Avoid the 8 Most Common Tax Mistakes
Image source: Getty Images.
As a new year begins, Tax Day is creeping up like a thief in the night. It's never too early to prepare yourself and make sure you don't give up a single dime that rightly belongs to you.That's why now is the time to read up on the most common mistakes tax filers make -- and take measures to avoid following in their footsteps.
So here's the IRS' list of the eight most common tax mistakes, along with some advice on how to avoid them.
Image source: Social Security Administration.
1. Wrong or missing Social Security numbers
The majority of U.S. taxpayers know (or feel like they know) their Social Security numbers, but it only takes a moment to check the number on your Social Security card against what appears on your tax return. This is especially true regarding family members, whose numbers you may use less often.
Finally, if you've had an addition to the family this year (congratulations!), be sure to apply for a Social Security card for your newborn as soon as possible; you'll need that number when filing. Social Security cards can take anywhere from one to six weeks to arrive once you've applied, so start the process early. This chart shows typical wait times.
2. Wrong names
You might think that all taxpayers know their own names and their spouses', and in most cases, you'd be right. The problem is when there's a typo -- or when one of those names has been changed. If your name has changed due to a recent marriage, divorce, or other reason, then be sure that you notify the Social Security Administration (SSA). The IRS checks the Social Security number on your return against the SSA database and flags irregularities.
3. Filing-status errors
If a change occurs in your family, it can also change your filing status. Most cases are simple enough and involve only checking the correct box. An example of a common mistake is claiming "head of household" status instead of "single." The IRS offers online resources like this Interactive Tax Assistant to help you choose the filing status that is right for your situation.
4. Math mistakes
Don't let those math errors delay your refund. Image source: Pixabay.
A recent survey indicates that over 70% of taxpayers use tax-preparation software, a tax service, or an accountant to prepare their taxes. Tax preparation software does the math for those who file online. If you use the paper forms, be sure to check and double-check your math in cases that require addition or subtraction. Not only could this type of mistake delay a refund, but it might cost you money that the IRS would have otherwise refunded you.
5. Errors in figuring credits or deductions
This is an area where you may want to take additional care. Most credits require that taxpayers meet a variety of rules. The Earned Income Tax Credit (EITC) is a great example: One in five taxpayers who qualify don't claim it, either because it's complex or simply because they don't know about it.
Tax preparation software will make this process relatively painless by asking all the necessary questions and automatically calculating what sort of credit you're eligible for, if any. If you can use tax prep software, I would highly recommend doing so. If not, the IRS provides an EITC assistant to help you make the determination.
In addition to the EITC, many filers make mistakes figuring out their Child and Dependent Care Credit or their standard deduction, which varies based on their filing status and other factors. Here's an example: If you are 65 (or older) or blind, you get a higher standard deduction.
No matter which tax break you're interested in taking, follow the IRS' instructions carefully each step of the way.
Image source: Pixabay.
6. Wrong bank account numbers
Many taxpayers now opt for the ease and convenience of getting their refunds via direct deposit. It speeds up your refund and is more secure than a paper check (who hasn't been told "the check is in the mail" before?).
Be sure to use the correct bank account number and routing number. Some accounts have a different routing number for savings versus checking. Consulting your financial institution before you send your return can prevent headaches later.
7. Forms not signed or dated
Be sure to sign and date your return. If you file a joint return, then both spouses must sign and date it. An unsigned tax return is like an unsigned check: It's not valid. The IRS is serious -- it wants your John Hancock!
8. Electronic-filing PIN errors
When you e-file, your self-selected personal identification number (PIN) takes the place of your signature to verify your identity. If you've forgotten your PIN, you can find it on your previous year's tax return. You can also verify your identity by entering your prior-year adjusted gross income (AGI). You can find that information on the return form you filed -- that's line 37 of the Form 1040, line 21 on the Form 1040-A, or line 4 on the Form 1040-EZ. If you haven't filed before, then enter your AGI as zero.
Image source: Pixabay.
Remember, the fastest and safest way to get a tax refund is to combine e-file with direct deposit.Even if you use electronic filing software, though, a simple typo could result in one of these errors, so go over this list while preparing your return and again before you file. Any of these mistakes could delay the processing of your return -- and the issuance of your refund check.
A few minutes of review can prevent weeks or months of anxiety. So start early, save your work often, and review before sending. You'll be glad you did!
The $15,834 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $15,834 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.Simply click here to discover how to learn more about these strategies.
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.