Personal Income Tax Guide: Common Filing Mistakes
By Ken Clark
No matter how much tax planning you do, if you screw up the actual process of filing your taxes, the ensuing penalties and time spent cleaning up the mess can quickly wipe out any benefits you've gained. So, whether it's your deadline, your documentation, your signatures, or your e-file status, it pays to double-check everything. If there is one area of your personal finances you don't want to be lax on the details, it is with the IRS. The last thing you ever want to do is give them a reason to look twice at your return, no matter how honest you are.
Filing Deadlines and Extensions
No one aspect of filing taxes yields more horror stories, wives tales and misinformation than tax filing deadlines. Perhaps that's because there are as many rules about when your taxes are due as there are for some of the most complicated deductions.
The classic date that most people associate with taxes being due is April 15. But even this yields confusion when it comes to what must actually be done by that date and what happens if that date falls on a weekend. So, let's break it down into simple terms.
As a general rule, everything must be postmarked and in the mail (not necessarily received by the IRS) by 11:59 PM on April 15. If however, April 15 falls on a Sunday, the deadline is pushed to Monday. There is no special treatment for a deadline that falls on a Saturday.
Included in this April 15 deadline is the requirement to pay any balance that you might owe. In other words, filing your taxes on time but failing to pay the amount due will result in a fine and additional interest payable to the IRS. An estimate of the amount due must still be paid by April 15, even if you file for an extension on completing the return itself. (To learn about extensions, see Get A Six-Month Tax Extension.)
When it comes to extensions, the IRS and most states grant one automatic extension to anyone who asks, regardless of the reason. With regards to your Federal return, filing an application for automatic extension (via Form 4868) by April 15 gives you an additional six months (until October 15) to get your paperwork in order. This six-month extension replaces the previous IRS policy of granting an automatic four-month extension with the ability to request an additional two months after that expires.
The Most Common Tax Filing Mistakes
Aside from failing to file their return on time, there are numerous common mistakes that cause both the IRS and taxpayers to roll their eyes. Here's a list of some of the most common mistakes that end up costing more than a few taxpayers a lot of money and tears:
- Forgetting the stamp - Yes, as hard as it is to imagine, thousands of taxpayers every year forget to put a stamp on their envelopes. Additionally, just as many people put an insufficient amount of postage on the envelope. Thankfully, the IRS does not send people to jail for their return being a few days (or even a few months late). There may be a penalty, but it's usually a relatively small amount for most taxpayers who submit their return within a few days after their deadline.
- Forgetting to sign - In the eyes of the IRS, an unsigned tax return might as well have not been sent at all. In fact, they will not begin processing it until it is signed and dated correctly. Unfortunately, it takes most taxpayers substantially longer to discover this error than it does to realize they forgot the stamp. It often takes the IRS a month or more to notify a taxpayer of their unsigned return. Of course, when you discover that your return is unsigned, don't hesitate to submit a properly signed return since interest and penalties start accruing from April 15 on, regardless of the reason your return has not been processed.
- Forgetting Social Security numbers (SINs) - While most taxpayers don't forget to include their own Social Security numbers on their return, many often forget to include those of their children or adult dependents. Of course, the IRS will not permit you to take certain deductions or claim dependency exemptions without a valid taxpayer identification number (TIN), which naturally throws off the rest of a taxpayer's calculations. Be sure to check all your other supporting forms and schedules in addition to your Form 1040, for places requiring the entry of your dependents' identifying information. (Sometimes you'll want to leave off the dependents on your form. To learn more, read Happily Married? File Separately!)
- Using the wrong annual limits, tax tables, etc. - There's no doubt that taxpayers turn to the internet in droves at tax time. Whether it is looking up their tax brackets or trying to find out their limits on certain deductions, the search engines are the go-to source for many. Unfortunately, especially for taxpayers rushing to complete their taxes, this can lead to substantial errors. Common mistakes such as looking at the current year's tax tables (instead of the previous year's) result in sizable miscalculations and subsequent penalties. Be sure to always double-check which year's forms and information you're using. And remember to always use the IRS's website as your first and main source of information. (For more information, check out Changes in Tax Legislation And Regulation.)
- Forgetting to include your documentation - While the IRS doesn't require taxpayers to send in their receipts (though it's not a bad idea for unusual or large expenses), it generally does require them to submit their W-2s, 1098s, 1099s, etc. Since the person or company that issued you this form also sent a copy to the IRS, failing to include your copy (much less failing to report it) can bring unwanted attention to your return. A great general rule is, "when in doubt, include it!"
When you stop to consider
While there'll always be those tax preparers that overcharge and underserve, the vast majority of tax professionals earn every penny of their fees. If you're not the kind of person that has a love for numbers and solving puzzles, there's a good chance it's in your best interest to turn over your return to someone who finds this kind of work enjoyable. Chances are, the cost ($100-200 for a basic return, $500 or more for complex returns) will be quickly offset by the fact that you've got more financially productive things to do with your time than stare at confusing IRS forms. Add in the fact that tax preparation costs are deductible for many taxpayers, paying for professional help becomes a slam-dunk for many.
For those taxpayers that really do enjoy doing their own taxes, tax preparation software is a must. With even the most complex retail tax prep programs costing only $50-150 dollars, these programs are worth their weight in gold. Chances are that the leading software programs will shave off significant amounts of time, find overlooked deductions, and help you avoid the most common errors. Perhaps best of all, the programs come with easy-to-use e-file features.
If you're considering using one of these programs, be sure to compare each version's features before you buy. While most companies offer "Deluxe" versions with all the bells and whistles, the standard versions can usually do everything the average taxpayer needs, for half the price. Also be sure to check for free online versions of the most popular programs, which are often available to lower income taxpayers and military personnel.
Personal Income Tax Guide: Avoiding Nasty Surprises
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