case you plan to apply for a loan or mortgage, as many lenders will want to see your previous year’s tax return as proof of income.”
8. Not Claiming Children as Dependents: “Even if your 16-year-old son works and earns an income, he’s still a dependent. According to the tax code, you must provide at least half of your child’s support in order to claim him or her as a dependent,” says Thomas. “You can even claim your college student as a dependent, as long as their income is under $4,050 per year. Your child doesn’t even need to live with you. You might be able to claim your child as a dependent much longer than you think, so don’t overlook this deduction.”
9. Inputting the Wrong Bank Account Number: If you’re due for a refund, you won’t receive it if you use the wrong bank account number, says Thomas. This is a serious face palm situation. “If you need to make a payment and use the wrong account number, the payment will fail and you’ll be charged late fees and other penalties. Verify the account number and routing number before proceeding.”
10. Using the Wrong Tax Forms: “The 1040, 1040A, and 1040EZ forms are all different,” notes Thomas. “Each has its own set of restrictions. You’ll want to make sure you’re using the right ones. Again, investing in tax prep software will help you avoid the mistake of using the wrong form.”
11. Not Starting Your Taxes Early Enough: While it might be tempting to wait until the end of March or even April, Thomas highly suggests you don’t procrastinate. “Start on your taxes as soon as all of your W-2s and other documents come in. You never know if you’ll come across any issues that require professional assistance. These snafus can cause delays, so don’t wait until April. If you owe the IRS money and don’t pay by April 17, you’ll be charged interest.”
12. Not Filing at All: Sometimes it might seem easier to just ignore the whole process, but Thomas says that just because you owe the IRS money and can’t repay them now doesn’t mean you can ignore your tax bill and hope it will go away. “You have to file your taxes every year, no matter your situation. If you don’t file your taxes, you could get hit with huge penalties. You could also get hit with tax evasion charges and be thrown in jail. It’s no laughing matter. File your return by April 17 and let the IRS know about your situation. They offer repayment plans to work with your budget.”
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(Photos via Getty)