It may still feel like the dead of winter in much of the country, but it’s prime time for one of the most dreaded rites of spring: tax filing.
The only thing worse than sitting down and filing your taxes is doing it wrong. The result of tax errors, after all, is at best overpaying and missing out on money you’re owed – and at worst getting audited (and then audited again one year later).
Avoid those fates by making sure you steer clear of these common tax mistakes.
1. Choosing the wrong filing status
Most tax pros recommend you start filing this year’s taxes by reviewing your returns from last year. If you’ve had a major life change, like getting married or divorced or having a child, be sure to update your status before preparing your returns.
If you’re unsure which status to choose, check with a professional tax preparer. In some cases, it makes sense for married couples to file separately, for example, while single parents should generally file as ‘head of household.’
2. Overlooking deductions
You probably already know you can itemize your property taxes and student loan interest, but there are dozens of other deductions that individuals don’t know about or forget to take.
Even if you don’t have a mortgage, you may have enough other deductions to make itemizing worthwhile, especially if you live in a high-tax state. “Just one big itemized deduction can push you over the line, and then you get all the smaller deductions, too,” says Jackie Perlman, a principal tax researcher with H&R Block.
3. Waiting until the last minute
Given how much fun it is to file taxes, it’s no wonder many taxpayers procrastinate for as long as they can. “If you’re scrambling to get everything together the weekend before April 15 and just shoving things through, you’re more apt to make a mistake,” says Troy Lewis, a CPA in Draper, Utah, and chair of the tax executive committee at the American Institute of Certified Public Accountants.
Errors aside, those who file later in the season will have to wait longer to get a refund, and they’re more likely to be victims of identity theft. Plus, it’s best to leave yourself some wiggle room in case you need to gather additional paperwork or documentation.
If you’re not able to file by the April 15 deadline, you’ll need to file for an extension and pay an estimate of the taxes you owe. Failing to file can result in fees and accrued interest that can push your tax obligation higher.
4. Keeping poor records
If you don’t have receipts for things like charitable contributions and business expenses, they might as well not have happened, as far as the IRS is concerned. Keep a record of such items to be sure you can easily calculate your deductions – and provide proof if the IRS does come checking.
If paper files aren’t your thing, apps like Expensify and Shoeboxed can help you keep such records in the cloud.
After you file, be sure to hold onto your returns. You’ll need them for at least three years and as much as seven years in case of an audit, and having them handy will make tax prep easier next year. You’ll also need to show recent returns if you refinance your mortgage or apply for college financial aid.
5. Doing it the old-fashioned way
While more than 90 percent of filers send their taxes in electronically, some 23 million taxpayers still use pen and paper to calculate returns. Filing online is safer, faster, and more secure. Plus, you’re less likely to introduce a basic math error or forget to sign and date the returns.
6. Not updating Obamacare income estimates
If you received a subsidy for health insurance purchased through the Obamacare exchanges, you estimated your 2014 income to determine the amount of that subsidy. Now it’s time to reconcile that estimate with the actual income you received last year.
More than half of marketplace-enrolled filers underestimated their income, according to a recent analysis by H&R Block – and have to pay back or reduce their tax refund by an average of more than $500.
Be sure to check the box indicating that you had health insurance this year, or you’ll owe a penalty or have to fill out an exemption form.
7. Forgetting to triple-check all your numbers
Your accountant or tax software will automatically check your math, but neither one can flag an incorrect Social Security number of bank routing digits used for direct deposit or automatic withdrawal. “One wrong digit there will foul everything up and you won’t get your refund,” says Bob Charron, a partner at New York accounting firm Friedman LLP.
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