Although tax laws change every year, you can count on certain things to be timeless. That includes the same common mistakes taxpayers with simple and complex returns make every year. Knowing what those common errors are will help keep you in the clear.
1. Not reporting all of your income. Employers send Form W-2s, but what if you do freelance photography or consulting for extra spending money? You may not receive a Form 1099 for that work but you still have to report the income on your tax return.
“This type of income is reported on IRS Schedule C as part of your Form 1040,” says TaxACT spokesperson Jessi Dolmage. “DIY solutions like TaxACT make it easy – just answer simple questions about your income and expenses. The program will take care of the calculations and tax forms while helping you get all your deductions to maximize your refund.”
2. Not taking full advantage of IRA contribution limits. IRA contributions are one of the few tax benefits you can still take advantage of through April 15. For tax year 2014, traditional IRA (Individual Retirement Account) contributions up to $5,500 ($6,500 if you’re age 50 or older) are tax-deductible. The same contribution limits apply to Roth IRAs as long as your modified adjusted gross income is below $114,000 ($181,000 for joint filers). Incomes above that are subject to a reduced deduction.
3. Not double checking bank account and routing numbers. Whether you’re getting a refund or you owe Uncle Sam, double check account numbers. Just one or two incorrect digits can mean a lost refund or penalties and interest because the IRS didn’t receive your payment.
4. Mistyping SSNs or using unofficial names. Believe it or not, these are one of the most common reasons tax returns are rejected. The IRS verifies Social Security numbers and names with the Social Security Administration when processing returns. Importing last year’s tax return information helps, but always double check that the numbers and names exactly match Social Security cards.
5. Paying too much to do your taxes. Everything you need to prepare and file your taxes affordably, and even free, is right at your fingertips. Whether you file on a computer, tablet or smartphone, all taxpayers can file federal returns free with TaxACT Free Federal Edition. Unlike other free solutions, TaxACT includes all e-fileable IRS forms and schedules for complex returns – no restrictions.
6. Not e-filing. Electronic filing is the fastest, most accurate way to file your tax return. Advanced encryption and transmission methods keep your information secure. The IRS typically processes e-filed returns within 48 hours, typically within minutes, which means you’ll have your refund sooner. E-filing also allows you to receive email and text notification as soon as your return is processed.
7. Procrastinating. Rushing leads to errors. Chances are you won’t regret taking a little extra care on your income taxes, one of the most important personal finance tasks you do each year.
Start your tax return as soon as possible. You may need to request information from your employer or financial institution. If you experienced life changes, you may need a bit more time to claim additional deductions and credits. Even if you owe taxes, you can still file now and schedule electronic payment any time before April 15.
Regardless of when you file, do it by April 15 or risk paying penalties and interest. Get more tax tips at www.irs.gov and go to www.taxact.com to file free with TaxACT Free Federal Edition.
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