Filing taxes can be a stressful process. Many individuals and business owners get confused when filing, particularly when their tax situation is complicated. They often miss out on something or select the wrong option.
As a matter of fact, several Americans make these common tax season mistakes each year, promising themselves they won’t repeat them the next year. The good thing is that these mistakes are completely avoidable, and avoiding them will reduce your stress levels and help you manage your money better.
In this blog, we explore common tax season mistakes that individuals and construction contractors must avoid.
1. Not Paying Tax on Time
If you miss the deadline to file your tax return, you might incur Failure to File penalties. The Internal Revenue Service (IRS) will notify you through a letter if you owe such a penalty. This penalty is a percentage of the taxes you were supposed to pay on time. The calculation is based on how late your tax return submission is and the amount of outstanding taxes as of the original due date.
Furthermore, not adhering to the filing deadline could also lead to a delay in receiving any owed tax refunds. Thus, it’s a good idea to plan ahead and ensure compliance with the filing cutoff.
Keep in mind: If you require more time to prepare your tax return, you can request an extension. However, obtaining an extension for filing your return does not grant you an extension for making the tax payment.
2. Entering Wrong Details
Although it might appear surprising, this error is extremely common. Make certain to input your complete name precisely as it appears on your Social Security card, along with the precise Social Security number. Deviations from this accuracy can result in the rejection of your tax return.
If you have changed your official name, you should immediately notify the Social Security Administration to record the update. Subsequently, you can proceed to file your taxes using your accurate name.
3. Not Providing All Income Sources
A large number of people do not know that certain forms of income, such as rental income, stock option earnings, dividends, interest, and unemployment compensation, are taxable.
Neglecting to include such income on a tax return can lead to unpaid taxes, which can incur both interest and penalties. It is of utmost importance to accurately report all types of taxable income in order to evade potential penalties.
4. Providing the Incorrect AGI
When you opt for electronic filing of your tax return, the IRS asks for your adjusted gross income, abbreviated as AGI, from the previous year as a means of identity verification. This implies that you must possess the precise AGI from your previous year’s tax return in order to successfully e-file your current year’s taxes. If your AGI does not match that of the previous year, your tax return will be declined, necessitating a resubmission.
In the event that you misplaced your tax return from the previous year, you have the option to retrieve your past year’s AGI by asking for a transcript through the IRS website. However, you will need to establish a no-cost digital IRS account beforehand. If you did not file taxes in the previous year, when completing the current year’s return, you should input $0 as your AGI for the previous year.
5. Incorrectly Calculating Deductions or Credits
Earned income tax credit, child tax credit, child care deduction, mortgage interest deduction– the calculations for several such tax components can be challenging to calculate alone. A wrongly typed digit or incorrect computation can result in an incorrect tax refund, leading to either missed earnings or the necessity to reimburse the remaining amount along with fines and penalties.
Top-notch tax software can substantially mitigate the likelihood of such errors. This software not only gathers and computes all the requisite figures for accurate tax filing but also provides assurance through precision guarantees. These guarantees ensure reimbursement for penalties or losses stemming from calculation errors within their software.
However, entering accurate information is pivotal for the successful functioning of tax software. Hence, it’s important to diligently review all numerical entries before submitting. For those who prefer a traditional approach to tax preparation, the IRS’ Interactive Tax Assistant can help with a broad spectrum of deduction and credit evaluations.
6. Entering the Wrong Routing or Bank Account Number
As per the IRS guidelines, you can opt for electronic filing with a direct deposit to receive your refund in approximately 21 days. However, this method will not work if you enter the incorrect routing or bank account numbers during the tax return submission. Once the IRS accepts your return, you will no longer be able to modify your banking information.
If the IRS is unable to make the electronic deposit, it will dispatch a paper check to the address specified on your tax return. The IRS estimates this process to take up to eight weeks, although you have the option to set up notifications with the Postal Service to track its arrival.
If you unintentionally enter someone else’s routing and account numbers, the IRS might deposit your tax refund money into the other person’s bank account. In such an event, you will have to call your bank and probably go to an office to prove your identity and discuss what happened with proper documentation. Once the bank returns the money, the IRS will send you a check via mail.
If you have trouble filing taxes, have a unique tax situation, or are unsure of how to file taxes, you should talk to an expert for their advice.
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