Forex Articles

Making mistakes on your tax return can cost you money: You may miss out on a larger refund than you claimed, wind up owing more taxes – plus interest and penalties – or invite an IRS audit. The best defense against these results is a good offense, namely avoiding errors on your return. (For more tips on smooth sailing through tax season, read 10 Steps To Tax Preparation.)

Here are the 10 most common filing mistakes people make:

1. You blow the basics.

Make sure your name and those of your dependents are spelled correctly and that Social Security numbers are correct. Select the correct filing status for your situation. For example, if you're unmarried, you may file as single but could qualify for more favorable tax rates and other items if you meet the requirements for being a head of household or a qualifying widow(er) with a dependent child. And, under the right circumstances, married couples may pay less tax overall if they file separately rather than jointly.

2. You don't enter information as it's been reported to you (and the IRS).

Wages, dividends, bank interest and other income that you received, and that was reported on an information return (W-2, 1099, K-1, etc.), should be entered carefully. The government's computers are looking for this information. If you dispute what's been reported to you, contact the business that made the payment (e.g., your employer) and request a correction.

3. You don't enter items on the correct line.

Use care to make sure your entries appear where you intend them to. Don't put your tax-free IRA rollover on the line meant for taxable IRA distributions, for instance.

4. You automatically take the standard deduction.

While itemizing requires more effort – and receipts and other proof – than relying on the standard deduction, you could be costing yourself money by automatically taking the standard deduction. Check which alternative gives you the greater write-off.

5. You fail to check the box or pay the penalty under the Affordable Care Act.

This year there's a new box on the tax return to indicate that you had minimum essential health coverage for the year. If you didn't, you must show you are exempt or pay a penalty (called the individual shared responsibility payment). The exemption is claimed on Form 8965; the penalty is figured in the instructions to this form. If you fail to check the box or file this form, your return likely will be flagged for further inquiry. (For more Affordable Care Act tax information, read Avoid the Obamacare No-Insurance Penalty By Jan. 31.)

6. You don't take write-offs you're entitled to.

Some may fear that a certain deduction is an audit red flag and shy away from it. For example, there continues to be a belief that claiming a home office deduction can trigger a tax audit. This is probably not true, especially given the fact that the IRS created a simplified deduction alternative to writing off actual expenses. As long as you meet tax law requirements for a deduction, it's wise to take it.

7. You don't check for typos.

It's easy to transpose a number or leave out a digit, a mistake that can distort the information you're reporting. For example, you contributed $5,200 to your IRA but you inadvertently entered $2,500 as the deduction on your return, cheating yourself out of a $2,700 deduction (which costs you $675 more in taxes if you're in the 25% tax bracket).

8. When you have negative numbers, you use a minus sign.

If you have to enter an item as a negative number, do so with brackets; don't use the minus symbol. This ensures that IRS computers read the negative entry correctly.

9. You don't bother telling the IRS how to handle your refund.

If you overpaid your taxes and are due a refund, be proactive about what you want the government to do. If you don't do anything, the U.S. Treasury sends you a check. But to get your refund much faster, add your bank account information (account number; routing number) so the refund will be deposited directly into your account. Or you can opt to split your refund – toward next year's estimated taxes or as contributions to various accounts (e.g., IRAs). The instructions to Form 8888 explain your options.

10. You don't pay properly.

If you owe taxes, make sure that a payment is properly credited to you. Whether filing electronically or by paper, include Form 1040-V with your check. Alternatively, you can pay through the government's free payment sites (EFTPS.gov or DirectPay!) or by credit/debit card through an IRS-approved payment provider.

Make sure you keep a copy of your return, along with proof of filing (an acknowledgment that your e-filed return has been accepted by the IRS or a certified receipt for a paper return sent by mail). Having this proof will protect you from any claims by the IRS that you filed late, or not at all. And the information on this return will help you prepare your return for next year!