Avoid These Common Tax Filing Mistakes
As the infamous April 15th tax filing deadline draws near, many taxpayers begin the process of filing their returns. Organizing your finances and avoiding common pitfalls can help make tax season more bearable. Here are several common tax filing mistakes millions of Americans make when filing their tax returns with the IRS.
1 – Entering Incorrect Information
This may seem rudimentary, but the IRS will reject your return and delay processing if you enter the wrong Social Security Number. Double-check that your wages, interest, income, and other information on your return match the amounts on your W-2, 1099, and K-1 forms. The IRS cross-checks these forms to flag discrepancies. Verify your math, since incorrect figures can affect your tax owed or refund amount. Many tax preparation software programs let you upload documents and perform calculations, but reviewing everything for accuracy is always a good idea.
2 – Incorrect Filing Status
Five filing statuses determine how a household’s income is taxed: Single, Married, Filing Jointly, Married, Filing Separately, Head of Household, and Qualifying Widow(er) with Dependent Child. Understanding the qualifications for each status is crucial. Typically, taxpayers choose the status that results in the lowest tax liability. Several tax software programs can help prevent filing status errors, and the IRS.gov website offers a free tool called the Interactive Tax Assistant to help you choose the correct status, especially if you qualify for more than one.
3 – Credits vs. Deductions
Credits and deductions are beneficial when filing your return, but they work differently. A tax credit directly reduces your tax bill dollar-for-dollar. In contrast, a tax deduction lowers your taxable income by a percentage. For example, if you’re in the 35% tax bracket, a $1,000 deduction saves you $350. Taxpayers must also decide between taking the standard deduction or itemizing deductions to minimize their tax burden. Common itemized deductions include home mortgage interest, charitable donations, medical expenses, and even gambling losses (if certain criteria are met). Three popular tax credits taxpayers often utilize are the American Opportunity Tax Credit (AOTC), the Child Tax Credit, and the Earned Income Credit. Ensure you meet IRS requirements to qualify for any credits or deductions you claim.
4 – Missing Signatures
An unsigned return will not be accepted by the IRS and delay processing. If filing jointly, separately, or as Head of Household, ensure all taxpayers sign the return. Filing electronically through IRS.gov or using tax preparation software helps avoid this error.
5 – Improper Filing Time
As mentioned earlier, the tax deadline for most 2023 tax returns is April 15th, 2024. Filing without all the necessary tax documents increases the risk of errors and delays. However, if you’re struggling to gather documentation or need more time to ensure accuracy, filing an extension can move your deadline to October 15th. This is a popular option for self-employed individuals. Be aware that filing an extension only grants extra time to file, not to pay. If you owe taxes, interest and penalties may accrue for late payment. Additionally, you’ll delay receiving any tax refund you may be due. Remember, tax refunds accrue interest, and that money could be used earlier in the year to fund your goals like debt reduction or a family vacation.
Avoiding these mistakes helps prevent processing delays and the need to file amended returns. Knowing your previous year’s tax situation is a valuable guide for future financial planning. At Savant, we are firm believers in making the most of your income, having a sound strategy to take advantage of savings and tax breaks, and helping you pursue your financial goals. Feel free to reach out to our team at any point. Happy filing!
This is intended for informational purposes only. Please consult your tax professional regarding your unique situation.
Jonathon D. Merickel
Portfolio Advisor
CFP®, MBA