01Know Your Filing Status
When you begin preparing your return, you’re faced with choosing your filing status right off the bat, and many people have limited knowledge of the intricate differences between them. The rules for qualifying for some are tricky and they make all the difference between being able to file as head of household, a particularly advantageous filing status, or having more of your income taxed as a single taxpayer.
You must have a dependent to qualify as head of household. You must pay for more than 50 percent of your household’s expenses. You can’t be married — or, at least, you can’t have lived with your spouse in the last six months. Read up on the rules for dependents and filing statuses before you make a selection and check off this box. If you have a child, you’re probably safe, but you might run into problems if you try to convince the IRS that your girlfriend is your dependent.
02Get the Data Right
Math errors are the most frequent problem with tax returns, but sometimes data is erroneously entered even before you begin subtracting, adding and dividing.
Use the numbers that appear on your W-2, 1099 or other tax forms. Don’t round them up or down — copy them exactly. The IRS will compare your tax return to the copies it receives of these forms, so a red flag will fly even if you claim $41,650 in income rather than $41,652. Take care not to transpose numbers. Problems will also arise if you enter $41,562 instead.
Make sure you get Social Security numbers right as well — yours, your spouse’s if you’re married, and those of your dependents. If what you enter doesn’t match Social Security Administration records, it will bog down processing of your return while the IRS gets to the bottom of the situation. This includes the exact name that appears on each individual’s Social Security card, not just the number itself. They must match. And don’t make the mistake of thinking you don’t have to enter a Social Security number for your infant. You can’t claim her as a dependent without one.
Double check your bank account number and the bank’s routing number, too, if you’re requesting direct deposit of your refund. You don’t want the money to go to someone else because you transposed a couple of numbers.
03That Extra Income You Earned
All your income is taxable, every dime. It doesn’t matter if you didn’t receive a W-2 or 1099 form for it — you have to report it regardless. This can come as a surprise to some taxpayers who picked up a little extra cash over the year in addition to pay from their regular jobs. Yes, you have to report the income even if someone gave you $100 in cash.
Most companies will issue you a 1099-MISC form if they pay you $600 or more, but don’t rely on this. Keep good records so you know how much to claim come April’s tax deadline. And if you receive any type of 1099 form, know that the information it includes must go on your return somewhere. Ask a tax professional if you’re not sure where to enter it. The issue can be particularly confusing with investment income, and it's a classic mistake with returns. Don’t set the form aside because you’re unsure what to do with it and risk forgetting about it. Remember, the IRS receives copies of these forms, too.
04To Itemize or Not to Itemize
Claiming deductions and/or tax credits is an area that just begs taxpayers to make mistakes. Eligibility for certain credits can be quite complicated, and multiple rules apply to tax deductions as well.
You must itemize to claim some deductions, and itemizing means not claiming the standard deduction for your filing status. This can actually result in paying the IRS more. Yes, it might be nice to claim a deduction for that donation you made to the American Red Cross, but if your total itemized deductions add up to $5,000 and you’re eligible for a $6,350 standard deduction as a single taxpayer in 2017, you’ll end up paying taxes on $1,350 more in income.
Even if the math works out in your favor, you’ll need specific proof of the deductions you claim, particularly charitable contributions, so take time to research the rules for this or ask a tax professional.
05Calculating Eligibility for Tax Credits
As great as tax deductions can be, tax credits are even better. Deductions come off your income. Tax credits subtract from your tax liability, what you’ve realized you owe the IRS when you get to the last page of your tax return.
Let’s say you owe $5,000 but you qualify for a $1,500 tax credit. Now you only owe the IRS $3,500. Or maybe you only owe the IRS $1,000 but you’re eligible for a $1,500 tax credit. If the credit is refundable, the IRS will send you a refund for the $500 balance, although if it will keep the difference if the credit is non-refundable. Two notable tax credits are refundable: the earned income credit and the additional child tax credit.
The IRS doesn’t want to send you a tax credit refund without first making very sure that you meet all the rules for qualifying. In fact, one of the provisions included in the Protecting Americans from Tax Hikes (PATH) Act of 2015 requires that the IRS take a little extra time to review all claims for these refundable credits to make sure the taxpayers really are eligible.
But calculations for qualifying and how much of a credit you can claim can be complex. It’s easy to make a mistake, and it can be tempting to fudge just a little if you’re borderline because the reward is significant. Don't fudge. Take advantage of the calculators provided by the IRS to make sure you qualify and, if so, for how much.
Many credits also typically require that you complete extra tax forms and attach them to your tax return in a certain order. If you have any doubt at all that you’re making the calculations correctly or that you’re correctly attaching what must be attached, seek help.
06An Easy Fix
According to the IRS, you’re 20 times more likely to goof on your tax return if you try to do it on paper. Who needs that pressure? Increase your odds of filing a trouble-free return by using tax software or IRS e-file. These programs walk you through tax preparation by asking you questions and applying your answers to determine what credits and deductions you qualify for. They’ll tell you if you’re better off itemizing or claiming the standard deduction. Best of all, these programs do the math for you.
Common Tax Filing Mistakes You Must Avoid
You’re done. It took you hours and your dog was looking for a safe place to hide, but you finished your tax return. Off it goes to the IRS.
Then a notice turns up in your mailbox a few weeks later, telling you that you did something wrong. Take heart. In most cases, a mistake won’t result in a full-fledged audit, but it can hold up your refund while things get straightened out. That notice can signal trouble sometimes, however, such as if you got too greedy with your tax deductions or credits.
As unpleasant as preparing your tax return can be, you’re invariably better off taking the time to avoid mistakes. Check your return against this list of common errors before you send it off.