Common Tax Filing Mistakes Taxpayers Need To Know

12. Apr, 2010 0 Comments

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With April 15th around the corner, it is easy to rush through your taxes if you are doing them yourself using a tax filing software program. Most software programs are designed to prevent mistakes, but they are not flawless. Here are a few common tax filing mistakes to look out for:

Overstating or Missing Tax Credits & Deductions

New tax credits are becoming available, however, many existing tax credits change annually. Every year taxpayers forget to take advantage of applicable tax credits. For example, if you replaced windows on your home in 2009 that are more energy efficient, then you could take advantage of the Residential Energy Credit. On the other hand, many taxpayers fail to comprehend that many of these tax credits are only to applicable to taxpayers at certain income levels. For example, the home-buyer tax credit allows a married couple (filing jointly) or individual to save up to $8,000 in taxes if they purchase a home by April 30th, 2010 or have a binding contract on or before April 30th, 2010 with a closing date by June 30th, 2010. However, this credit becomes phased out once a married couple earns $225,000 ($125,000 for single taxpayers). Make sure to visit irs.gov to read up on the details of available tax credits, if in doubt.

Filing A Tax Extension But Forgetting To Pay Taxes Due

Many taxpayers each year file tax extensions. A tax extension is automatic and will give a taxpayer until October 15th to file. However, many taxpayers do not understand that an extension to file is not an extension pay. In fact, the IRS should have about 90% of actual taxes owed by April 15th. If the IRS does not have 90% of taxes owed by April 15th, you will incur a failure to pay penalty up to .5% per month on any unpaid amount.

Not Adjusting the Making Work Pay Tax Credit (MWPC) by Any Economic Recovery Payment

If you received a stimulus payment in 2009, you need to deduct that amount from the Work Pay Tax Credit (if you qualify for it). For W-2 employees, the MWPC reduced withholding amounts and most companies received the new withholding tables last April. However, the tables did not accurately account for taxpayers with two jobs, social security recepients with a job, taxpayers receiving pensions, or taxpayers filing with an ITIN. Therefore, if you fail to account for the stimulus payment with regards to your MWPC tax credit, you could end up owing taxes or having your refund delayed.

Forgetting to Send A Payment If Taxes Are Due By the Due Date

If you find out you owe taxes, you can either deduct it right out of your bank account, if you are filing with a software program (like TurboTax), or you can print a voucher to make the payment. Ensure the payment is postmarked by April 15th, otherwise your payment will lower than the payment stated as the IRS will tack on failure to pay penalty.

Selecting the Wrong Filing Status

Make sure to select the correct filing status on your tax return. Your filing status is very important because it affects your standard deduction, applicable tax credits, and your total tax liability. Therefore, incorrectly selecting your filing status can also impact your refund.

Putting the Wrong Social Security Number On Your Tax Return

If you fail to put the correct social security number on your tax return when you mail it or eFile it the IRS will reject it. This can be a costly mistake because the IRS can reject applicable tax credits and deductions. It sounds like a pretty stupid mistake, but it is common.

Putting the Wrong Bank Routing or Mailing Address For Your Refund

When you file your tax return make sure you put the correct address on the form, especially if you are receiving a tax refund. Another common mistake for taxpayers is putting the wrong bank account number or bank acount routing information for their refund.

Failing To Report All Income

Make sure to report all income. If you forget to report income you will incur additional penalties and interest on taxes due. This includes even reporting gambling winnings, tips, and unearned income.

Ignoring Disallowed Losses

If you regularly trade stocks or securities, make sure you do not include disallowed loses in your capital gains calculation. A loss on a security is disallowed if, within the period starting thirty days before the loss sale and thirty days after, you acquire the same security.

Failing to Save Receipts and Your Tax Return

Make sure you keep a copy of your tax return and any receipts. Generally, the IRS cannot audit a tax return filed more than 3 years from the due date. Certain exceptions to this rule apply if you understated your income by 25% or more or your tax return was deemed fraudulent by the IRS. Having your receipts is a good way to prove to the IRS or your State taxing authorities that a specific deduction was justified. It is a little upside down, but with an audit, you are guilty until proven innocent.

Not Signing and Dating Your Tax Return

Fortunately, if you are using TurboTax or some other software program, and you are submitting your return electronically, you cannot submit it without first electronically signing off the program. However, if you are mailing your tax return and you forget to sign it, the IRS considers your tax return unfiled.

This is a guest post by Manny Davis. Manny is President of Back Taxes Help, LLC, an IRS tax settlement firm that helps business and individual taxpayers resolve major IRS problems like tax levies, tax liens, tax penalties, tax audits and more.