You tear open the letter marked “Internal Revenue Service,” wondering whether it contains an unexpected refund or perhaps a friendly thank you note for filing on time. But, to your dismay, you find that you actually owe hundreds of dollars more than you projected because of a mistake with your tax return. Your heart sinks as you think of all the sacrifices you must make to pay the extra money.
To avoid this scenario, it’s important to exercise caution when filling out your taxes to avoid a boo-boo that will really sting later.
Getting the Credits and Deductions Wrong
The U.S. Tax Code is 6,871 pages. When you include the federal tax regulations and the official tax guidance, the number of pages rises to approximately 75,000. Even if you consider yourself an old hand in tax prep, there are bound to be breaks and rules you don’t know. Whether it comes from a software program or a live human tax professional, it makes sense to get help when you have taxes that could get complicated. That’s especially true if you have a business or make money from a side gig.
Making Math Gaffes
Are you a pencil and paper kind of person? If so, you need to be especially careful with your calculations at tax time. A tiny mistake in your numbers could mean a huge problem later. So double and triple check your data, and don’t be afraid to have another family member look at it to proof your work. Also, consider filing for free online at www.irs.gov to avoid any mistakes.
Using Stale Personal Information
If you’ve been doing your taxes for a while now, it’s easy to get in the habit of just carrying over your data from the previous year’s return. But if you’ve had a child or changed your marital status in the past year and forget to include this information on your return, you risk costing yourself quite a bit of money.
It sounds basic, but you’d be surprised how often people forget to sign on the dotted line. And if you are married and filing jointly, you both need to sign. While you’re at it, add “Double check Social Security Number(s)” and “Remember to include payment” to your pre finalization checklist. You want to avoid a delay and the penalties and/or interest that can come with it.
Overlooking Charitable Giving
If you’re like most people, you give multiple times per year to different charities. However, when it comes time to do your taxes, you may need to remember more than a few. So get in the habit of tracking your charitable giving, whether it’s by keeping receipts in a folder or scanning them and storing them electronically.
If you’re planning on not filing because you aren’t required to because of a low income level, be aware that doing so could mean missing out on an earned income credit. This could take money out of your pocket. On the other hand, if you’re avoiding sending in your tax forms because you owe more than you can pay, be aware that you are only making things worse for yourself by not filing. Instead, contact the IRS about an installment agreement or an extension so you can come up with the funds over time.
If you’ve ever dealt with the situation described in the first paragraph, you know how upsetting and frustrating it can be to get that kind of letter. However, by following the above advice and getting help when necessary, you can put yourself in a much better position to only get happy communications from the tax folks.
Not Covering Potential Underpayment
We all expect to get a refund at tax time, and try hard to minimize our tax liability, but sometimes you just need to pay up. If you owe taxes, rather than stress why not save up a “what if” buffer fund in advance? Then you have some or all of your liability covered if it comes to that. If you don’t owe anything, you now have a nice bonus to save or celebrate with! Your Credit Union makes saving for quarterly or annual taxes easy with our Tax Saver Account. Small painless automatic deductions build over the year with healthy interest to leave you with a nice tax nest egg as needed.