Costly Tax Mistakes and What You Can Do about Them
The time for filing your tax returns is just around the corner. Are you ready?
Once you've completed the necessary forms, it's worth your time -- and money -- to double check on them. Why? Millions of taxpayers commit mistakes when preparing and filing their returns, errors that cost them hundreds to thousands of dollars.
Even if you hire the services of a professional tax preparer, that won't guarantee you an error-free tax return. A few months ago, the Government Accountability Office (GAO) conducted a study on tax return preparation preparedness, and here's what they found (via Macon.com)
Whether you have a tax guy to do the dirty work for you or not, it's imperative that you know which tax mistakes can cost you a fortune, so you can avoid them.
The Mistakes
Math errors
Basic arithmetic errors rank as the number one mistake of taxpayers. Take it from the IRS, which says that the average 1040 form contains dozens of math miscalculations. These include basic errors in addition and subtraction. You can completely rid yourself of these math boo-boos by using tax preparation software.
Also, watch out for numerical errors not involving calculations, as in transposing digits (e.g. putting $56,087 instead of $50,687).
Overlooked deductions
First off, it's better to itemize your deductions instead of taking the standard deduction. The GAO estimates that there are more than two million taxpayers who overpay their taxes by not itemizing.
If you already itemize your deductions, make sure you're squeezing every cent out of them. Some important deductions you won't want to overlook are:
Charitable contributions (donations) Health insurance premiums Medical expenses Traveling and mileage expenses (e.g. tolls paid) State sales tax or state income tax deduction Volunteer work expenses Investment expenses Home office expenses Electric vehicle credit Gambling losses Expenses for cleaning your work clothes/uniforms Clean-fuel deduction (for hybrid car users) Bonds-buying expenses Job-search expenses Job expenses not reimbursed by employers Education expenses Tax return preparation expenses Not thinking about taxes all year round
If you enjoy a fixed monthly income, then half your problem's solved. But if you're self-employed and have a fluctuating monthly income, recording them dutifully is imperative for a less hassle-filled filing time.
The other half of the problem lies with tax deductions. You'll need to keep tabs on your receipts, donations, health bills, and other pieces of evidence all year round!
Not thinking about taxes at all
No, paying taxes is not optional. Believe the wise guys who say otherwise, and you might find yourself in trouble with the IRS. When it comes to the point that you're receiving mail and notices from the IRS, take action and prepare your returns. Do not ignore those letters. Let us repeat -- do not ignore them.
Best Practices After Tax Season
After tax return filing time has passed, don't slack on watching over your income/s and possible tax deductions. Record them all dutifully, to avoid cramming the next tax season.
Don't forget the just-finished tax return and your experience in filing it. When preparing next season's return, review the previous one. It should remind you of which deductions to use, as well as guide you in properly filling up the lines, filing status, and signature/s.
Keep yourself up to date with tax-related news and notices issued by the IRS. These include changes in filing status qualifications and tax deduction updates. And last but not the least, spend time reading and re-reading tax help articles like this, even when it's not close to tax return filing deadline. The better you get acquainted with tax mistakes, the better your chances are for more dollars saved!