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  • Dan Connors

The top 10 tax filing mistakes and how to avoid them

"Today, it takes more brains and effort to make out the income-tax form than it does to make the income." Alfred E. Newman

As a CPA and Enrolled Agent for the past two decades, I've seen a lot of mistakes on tax returns, some of which changed things substantially. I try to get it right every time, but the complexity of our tax code stumps even me from time to time. I see articles like this every year at tax time, but they often leave things out. Here is my list of potential blunders and goofs.

  1. Math and spelling mistakes. According to the IRS, this is the biggest issue that they find. It used to be even worse when people filled out and mailed paper returns, but computers are still only as accurate as the people working them. Numbers can be transposed, left off, or botched, while names can be misspelled or changed inadvertently. Tax return data is matched with other data the government keeps, and any mismatch sends the return into rejection or limbo. Any other input errors give rise to the "garbage in, garbage out" adage, making the end result invalid. How to avoid: Take your time, work in a quiet, uninterrupted setting, and always double check your entries and results.

  2. Miscommunication. Communication is key in tax filing, (and everywhere else in life). It can be very hard to get hold of the Internal Revenue Service, but timely communication with them is vital. Most communication from them comes in the form of notices in the mail, and sometimes those are ignored or overlooked. Employer, spouse, dependent, contractor, and preparer communication problems can also lead to omissions or mistakes. How to avoid: Respond to all letters from the IRS or state department of revenue promptly. Set up an online account with the IRS and your state, where you can see notices, transcripts, balances, and make payments. Make sure to communicate with your tax preparer and don't be afraid to ask questions. Some tax professionals can even communicate on your behalf with a power of attorney.

  3. Timing errors. Filing season runs from January through Mid-April. Filing too early can result in leaving out important information that arrives later on. Filing too late after the deadline can result in substantial late filing penalties, plus interest, if tax is due. Missing deadlines on quarterly estimated payments can result in penalties. How to avoid: Make quarterly estimated payments on time if required. Consider extending past the due date if necessary. File amended returns up to 3 years later if facts change after you've already filed.

  4. Incorrect filing status. There are five filing statuses, and each one comes with its own tax table and set of rules. Head of Household filing status is sometimes claimed incorrectly or missed when it could be used. Married-separate is usually worse than married-joint, and technically married but separated spouses can often file single or head of household. How to avoid: Educate yourself on the five filing statuses and update them as your life situation changes.

  5. Dependent mistakes. You can generally claim as a dependent anyone that you supported for the year, but there are many rules and exceptions. Claiming a dependent prevents them from claiming themselves, and sometimes there's a conflict. Missing a dependent or claiming an ineligible one can make a big difference in your bottom line results. How to avoid: Learn the rules regarding residency, relationship, age, and income, or ask your tax preparer if a dependent qualifies.

  6. Missed tax credits and deductions. There are dozens of money-saving credits and deductions built into the tax code, but you have to claim them. Commonly missed ones include home energy credits, education credits, savers credit, self-employed health insurance deduction, IRA deduction, itemized deductions, and state-specific deductions and credits. How to avoid: The rules on the many credits and deductions change frequently. Follow the financial news or find someone who does.

  7. Using snail mail and paper returns. Communicating with the IRS through the US Postal Service is still an option, but it can take months to get answers. Plus it puts your information out there where it can be stolen. Math mistakes are more common on paper returns. How to avoid: File electronically whenever possible. It's much quicker and more secure.

  8. Identity theft and security issues: Tax identity theft is still an issue, and once a thief gets hold of your birth date and social security number, they can cause a lot of grief by impersonating you and filing false tax returns, among other things. How to avoid: Secure all tax information and shred when done with it. Avoid giving out your social security number unless required. Beware of online hacking attempts, suspicious emails and texts. Consider credit freezes and identity PIN numbers from the IRS if you suspect problems.

  9. Cheating and carelessness. Unclaimed income can often result in IRS letters and penalties. Making up deductions or dependents is considered fraud and could result in criminal prosecution. How to avoid: Honesty is the best policy. Keep good records and be prepared to back claims up. Make a pre-season checklist of all forms that you expect to receive and don't file until you think you have them all.

  10. Incompetent or unethical tax preparers. The tax preparation industry is unregulated- anybody can do taxes for pay with little or no training. Prepared returns, including self-prepared returns, can contain many errors if the person doing them isn't qualified. And preparers who emphasize the biggest refunds are often willing to skirt ethical rules to get there. How to avoid: Look for professionalism- people available year-round, credentialed (CPA, EA, JD, AFSP), with good reviews and recommendations. If self-preparing, double-check everything, and don't be afraid to ask for help when needed.

Dan Connors

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