For many taxpayers, getting in hot water with the IRS is not always the result of evasive tax maneuvers or fraudulent acts. In fact, for the vast majority of citizens, avoiding trouble with the IRS is fairly high on their list of priorities. Despite this fact, there are still plenty of people who find themselves making simple and common tax mistakes that can have negative consequences. In some cases, these mistakes could reduce your tax refund or increase the amount of taxes that you owe. The worst-case scenario is when a tax mistake leads to major issues with the IRS. Here we look at some of these common tax mistakes making it possible for you to avoid them moving forward.
- Check your Social Security Number– Something as simple as making a mistake when noting your SSN can result in problems with your tax return. If the SSN listed is incorrect or missing altogether it may trigger the IRS to issue a partial refund if you are owed money or increase your tax liability if you owe the IRS.
- Filing Status– Are you using the best filing status for your circumstances? If you could claim head of household status and you are not, you are missing out on a favorable taxation status. This may be the case for single parents or widow(ers) who have the ability to file joint rates for up to two years following the death of their spouse.
- Not Filing a Tax Return– As is often the case with individuals or married couples who owe a tax liability, a tax return is not filed because they are unable to satisfy the tax liability. Unfortunately not filing your tax return will only compound your financial burden due to the fact that this in itself will cost you money and you will still owe the tax liability which is subject to interest and penalties until the amount owed is satisfied. By filing a timely tax return, you will still owe the money but have the opportunity to work with the IRS to establish an installment agreement or other payment arrangement which will result in a lower penalty than if you hadn’t filed your return on time.
- Not Paying Estimated Taxes– If you are self-employed or a high earner you should be paying estimated taxes throughout the year. When you are responsible for reporting and paying your own taxes, make sure to do so or you will end up owing more money when the time comes to file your tax return. By paying your estimated quarterly taxes you are in a better position of breaking even or perhaps even getting a refund. If you don’t pay your estimated taxes you will surely have a tax liability for which you may not have budgeted.
- Failing to Claim Deductions or Credits– The tax laws are constantly changing, therefore it is almost impossible for the average taxpayer to keep up with deductions or credits that may be available. For this reason, it is often advisable to seek help from a tax professional, especially if your tax return is complex.
These are just a few of the common tax mistakes that people make each year when preparing their tax returns. If you have any questions regarding changes to the tax codes or your personal financial situation, seek out answers or assistance before filing your tax return. This step could save you hundreds if not thousands of dollars when tax time rolls around.