Avoid These Common Last-Minute Tax Mistakes
A whopping 20 percent of Americans wait until the last week to do their taxes, and if you’re reading this right now, you’re probably one of them. Just a few days out from the April 15 deadline, you definitely have time to get them done, but unfortunately the rush puts you at added risk for potentially costly or time-intensive last-minute tax mistakes, which is exactly what I want to help you avoid.
Trust me, I know how it feels to be a tax procrastinator. A little over five years ago, I was increasingly overwhelmed as my prior year returns began to mount, and I didn’t know how to tackle them. Once I started to receive notifications from the IRS — THEY WERE ONTO ME!!!!! — my frustration and anxiety hit a fever pitch wherein I stress-read IRS publications in a cold sweat at 3 a.m. and taught myself how to do taxes. But instead of becoming a self-made tax nerd by my tragic flaw (two parts perfectionism, two parts Cowardly Lion), I should have just set aside a couple nights the week before they were actually due, figured out the rules for the sections that applied to me, and did the darn thing. Oh, hindsight…
So let me be your last-minute Yoda with this list of 11 common but preventable tax mistakes, and how to avoid them.
1. Filing the old-fashioned way
Guys, it's 2015. I know I'm preaching to the choir for the most part — almost 92 percent of tax returns filed this year have been e-filed — but using tax software dramatically cuts your risk for error. According to the IRS, paper filers make mistakes at about 20 times the rate of those filing electronically, so avoid costly mistakes and pesky paper cuts by choosing to e-file this year.
2. Not getting your SSN right
A couple years ago I transposed two digits in my Social Security number, so the IRS kicked the return back. TurboTax notified me to make the correction and resubmit. I had it resolved within a day or two, so it was actually pretty low drama for a tax mistake, but only because I had e-filed — if I would've filed a paper return, it would have been a long, drawn-out fiasco. BOOM, another point for e-filing! But regardless how you file, it's important to triple–check your SSN.
3. Misspelled or mismatching names
Again, it's always important to confirm you entered your information correctly, and that includes your name. However, the newly married or divorced are especially vulnerable to name-related tax mistakes by failing to notify the Social Security Administration of their name change. Here's how to update your name with the SSA, and get your corrected Social Security card, but keep in mind you can't apply online so factor in some extra time for mail delay or to stop by your local office in-person.
4. Failing to report 1099 income
Tax lawyer and Forbes contributor Robert M. Wood is "often surprised by how careless people are about Forms 1099... They are matched to your Social Security Number, and you’re almost guaranteed an audit if you fail to report one." Of course failing to report any income will greatly increase your chances of an audit, and avoiding an audit is a huge incentive to make sure you've accounted for all of your W-2 and 1099 income... even if it's from little side jobs.
5. Messing up business expenses
According to the IRS, for a business expense to be deductible, it must be both ordinary and necessary.
An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.
Taking deductions not allowed by the IRS could wind up being an expensive and embarrassing hassle down the road, as in the case of TV news anchor Anietra Hamper, who attempted to take outlandish write-offs for items such as Victoria's Secret thongs, Cosmopolitan magazine, and self-defense classes, which a judge later rejected. Learn what constitutes a valid business expense before filing your taxes, which will help you maximize legit deductions, too, and stick to the rules.
6. Missing a tax break
On the other hand, missing an opportunity to reduce your tax liability totally stinks, too. A little research on tax breaks you may not realize you're entitled to take could add a lot of dolla dolla bills to your bank account. This list of "9 Things You Didn't Know Were Tax Deductions" is a good place to start.
7. Filing status #FAIL
Filing status seems like one of the most straightforward questions on the form, but still it's an annual pitfall for taxpayers. Steer clear of issues with filing status this year by following these simple rules:
- Only select one status. This isn't Facebook — "it's complicated" isn't an option.
- If you're married, make sure you and your partner are both on the same page about whether you're filing separately or together. You both have to pick the same thing.
- If you married or divorced during the tax year, make sure you use your status as of December 31 of that year.
- Head of household is for unique situations, so don't just assume because you run your own sh*t that you qualify for this status.
Your tax software should help you figure out your correct filing status, but if you're one of The Last of the Remaining Paper Filers (starring Daniel Day Lewis), you can use the Interactive Tax Assistant on the IRS website to help you figure it out.
8. Not saving your paperwork
Definitely keep a copy of your return and all receipts and other documentation for a minimum of three years as required by the IRS, barring a special circumstance that would extend that period. These days it's easy to save a digital copy of your return, but make sure to store your supporting paper evidence in a safe place, as well. It's also useful information to have on hand for filling out other financial paperwork.
9. Direct deposit misrouting
Yes, choosing to receive your refund via direct deposit is faster and easier, but make sure you enter your account number(s) accurately — especially if dividing into multiple accounts. If you erroneously enter an invalid or closed account number, the IRS will mail you a paper check to the address on your tax return. However, if you enter an account number that belongs to someone else, you're at the mercy of the financial institution in trying to recover your money.
10. Signature errors
Always, always remember to sign and date your return. According to the IRS, "An unsigned tax return is like an unsigned check — it’s not valid." Wow, those guys are poets! The sentiment is true, though. Your tax return must be signed, be it on a paper return or with the correct PIN on an electronic return for it to go through, so to avoid any holdup, check that your John Hancock is accounted for before you submit.
11. Missing the deadline
The first rule of taxes is TURN THEM IN ON TIME. The 2015 deadline is April 15. Yes, filing an extension will buy you an extra six months to complete your paperwork, but if you owe the IRS, it won't buy you any extra time to pay down your tax bill — interest starts accruing immediately once you miss the deadline. However, the worse thing you can do is not file at all. If you know you can't pay in full, an installment agreement can help you clear up tax debt and is a much better option than threatening letters from the IRS about wage garnishment or a bank account levy. On the flip side, if you are owed a refund, you must file the return within three years of its due date to claim it.
So just file already. Then at least you can say: