Thanks to tax preparation software, more of us are making fewer mistakes on our annual tax returns. But still, just one slip in entering information on your computer could end up costing you, either in the form of a larger tax bill or a smaller refund.
And even if a mistake -- either on your computer or paper forms -- doesn't cost you cash, it could delay the receipt of any refund you're expecting.
Tax changes also complicate the annual tax filing exercise. For the 2013 tax year, some higher income taxpayers (and their tax preparers) will have to decipher the 3.8 percent tax on investment income. Don't be surprised to see this new provision make the IRS list of specific problems during the 2014 filing season.
Special tax scenarios aside, there are still plenty of ways to mess up a 1040 form. Here are 10 common mistakes that show up every tax season. Don't make them this year!
1. Math miscalculations
The most common error on tax returns, year after year, is bad math. Mistakes in arithmetic or in transferring figures from one schedule to another will get you an immediate correction notice. Math mistakes also can reduce your tax refund or result in you owing more tax than you thought.
Using a tax software program to file your return can help reduce math errors. The built-in calculators do the work for you, adding, subtracting and inserting numbers on additional forms as needed. But you still have to make sure your initial numbers are correct. Entering $3,500 when the real figure is $5,300 makes a lot of tax difference. Getting the numbers right is crucial because you can be sure the IRS will be double-checking numerical entries against its copies of your tax statements (W-2, 1099s and the like).
When IRS examiners find a discrepancy, they'll definitely let you know and, in many cases, will correct your mistake and refigure your taxes for you. Don't give them the chance. Make sure your math entries are right.
2. Computation errors
These are cousins to the standard math mistakes. In these computation cases, taxpayers or their tax pros make mistakes in figuring such tax-return entries as taxable income, withholding and estimated tax payments.
Credits and special deductions also pose problems. Errors regularly show up, says the IRS, in figuring the Earned Income Credit, the taxable amount of Social Security benefits or in calculating the larger standard deduction for taxpayers who are age 65 or older or blind. A common connection in all of these errors is added worksheets or forms before the amounts are transferred to the taxpayer's Form 1040.
3. Misspelled or different names
The IRS is all about numbers, but words, specifically names, are important, too. When the names of a taxpayer, his or her spouse or their children don't match the tax identification number that the Social Security Administration has on record, that difference will cause the IRS to kick out or slow down processing of the tax return.
This often is a problem for new wives. Many women change their surnames when they marry. That's also an option for spouses in same-sex marriages, which the IRS now recognizes. If you didn't alert the Social Security Administration of your name change soon after your wedding, do so now so that your new name won't cause a problem when you file your first joint tax return.
And if marital bliss doesn't last and you change your name after a divorce, make sure Uncle Sam's appropriate agencies know that, too.
4. Direct deposit dangers
Taxpayers can have a refund directly deposited into multiple bank accounts. This option is a great way to save your refund money, but the more numbers you enter on a tax form, the more chances you have to enter them incorrectly. And a wrong account or routing number could cause you to lose your refund entirely.
You can divide your refund into three accounts by filing Form 8888 along with your individual return. It's not a difficult document to complete, but if you put in wrong account numbers, your refund could end up in someone else's account or be sent back to the IRS. Either way, you might not be able to retrieve your refund because there is no IRS procedure for replacing lost electronically transferred funds.
Incorrect account numbers aren't just a problem when a refund is split multiple ways. Even if your refund is going to just one account, make very sure you enter your account and bank routing numbers correctly.
5. Additional income, additional filing work
Did you have a side job this year? If so, as a contractor you probably received a Form 1099-MISC detailing the extra earnings.
What about savings and investment accounts? For these, you should have received Form 1099-INT and Form 1099 DIV statements.
In each 1099 instance, the IRS knows precisely how much extra money, either as wages or unearned investment income, you made as soon as you did, thanks to the copies of your 1099 forms that went to the tax agency.
If you forget to include any of these earnings on your return, the IRS examiners will let you know you owe taxes on them, too. And depending on when your oversight is discovered, you also could owe penalties and interest on the unreported earnings.
6. Filing status errors
Make sure you choose the correct filing status for your situation. You have five options, and each could make a difference in your ultimate tax bill.
If this is the first tax filing season since your divorce and you now are a single parent, writing "head of household" probably will be more beneficial. And what if you're still married, but you and your spouse are thinking about filing separate tax returns? That works in some cases, but not all.
Make sure you know what each tax filing status entails, and choose the one that best fits your personal and tax situation.
7. Social Security number oversights
Because the IRS stopped putting taxpayer Social Security numbers on tax package labels in response to privacy concerns, some taxpayers forget to write in their identification numbers. Your tax ID number is crucial because there are so many transactions -- income statements, savings account interest, retirement plan contributions -- keyed to this number.
The nine-digit sequence also is vital to claim several tax credits, such as the child tax and additional child tax credits as well as ones for educational expenses and dependent care costs.
8. Complete charitable contributions
Did you give to charitable groups last year? All types of donations, from cash to cars, could be valuable tax deductions, so make sure you count them all when you file. Be sure to follow the donation tax rules, the most important being that you give to a qualified organization -- that is, one that has tax-exempt status with the IRS. Also be careful when calculating any gifts of clothing and household items. Tax law now requires that these donations be in good or better condition or the deduction is disallowed. And remember that the amount you can claim for donated goods is the fair market value of the items; that's what a willing buyer would pay for it in its current condition, not what you paid for it.
9. Signature required
Sign and date your return. The IRS won't process it if it's missing a John Hancock, and that means on e-filed returns, too. Taxpayers filing electronically must sign the return electronically using a personal identification number, or PIN. To verify your identity, you'll have to provide the PIN you used last year or your adjusted gross income from your previous year's tax return.
Your tax software should walk you through the e-signature process, but if you're still mailing your return, don't be in such a hurry that you stuff your 1040 in the pre-addressed IRS envelope without signing it. And if it's a joint filing, both you and your spouse must sign.
10. Missing the deadline
Millions of taxpayers put off filing until the very last minute. That's fine, as long as you do get your 1040 to the IRS by the April 15 due date. If that's just not possible, be sure to file Form 4868 to get a six-month extension. If you fail to send in your tax return or the extension request (along with any tax you owe, or a close estimate of the due amount), you could face late- or non-filing penalties. Nobody wants to pay Uncle Sam a penny more than necessary, so don't make the mistake of missing the filing or extension deadline.
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