Now that the year is drawing to a close, it’s time to start organizing your taxes. It’s not too early to start thinking about filing your taxes — especially if you want to avoid a frenzied attempt to get your tax return filed by April 15.
Another good reason to start preparing your taxes early is to avoid mistakes. When you start early, you have time to review your information, double-check your math, and fix mistakes. If you are in a hurry as you approach the deadline, you might make mistakes that could cost you your refund.
Here are 4 tax filing mistakes to avoid:
1. Filing Status
Make sure you understand your filing status. For many taxpayers, filing status is something that becomes ingrained. However, if you’ve had a change in your household situation recently, your filing status might be different. You may have to file as a qualifying widow(er) or as head of household. If you are part of a same-sex couple, you might need to file jointly now, or designate yourself married filing separately, instead of filing as single.
Double check the requirements associated with each filing status so that you file correctly. A mistake in your filing status could result in missing out on a deserved refund, or it could mean underpayment — and the resulting penalties.
2. Roth IRA Conversions
Anyone can convert a traditional IRA to a Roth IRA. However, this conversion comes with the requirement to pay taxes. Since contributions to a traditional IRA are made with pre-tax dollars, you haven’t paid taxes on them yet. The IRS wants its cut, since your Roth IRA grows tax-free and you won’t have to pay on withdrawals later on. Make sure you understand the tax implications of your conversion.
3. Direct Deposit
One of the great things about the IRS is the fact that you can sign up for direct deposit for your return. In fact, it’s even possible for you to split up your direct deposit into three different accounts. Of course, this means that you might end up making mistakes. In order to receive your direct deposit, you need to have the right bank routing numbers and the correct bank account numbers.
The wrong account information on your tax return can mean the loss of your refund altogether. Believe it or not, the IRS doesn’t have a reliable procedure for recovering transferred funds. So if you make a mistake, your money could be gone forever.
4. Dependent Identification Numbers
If you want to take advantage of dependent exemptions and receive credits like the EIC and Dependent Care Credit, you need to have the identifying numbers of your dependents. Make sure you know the Social Security numbers of your children and others that you claim as dependents. Additionally, make sure that they aren’t claimed on someone else’s return. If you are divorced, or if you are sharing the care of an aging parent with your siblings, you need to work out who is claiming the dependent, since only one of you can.
Also, if you want the Dependent Care Credit, the organization or person watching your dependent needs to provide an identification number to you.
Make sure you double-check your tax return to ensure that these costly mistakes aren’t holding you back. Or worse, resulting in an audit.