Personal or business tax preparation can be a stressful time. The process is often confusing and can leave people feeling overwhelmed. Without the proper expertise, knowledge, time or attention to detail, it’s easy to accidentally make mistakes. Some mistakes may have little to no impact on your tax return, while other mistakes may trigger an audit.
Mistakes can be costly, not only in dollars but in terms of time. Keep reading to learn more about the 3 biggest mistakes people make when preparing their tax returns.
1. Not paying attention to the basics
Believe it or not, a lot of the mistakes that people make when preparing their taxes are often related to entering basic information, such as personal information, line items, and totals.
It is important to take the time to confirm that your name and the name of any dependents are spelled correctly and the correct information is associated with each (e.g. social security numbers and addresses). You will also want to verify your filing status (e.g. single or married). For some individuals, it may be necessary to check if you meet the requirements to file as a head of household, qualifying widow(er) with a dependent child or separately as a married couple.
Whether you are filling out your tax forms online or on paper, it is important to cross-reference and verify that you are entering all information as it has been reported to you. Remember, all information reported to you (from your employer, for example) is also reported to the IRS. If you report a different number than the IRS has on record, this could trigger an audit. Taking the time to review your tax return or having a second set of eyes review it is a great way to avoid simple mistakes.
(Looking for more tax preparation tips? Read our article, ‘Answers to Frequently Asked Questions about Tax Preparation’.)
2. Failing to Take Advantage of Deductions and Write-Offs
Deductions and write-offs are key aspects of preparing your taxes that most people often overlook. It is important to consider your options when it comes to deductions as you have the option to take the standard deduction or itemize your deductions. The difference between the two options comes down to some simple math. If the value of the expenses you can itemize is greater than the standard deduction, then it makes financial sense to spend the time and effort itemizing your deductions. It is important to know the difference before preparing your taxes to ensure you aren’t losing money and that you are taking advantage of all write-offs you are entitled to.
To make claim deductions or write-offs, you need to have good bookkeeping. If you don’t track your expenses, you can’t deduct or write them off. As long as you meet the tax law requirements and have adequate records, it is best to take advantage of the write-off or deduction that you are entitled to.
Working with a CPA can help you ensure that you are maximizing your write-offs and taking the right path for deductions.
3. Filing at the Wrong Time
Knowing when to file your taxes is important. You might be thinking as long as you submit before the deadline everything will be fine. However, it is important to avoid preparing and filing your taxes at the last minute or too early. When is too early to hit submit? As a general rule of thumb, it is best to wait to submit until the deadline has passed to receive tax-related documents. The last thing you want to do is prepare and submit your tax return before receiving all the proper tax reporting documents. You can also miss out on deductions if you go forward without having all your financial documents.
Our advice is to start preparing your taxes early to ensure that you have enough time to familiarize yourself with tax laws, double and triple check your return, and consult any necessary professionals or experts. This will allow you to hit submit when you are ready without feeling the time crunch of the deadline.
The other advantage to preparing your taxes in advance is that if you get stuck, you still have the opportunity to consult a CPA or related tax professional.
Final Tips to avoid making mistakes when preparing your tax return
Preparing your tax return is a big task and one that should not be left to the last minute! Giving yourself enough time to think through your return, do your research and seek professional help will help alleviate a lot of stress.
Make sure to always proofread and review your tax return before hitting submit. If possible, it is best to have a second set of eyes review it to avoid unnecessary errors and mistakes. Last but certainly not least, make sure you sign your tax return!
Preparing your tax return is not a task that should be rushed, take your time because mistakes can be costly.