Tax time is here and we’re getting close to the April 15th filing deadline. Tax laws changed significantly in 2013 and taxpayers are now responsible for several new taxes as well as changes to deduction limits and exemption phaseouts.[i]
Last year, the IRS published a list of common tax filing errors[ii] that we wanted to pass along with our tips for avoiding them. You can prevent the vast majority of these mistakes with a little extra attention or the help of a professional tax advisor.
It’s in your benefit to catch errors before filing because a simple oversight could delay or cost you a refund, if you’re entitled to one. A blunder that causes you to underpay your taxes could lead to stern letters and penalties from the IRS or, worse, trigger an audit.
Here’s how you can avoid making one of these common errors:
1. File electronically. By filing electronically, you can use computer software to catch many common mistakes. E-filing can also reduce the chances that an error in processing is made by the IRS.[iii]
2. Review your deductions. The IRS says many mistakes happen when taxpayers are calculating their deductions. For example, remember that if you are age 65 or older, you qualify for a larger standard deduction.[iv] Under time pressure, many taxpayers take the standard deduction instead of itemizing, potentially increasing the size of their tax bill. A tax professional can help you determine the best way to treat deductions.
3. Check your charitable contributions. Missteps involving charitable deductions are quite common; it’s important to understand what the IRS allows you to deduct and how you must document it. You can consult a tax advisor or review IRS Publication 526 for more information.[v] Don’t forget to claim any charitable contributions you made through payroll deductions or as qualified charitable distributions from your IRA.
4. Share important information with your tax preparer. Working with a tax specialist can help cut down on expensive errors, but they aren’t mind readers. Don’t make the mistake of failing to share vital information with your tax preparer.
5. Choose the right number of dependents. While this should be a simple decision, it becomes complicated during life’s transitions. For example, if your child recently got a full-time job or you are newly responsible for an elder’s care, you may want to review whether you can claim them as dependents or not.
6. Correct the spelling of names and social security numbers. Make sure that all names and Social Security numbers match what’s on your (and your spouse’s) Social Security cards. If you’ve changed your name since the last time you filed your taxes, you’ll need to notify the Social Security Administration (SSA) so they can update their information. You can do this by filing form SS-5 at your local SSA office or by mail.[vi]
7. Double-check your direct deposit information. Most taxpayers give the IRS bank account information to receive their refund by direct deposit. Unfortunately, if you’ve given the IRS the wrong account information, your refund could easily go astray.
8. Sign the return and attach all documents. The IRS won’t accept unsigned tax returns, so it’s critical that you (and your spouse if you file jointly) sign your 2013 tax return and include all necessary schedules and documents. Don’t forget to include a check for any taxes owed.
9. Report any additional income. If you picked up a side job this year or are receiving income from your investments, be sure to report it to the IRS. If you forget to include this information on your return, there’s a good chance that you could owe additional taxes and penalties on your unreported earnings.
10. Consult a professional. Tax laws are complex and consumer-grade tax preparation software is designed to meet the needs of the average taxpayer. If you have a complicated tax situation, a tax specialist can help you prevent mistakes and identify potential tax savings.
If you have any questions about the information we’ve presented or are concerned about your taxes, please give us a call, we’d be delighted to help.
[iv] http://www.irs.gov/taxtopics/tc303.html [v] http://www.irs.gov/pub/irs-pdf/p526.pdf
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