Filing your US tax return, whether personal or business-related, can be a complicated process. The Internal Revenue Service (IRS) requires accuracy and compliance, and mistakes in your filing can lead to penalties, delays in processing, or missed opportunities for tax savings.
To help you avoid these pitfalls, here are the Top 5 common mistakes to watch out for when filing your tax return:
1. Incorrect or Missing Information
Common mistake: Simple errors like incorrect Social Security numbers, misspelled names, or wrong filing statuses can cause your tax return to be rejected or delayed.
How to avoid it: Double-check all the information, especially personal details like names, addresses, and Social Security numbers, before submitting your return. Ensure the filing status you choose reflects your current situation (e.g., single, married, head of household).
2. Failing to Report All Income
Common mistake: Omitting sources of income, such as freelance work, interest income, or rental property earnings, is a frequent issue, especially if you receive multiple 1099s or other forms.
How to avoid it: Keep a comprehensive record of all your income sources throughout the year. If you receive 1099 forms or other tax documents, ensure they match your records. Even if you don’t receive a tax form for certain income, you are still required to report it.
3. Neglecting to Claim All Deductions and Credits
Common mistake: Overlooking available deductions and credits can result in paying more tax than necessary. This is particularly relevant for education credits, child tax credits, and business deductions for expenses like equipment, travel, or home offices.
How to avoid it: Familiarize yourself with the deductions and credits available for your specific circumstances. For personal returns, explore credits like the Earned Income Tax Credit (EITC) and the Child and Dependent Care Credit. For business returns, ensure you’re deducting expenses like operational costs, depreciation, and healthcare.
4. Failing to File or Pay on Time
Common mistake: Missing the tax filing deadline, which is typically April 15th, can result in penalties and interest charges. Failing to pay taxes owed in full is another common issue.
How to avoid it: Set reminders for key tax deadlines. If you need more time, file for an extension using Form 4868 (for personal returns) or Form 7004 (for business returns). Remember that an extension only grants more time to file, not more time to pay. If you’re unable to pay the full amount owed, consider setting up an installment plan with the IRS.
5. Misclassifying Employees vs. Independent Contractors
Common mistake: Businesses often misclassify workers, treating employees as independent contractors or vice versa. This mistake can lead to additional tax liabilities, fines, and scrutiny from the IRS.
How to avoid it: Review the IRS guidelines for classifying workers. Generally, employees are subject to a business’s control over their work and hours, whereas independent contractors have more freedom in how they complete tasks. Be sure to issue Form W-2 for employees and Form 1099-NEC for independent contractors.
Bonus Tip: Forgetting to E-file or Check for E-filing Options
E-filing is faster and more secure than mailing in your tax return. It also ensures that you receive confirmation when your return is successfully submitted. Opt for e-filing whenever possible, and ensure you receive acknowledgment from the IRS.
By being aware of these common mistakes, you can save yourself from unnecessary stress, delays, and potential fines. Taking time to review your personal or business tax return thoroughly can make a significant difference. If your tax situation is complex, consider consulting a tax professional to ensure everything is filed correctly.
Remember: Accuracy and timeliness are key to a smooth tax season!