Common Errors Taxpayers Make When Preparing Their Own Taxes and How to Avoid Them
Here are some common mistakes made by those who prepare their own taxes. Making these can sometimes end up costing a taxpayer money or delaying a refund.
Choosing the Wrong Filing Status
A taxpayer's filing status can affect the dollar value of some of his or her credits as well as claimed deductions. Take the following example: taxpayers are permitted to itemize medical deductions which exceed 10% (7.5% for those over age 65) of their adjusted gross income. Married taxpayers filing jointly, may not surpass the 10% threshold for their combined income. However, if one individual incurred the majority of the medical expenses, he or she might cross the threshold as an individual and the couple could benefit from filing separately. In this instance claiming the correct marital status may result in significant tax savings.
Many taxpayers who don't own a home do not itemize their taxes, as mortgage interest is a large reason for itemizing. However, this can be a mistake if the taxpayer incurred other large deductible expense such as medical and charitable gifts. To help avoid this mistake, it may be helpful to identify expenses that can be itemized and keep records of these. You can find more information on this here.
Not Taking Education Credits
According to one study that looked at data from 1999 to 2012, only two-thirds of the more than 18 million college students in the United States claimed one of the higher education tax breaks. Students who are pursuing a degree at a participating four-year college may be eligible for the American Opportunity Tax Credit, which provides a credit up to $2,500. Others who are attending a participating higher education institution may be eligible for a Lifetime Learning Credit, which provides a credit up to $2,000.
To help avoid this mistake, you may want to use a software program such as E-file.com, which will help determine your eligibility for these credits.
Forgetting to Include Documentation
The IRS requires employers to issue taxpayers income information on a form W-2, 1098, and 1099 at the end of the year. They also require that copies of these forms are sent by the employer to the IRS. When information from one of these forms is not reported on the taxpayers return it may cause the IRS to audit the taxpayer's return.
To avoid this mistake, taxpayers should make certain that they obtain all such forms from their employer(s), place them in a secure location, and account for them on their tax return.
Preparing one's own tax return can require some attention to detail. Fortunately our tax software is here to try and take much of the thinking out of the process.