The US federal tax code is notoriously tricky, and people often make mistakes, especially when they attempt to do their taxes on their own. If you plan to do your own tax return, it’s critical to avoid the errors that we point out below.
You may find that handling your own taxes can be overwhelming. In this case, it might be worth working with professionals such as Lear & Pannepacker. However, the following guidelines are still very helpful for anybody that wants to manage their own taxes.
But if you have a more complicated tax return, it’s smart to rely on the expertise of a Certified Public Accountant (CPA) to submit your return. CPAs must study for and pass a rigorous CPA examination, so they’re your best bet to avoid tax mistakes.
Basic Tax Return Errors
The most common tax return mistake is just getting necessary information wrong. For example, you should be sure all names on the return are spelled right. Also, ensure that every Social Security number is correct and choose your household’s proper filing status.
If you aren’t married, you can file as single, but you might get better tax rates if you file as head of household or qualifying widow with a dependent. Plus, married couples often pay less tax, so carefully consider whether you should file separately.
Failing To Enter Proper Information Submitted to the IRS
Be sure that you enter all dividends, wages, bank interest, and other sorts of income carefully. After all, the IRS received that information from employers and financial institutions. If the data you submit doesn’t match, your return could be rejected.
If you have questions about the financials reported to you, contact the entity that sent you the information and ask for changes.
Not Entering Information On the Proper Lines
Be careful that you are entering data on the correct lines. You will have problems if you put IRA rollover numbers on the line for taxable retirement account distributions. If you use tax software to do this work, you probably can avoid problems. That said, always check that you have entered all information on the correct lines before you submit your return.
Taking the Standard Deduction
Itemizing your tax return takes more time than using the standard deduction. But you can lose money by going with the standard deduction automatically. Spend some time to see which option will give you more write-offs.
Keep in mind that the standard deduction doubled in 2018 with the Tax Cuts and Jobs Act. Many people find that itemizing deductions doesn’t save them money, but it always pays to double-check.
Not Taking Your Write-Offs
You might fear that taking a deduction can trigger a dreaded audit. But you should take the deductions to which you are entitled.
For instance, many self-employed people think that claiming the home office deduction will result in an audit. This probably is not the case; note that the IRS created a way to take a simple deduction for a home office instead of forcing you to write off the expenses. If you meet the requirements for a deduction, it’s wise to take it.
Forgetting State Healthcare Mandate
For federal taxes, the Affordable Care Act required individuals to pay the penalty for not having healthcare coverage. But that requirement was banished in 2019.
But note that some states have their own health insurance mandates that require individuals to have health insurance coverage. So you should check your state requirements for healthcare coverage.
For 2020, these states and the District of Columbia require you to have health insurance: California, Rhode Island, Massachusetts, New Jersey, and Vermont.
If you avoid the tax errors we mention here, you are more likely to save money. Plus, you will avoid having to submit a corrected return or facing an IRS audit.