It is that special time of year again. The weather is getting warmer, days are getting longer, trees and flowers are blooming and income taxes are due. When most of us would prefer to take advantage of the change of seasons, Americans are forced to attempt to decipher more than 70,000 pages of tax code in order to maximize our returns.
According to the Internal Revenue Service, people make many simple mistakes when completing their tax forms. Most of them are easy to check and fix, but some of them can have a large impact on your tax return. Below are 10 common errors:
1. Incorrect or missing Social Security numbers
- Consequences: If you enter your Social Security number incorrectly, the IRS will not file your return, and you could be hit with penalties and interest. If a dependant’s Social Security number is incorrect, you will not be able to claim the write-off for them.
- Tip: Double-check that the Social Security numbers entered for you and your dependents are exactly as they appear on the Social Security card. While you are at it, check that all names are spelled correctly.
2. Selecting the wrong filing status (mainly for married filers)
- Consequences: Your tax rate will usually be higher. The exemption amount for alternative minimum tax will be half. Certain other deductions will be disallowed or reduced based solely on filing status. Both spouses may not be able to claim dependants. Capital loss deduction could be reduced to $1,500 from $3,000.
- Tip: Make sure you select the appropriate filing status. There are five different choices. Seek advice from your Tax Consultant, if you are unsure.
3. Math and Computation Errors
- Consequences: Math errors could make you pay more in taxes or trigger an audit unintentionally.
- Tip: Take your time and use a calculator. Copy numbers to the form carefully to ensure accuracy. While some software does the math for you, it is still up to you to enter the numbers correctly.
4. Incorrect routing and/or account numbers for Direct Deposit
- Consequences: You may not receive your refund at all. Instead, your refund may be routed to someone else’s account, which makes recovery difficult.
- Tip: If you choose this option, review the routing and account information for your financial institution.
- If you choose to receive a check in the mail, consider opening a Post Office box where all your financial information can be delivered. Not only will this minimize the chance of someone stealing your refund, it will decrease your chances of being a victim of identity theft.
5. Incorrect Address
- Consequences: Your tax refund check will be returned to the IRS and held until you contact them to update your address. The IRS is holding undeliverable refund checks from earlier years, totaling $164 million and affecting 111,000 taxpayers. If you did not receive a refund you were due, update your address by visiting the IRS website www.irs.gov and clicking on “Where’s my refund?”
- Tip: Double check your address or use the label the IRS provides.
6. Forgetting to sign and date the return
- Consequences: The tax return is considered invalid by the IRS and will not be filed. Penalties and interest will start to accrue.
- Tip: Check to make sure all signatures are present on the appropriate documents.
7. Not filing a tax return
- Consequences: You will not receive a tax refund check. According to the IRS, billions in refunds may be waiting people who have not filed federal income tax returns.
- Tip: File a tax return every year regardless of income. You may be eligible for a credit or entitled to receive a portion of the tax paid as a refund.
8. Not including all forms and documentation
- Consequences: Deductions will be disallowed if the appropriate documents and forms are missing. Your taxes will be higher and your refund will be less.
- Tip: When itemizing deductions, include all forms and copies of supporting documents. It is better to have too much information than not enough.
9. Not keeping a copy of the return
- Consequences: If your return is lost in the mail, the IRS will assume you did not file. Penalties and interest will begin to accrue.
- Tip: Do not send the IRS your only copy! Keep a few extra copies of your tax return for at least seven years. It is better to have one and not need it, than need it and have to start the process all over again.
10. Not filing by the deadline, April 17, 2012 this year
- Consequences: Penalties and interest will start to add up.
- Tip: If for any reason you are unable to make the deadline, file an extension. However, remember that to avoid penalties and interest, you must make a payment of any taxes you might think you owe by the filing deadline.
We hope that this information assists you in preparing your income tax returns. Now get out there and enjoy the beautiful spring weather. For more information regarding this topic, please contact Henssler Financial at 770-426-9166. You may also submit your question to us at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
