I’m a Tax Expert: Here Are 5 Common Errors You’re Making When Filing Your Taxes
Written by
Jacob Wade
Edited by
Gary Dudak
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Tax season is in full swing, which means it’s time to update your tax software and prepare to file your return if you haven’t yet. While many Americans dread this time of year, a recent survey by GOBankingRates revealed that 42% of Americans have no concerns about this tax season.
This might be due to having a simple financial life, or maybe these people hire a seasoned professional to do their taxes. But for the other 58% of respondents, tax season comes with familiar worries and stress of getting it right. So, let’s review some of the concerns Americans have about tax season, and chat with a tax expert on what to do about it.
What Worries Americans Most About Their Taxes
22% are afraid of making a mistake. According to our recent survey, the number one thing Americans are afraid of when it comes to filing a tax return is making an error on a form. This may be due to the steep penalties levied by the IRS for tax filing mistakes, but may also just be due to the confusing nature of the U.S. tax code. While you can choose to use tax software to help you file, mistakes can still happen. This is why most would benefit from working with a licensed CPA or Enrolled Agent to work through any tax concerns — and help you avoid getting penalized.
13% are worried about not having enough money. Some Americans are worried that when they file their taxes, they won’t have the funds to cover what they owe. This is a legitimate concern, as IRS underpayment penalties can be steep. But the IRS does offer payment plans and has other solutions to help taxpayers that are struggling to afford a tax bill.
9% are scared of getting audited. IRS audits are scary to think about, but with proper planning and detailed records they don’t have to be all that bad. If you’re scared of getting audited, it’s a good idea to work with a licensed professional (CPA or EA) who can guide you through the return process and help you avoid any pitfalls that can throw up red flags to the IRS.
8% are worried about missing the deadline. The tax deadline for 2024 is Monday, April 15. There are potential late filing penalties, but those mostly apply to taxpayers who expect to owe. If you are expecting a refund, don’t panic, a “failure to file” penalty isn’t going to be thousands of dollars. And if you expect to file late, you can file for a 6-month extension instead. Just make sure to pay estimated taxes owed, as those are still due on April 15.
5% are worried about identity theft. False tax returns are a big source of fraud, and if someone has stolen your identity, they might file a tax return on your behalf and route the refund to their own bank account. If you’re worried about identity theft and your tax refund, you can apply for an IRS Identity Protection PIN number that is required to be sent in with your tax return. This helps secure your return and avoids someone else stealing your refund.
5 Common Mistakes on Your Tax Return
We chatted with a tax expert to get her take on the common mistakes taxpayers make when filing out tax forms, along with how to avoid them.
1. Choosing the Incorrect Filing Status
When filing your tax return, one of the first you need to do is choose a filing status. Getting this wrong can be costly.
“I have seen many self-prepared tax returns where Head of Household is chosen as the status, but this has narrow rules to choose this status that includes having certain qualifying dependents that you support and being unmarried for tax purposes,” said Crystal Stranger, tax attorney and licensed Enrolled Agent at Optic Tax.
Choosing head of household may come with a higher standard deduction, but if you don’t qualify for this filing status, you may quickly be audited and assessed penalties. And your tax bill may be higher than expected once you re-file your return with the correct status.
2. Not Reporting Income
Income tax is a bulk of what you pay when filing a tax return, and not reporting ALL of your income may come with consequences.
“Many people think that they didn’t receive a 1099 so they don’t have to report the income, but that is not correct,” said Stranger. “All income earned or received otherwise is required to be reported, even if not received on a tax return.”
And for those who receive cash payments or money transfers that are not reported, the IRS can charge you for underreporting income and slap you with a 20% penalty.
3. Filing the Wrong Tax Form
Filing taxes is already confusing, and choosing the wrong forms can further complicate things. When you’re a business owner, things become much more complicated.
“I’ve seen a surprising amount of returns over the years filed on the wrong forms entirely, like a partnership with only one owner, S-Corps without elections filed, or anything and everything imaginable for LLCs,” said Stranger. “Sometimes figuring out the right forms and schedule to file is half of the value provided by professionals (and even paid preparers make these mistakes sometimes!) Until the tax return is filed on the right form it is considered unfiled, so penalties are incurred from this as it is a failure to file.”
4. Claiming Incorrect Credits
When filling out your tax return, some of the most valuable incentives are tax credits. But claiming the wrong tax credits can trigger an audit and cause you to owe far more than you realize.
“Frequently taxpayers claim credits they aren’t entitled to, or miss out on claiming credits they legitimately deserve,” said Stranger. “Credits around children and education are the ones most commonly miscalculated or missed entirely.”
It’s important to understand which tax credit you qualify for before claiming them on your return. And it’s a good idea to work with a licensed tax professional if you’re not sure which ones to claim — as it could cost you thousands of dollars if you get it wrong.
5. Leaving Out NAICS Codes
If you’re a business owner, tax returns can be even more onerous. And the risk of an audit increases if you don’t fill out the forms on your business return correctly.
“On business returns, including Schedule C that is filed for self-employed individuals, there is a code that must be included for the industry type,” said Stranger. “Leaving this code off or putting in 999999 is a real quick way to raise IRS suspicion and put you at risk of audit.”
Make sure to use the proper business tax forms for your business entity (Sole proprietor, LLC, corporation, etc.) and don’t simply skip over parts of the form you don’t understand.
Benefit of Working With a Tax Professional
If the thought of filling out your tax return scares you, it might be a good idea to hire a licensed tax professional. The best in the business are Certified Public Accountants (CPAs) or Enrolled Agents. They are held to a fiduciary standard, are highly-trained in tax matters, and are qualified to represent you before the IRS should you get audited.
Hiring a competent, licensed professional can lower the stress of tax season — and may even get you a larger refund!
More From GOBankingRates
