Avoid these 5 common tax mistakes
Simple mistakes slow returns
There's a good reason more than half of Americans pay someone else to prepare their taxes: It's easy to make mistakes.
Rushing to meet a high-pressure deadline like tax day it can be even easier to slip up.
The growing popularity of tax preparation software and websites has managed to cut down on many mistakes. But whether you are filing an e-form or a traditional paper form, mistakes are still all-too common.
And those mistakes can end up costing you. You may not end up facing a larger tax bill or penalties if your misstep is small enough, it could end up netting you a smaller refund or at the very least delaying the arrival of your refund -- and nobody wants that.
Keep that in mind as you try to avoid these five common tax mistakes ...
No. 5: Math errors
Jimmy has four apples. If Uncle Sam takes two of those apples, how many will Jimmy have left? Less than if he had checked his math and realized he only owed Sam one apple.
As kids, we used such simple word problems to master addition and subtraction. As years go by though, those can fade for even the best of us.
That may explain why, according to the IRS, simple math mistakes are one of the most common missteps made on tax returns each year.
Remember to always check -- and even double check -- your math when preparing your return. Especially if you're rushing to make the midnight deadline, it can be easy to forget to carry the one.
Your math error may end up working in your favor, resulting in an IRS correction that nets you more money than expected. However, it can just as likely cost you money -- not to mention interest payments, penalties, etc.
No. 4: Screwing up personal information
It's amazing how simply transposing a couple digits on your tax return can end up indefinitely delaying your tax return.
But that's just what can happen if you goof up your social security number or your bank's routing information. Making such mistakes with your personal information can actually be worse than screwing up your math.
That's because the wrong bank account information could send your refund bouncing back to the IRS or straight into someone else's account. Considering that the IRS has no procedure for recovering lost electronically transferred funds, you could be out of luck.
At the very least, making such mistakes with your personal information can slow down your payment as you wait for the IRS to sort it out.
And filling out the wrong social security numbers, or forgetting to fill them in completely, can have the IRS disallowing certain tax breaks tied to your taxpayer identification number.
No. 3: Forgetting unearned income
Trust us, you don't want to overlook interest income, dividends, capital gains and other unearned income on your return. After all, the bank does tell the IRS about every penny you earn.
Those pesky 1099 forms that go to the tax agency include your social security number, so even if you don't remember that unearned income, the IRS will.
If you owe taxes on that income, the IRS will let you know. If they don't catch it right away, you could end up also owing interest and penalties on the unreported income.
When it comes to actually reporting that income, be sure to figure any taxes you do owe correctly. If you're subject to the alternative minimum tax, keep an eye on box 9 of the 1099-INT form. Another box of interest is 1b (qualified dividends) of the 1099-DIV form, which are eligible for lower capital gains tax rates.
No. 2: Not filing on time
The IRS reports that up to 20 percent of Americans wait until the last week to file. Just something to think about as you rush around on tax day trying to get everything done.
But make sure you do get everything in on time. Because once you are late with your taxes, you've opened a Pandora's box that can get worse with each passing day -- literally.
The IRS will start charging you interest payments, compounded daily, as soon as you are late. Then there are the penalties for filing late, which varies depending on how much you owe and how late you are.
While you can file for a six-month extension using Form 4868, you still need to file that form and pay any tax you owe by the regular filing deadline.
Really, it's much better to get it all over with and not end up paying more to the IRS than you need to.
No. 1: Forgetting to sign your return
Don't make perhaps the most embarrassing tax mistake of all -- sign your return.
According to the IRS, 1 million people each year forget to take that one final, simple step.
If you're filing electronically, you obviously don't have to worry about this step. Besides the fact there are no physical papers to actually sign, tax preparation software and websites won't send your return to the IRS without every step being complete.
But, believe it or not, about half the people filing individual tax returns still do so the old fashioned way. So if you're one of those filers rushing to the post office at the last minute, don't forget to sign your forms before stuffing them into the envelope.
Not signing your forms -- or forgetting to have your spouse sign if filing jointly -- won't kill your return, but it could put your last-minute filing past the deadline and will delay any return you have coming.