This year, the IRS announced it would begin accepting 2021 tax returns on January 24. You have until April 18 to electronically file your tax return, and this process will be much easier if you start preparing now.
Unfortunately, many Americans make mistakes when it comes time to file their tax returns. Many of these mistakes cost them time, money, or both. Here are 10 common tax filing mistakes and how you can avoid them.
If you always wait until the last minute to file your tax return, you aren’t alone — up to 25% of Americans don’t start preparing their tax returns until two weeks before the deadline. The problem is that once you sit down to start preparing your tax return, you may realize you’re missing the necessary paperwork.
At that point, you may not have enough time to find the paperwork you need before the tax deadline. And even if you do, you’re probably going to be stressed out in the meantime.
How to avoid this mistake: Try to file your tax return before March 15. You’ll give yourself plenty of leeways to sort out any problems that come up. Your employer is required to send you a W-2 by January 31, but if you still haven’t received it, you should contact them right away.
There are two ways you can file your tax return with the IRS — you can file electronically or print off your tax return and mail it in. However, mailing your tax return to the IRS is almost always a mistake.
Paper tax returns have to be processed manually, so they take twice as long to be completed. According to the IRS, it can take six to eight weeks to process paper tax returns.
That means if you get a refund, you’re going to have to wait a while to receive it. And taxpayers that submit paper returns are more likely to make a mistake.
How to avoid this mistake: File your tax return electronically — it’s easier, and you’ll get your refund sooner. Plus, if your annual income is $73,000 or less, you can file your return with the IRS for free.
Another common mistake taxpayers make is entering information incorrectly on their tax returns. Some examples of this are writing down a name that’s different from the one on your Social Security card or entering the incorrect Social Security Number.
Making either of these mistakes means your tax return will not get processed. This can lead to a lot of unnecessary stress and potential fees for filing late.
Another common mistake is writing down incorrect account numbers. If the IRS doesn’t have accurate banking information, they can’t automatically deposit your tax refund.
How to avoid this mistake: Double-check all the information on your tax return before filing. Make sure your name and Social Security Number match what’s written on your Social Security card. And make sure your account and routing numbers are accurate so the IRS can deposit your tax refund.
On your tax return, there are five tax filing statuses you can pick from:
Head of household
Married, jointly filing
Married, filing separately
Your filing status matters because it determines what deductions and credits you’ll receive. Picking the wrong filing status could minimize your tax refund or cause you to owe more money.
How to avoid this mistake: Work with an accountant or use tax filing software that will explain the difference between the different filing statuses.
If you have a full-time job, your employer will send you a W-2 at the end of the year. Freelancers and independent contractors will receive a 1099 from any clients they worked with in the past year.
Let’s say you have a full-time job, but you occasionally drive an Uber or deliver DoorDash meals in your spare time. You may not see your side hustle as a significant source of income, but you’re still required to report those earnings to the IRS.
And if you receive a 1099 from a company, the IRS received one as well. Failing to report that income could result in fines and increase your likelihood of getting audited.
How to avoid this mistake: If you have multiple sources of income, keep track of your earnings throughout the year. That way, when tax season arrives, you’ll be prepared to report everything you’ve earned. And keep track of all of your 1099s as you receive them.
Tax deductions reduce your taxable income and help you earn a bigger refund. You can take advantage of tax deductions in two different ways — you can itemize your deductions or take the standard deduction.
Itemized deductions are basically a list of expenses that can lower your taxable income. The standard deduction is a one-time deduction that reduces your taxable income. In 2021, the standard deduction was $12,550 for single filers and $25,100 for couples that are married and filing jointly.
Even if you choose the standard deduction, there may be other ways to reduce your taxable income without itemizing your expenses. For instance, IRA contributions and student loan interest are tax-deductible.
How to avoid this mistake: Even if you choose the standard deduction, look for other ways to reduce your taxable income. Using tax software can help you identify and keep track of any deductions you qualify for.
Tax credits directly reduce your tax liability so you want to take advantage of any that you qualify for. In some cases, tax credits could result in a refund even if you don’t owe any taxes.
For instance, the Child Tax Credit is available to parents with kids ages 17 and under. You may also earn a tax credit if you pay for daycare or recently adopted a child. And if you’re a low to moderate-income worker, you may qualify for the Earned Income Tax Credit.
How to avoid this mistake: Use tax software to determine any tax credits you may qualify for.
Even if you do everything right on your tax return, it can all be for naught if you forget to sign it. Failing to sign your tax return is like forgetting to sign a check — it’s essentially worthless without your signature.
And if you and your spouse are filing jointly, it’s easy to forget to have both people sign the document. Failing to sign your tax return can result in fines or late penalties.
How to avoid this mistake: Double-check your tax return to ensure you’ve done everything right. And if you use tax filing software, it may prompt you to sign your return or auto-sign it for you.
In addition to electronically filing your tax return, you should print off a copy to save for your personal files. And you should keep those records on file for at least three years in case you get audited.
I know, I know — audits only happen to rich people. And while your likelihood of getting audited does increase with your income, everyone has about a 6% chance of getting audited.
How to avoid this mistake: Print off a copy of your tax return and keep them on file for at least three years. You probably won’t get audited but printing them off is easy to do, and you’ll feel better knowing you’re prepared for the worst-case scenario.
And finally, there are hefty penalties for missing the tax filing deadline. Late penalties can cost as much as 5% of the amount due for each month that you’re late.
Some people don’t file their tax returns because they don’t think they make enough money. However, you could be leaving money on the table by doing this. According to the IRS, many Americans miss out on tax refunds because they don’t think they make enough money to file their tax returns.
How to avoid this mistake: If you miss the tax deadline, make sure you file an extension, so you don’t get hit with excessive penalties. And file your tax return even if you don’t have to — you could be leaving money on the table otherwise.
Nobody looks forward to doing their taxes, but filing your taxes doesn’t have to be stressful if you give yourself plenty of time. To make it easier on yourself, you might consider using tax filing software like TurboTax.
This software will walk you through filing your taxes and help you identify deductions and tax credits you might have missed otherwise. If your financial situation is particularly complex, it may be beneficial to have an accountant file your tax return for you.