THE COLONY – Every year, due to common mistakes, billions of dollars in refunds are left uncollected by taxpayers from the Internal Revenue Service (IRS). Liberty Tax examines the top ten tax mistakes made each year by taxpayers in hopes to prevent them from repeating errors that may cost them money.
Staying Up-to-date on The Tax Code.
The biggest tax news of late is the Affordable Care Act and how Americans will be responsible for the Shared Responsibility Payment if they do not have health insurance and are not exempt from the law. The penalty will be the greater of 1% of their income or $95 per adult and $47.50 per child. Taxpayers need to research the latest changes to the tax code before filing their own taxes.
Not Claiming All Earned Income.
Taxpayers should resist the temptation to not report all income on their tax return. The IRS has examiners on staff to track Form 1099 which detail extra income. When they find the money a taxpayer earned and did not report, the taxpayer could owe interest and penalties, in addition to the tax that would be owed on the income.
Number Errors.
Another common mistake that could cost taxpayers is entering numbers on a tax form. Whether it’s a Social Security number or a number for income, incorrect number transfers on the form could cost a taxpayer. A very costly error could be entering in the wrong bank account number when requesting a refund to be direct deposited. The refund could actually get deposited into someone else’s bank account. Taxpayers should double check each number entered on their tax return.
Math Errors.
Careless math mistakes cost taxpayers each year. Many taxpayers use tax software and unfortunately if the wrong data is entered, the software will not catch the error. As in the number transfer mistake mentioned above, taxpayers should double check their numbers and then double check their calculations.
Filing Under the Correct Status.
With five different options available under filing status, the most accurate one for a taxpayer’s situation may not be easily determined. Each filing status could have an impact on the tax liability outcome. For example, filing under “head of household” is more advantageous than filing “single” if you are single claiming dependents because the taxpayer gets a larger standard deduction.
Mismatched Names.
This is a common mistake for newlyweds, typically when the wife takes a new last name and the IRS isn’t aware. The same issue may pop up for same sex marriages now that the federal government recognizes their union. The opposite applies as well – divorcees need to notify the Social Security administration of a name change. If a taxpayer’s name does not match the name and Social Security number the IRS has on file, the tax return could get kicked back or the process could slow down.
Paying Multiple State Taxes.
Many taxpayers forget that income earned in another state must be reported. If a taxpayer resides in one state and works in another, a nonresident tax return must be filed in the state in which they work. Only the money earned in that state needs to be reported. However, if taxpayers fail to file this return, they could face fines, fees, and penalties, in addition to the taxes owed.
Forgetting to Sign the Forms.
It is an all-too-common mistake to forget to sign on the bottom line. While this may not cost a taxpayer money up front, it will cause a delay in receiving any anticipated refund. And for taxpayers who’ve allocated their refund money to pay bills, waiting could cost them a late charge. For those who owe and wait until the deadline to file, forgetting to sign their tax return could cost them a late fee and penalty when the IRS kicks it back for signature and April 15th has passed.
Falling for Tax Schemes.
One of the fastest growing concerns for the IRS is tax refund fraud related to identity theft. Taxpayers have lost hundreds of thousands of dollars because criminals tricked them into believing they owed the IRS. The IRS will never send an unsolicited email or contact taxpayers through social media channels. The IRS does not ask for personal or financial information. If a taxpayer believes they may be at risk for identity theft, they should probably contact the IRS Identity Protection Specialized Unit, toll-free at 1-800-908-4490.
Missing a Deduction or Tax Credit.
While penalties and fees mentioned above could cost a taxpayer plenty, missing a deduction or tax break could cause them to owe more than they actually should or get a lower refund than what they earned.
“Tax preparers at Liberty Tax Service constantly undergo training to stay updated on the current tax laws and changes. It’s not just our customer service that keeps people walking through our doors every year, it’s the peace of mind they get with our tax preparers,” said Kryssi Contreras, owner of Liberty Tax Service in The Colony, TX.
To find a local Liberty Tax Service office, call 1-866-871-1040 or visit www.LibertyTax.com for more information.
