3 Common Tax Mistakes You Should Avoid
Filing your tax return isn’t easy. The official US Tax Code is now more than 70,000 pages long and is growing every year. According to Reuters, that’s the equivalent of more than 33 Oxford American Dictionaries.
However, you don’t have to have read the whole document or be a tax specialist to avoid some of the most common mistakes that people make when filing their tax returns. Avoiding common mistakes might speed up your refund check or make the completion of your tax return more straightforward.
So, keep reading for three common tax mistakes you should avoid.
Doing your taxes can be an annual headache, but meeting the April 15 deadline is crucial. If you don’t, you could face interest and penalty charges.
The IRS reports than one in five Americans leaves their tax return to the last minute by filing in the final week before the deadline. If you have a complicated tax return, this may also mean you are more likely to make mistakes as the stress of sending your return increases as the deadline draws near.
If you wait until after the deadline to file your return you will be charged interest on any tax that you owe (compounded daily) at the federal short-term rate plus 3 per cent. You’ll also face a penalty for filing late equivalent to 5 per cent of the amount owed for each month or partial month the payment is late, to a maximum of 25 per cent.
Not Keeping Up To Date with Tax News
While you’re not expected to know about every change to the 70,000 page Tax Code, keeping up to date with the major changes can be beneficial.
Keeping up to date with tax news can help you claim additional tax credits or benefits. For example, the IRS posts the latest news for individuals affected by natural disasters as well as information about the latest tax scams.
Using the ‘latest news’ section of the IRS website is therefore recommended in order that you keep up to date with all the latest changes and any credits or rebates you may be eligible for.
Filing The Wrong Forms
When you complete an individual tax return you have the choice of three forms; the 1040, 1040A and 1040EZ.
While the IRS encourages all filers to complete the simplest form, it is important that you don’t pay too much tax just to benefit from an easier filing process.
For example, the 1040 is the most complicated form to complete but does allow you to itemize deductions. This can result in significant tax savings if you claim the correct tax credits and deductions.
Conversely, the 1040EZ is fairly easy to complete but is only appropriate if you have a simple tax situation (for example no student loan interest or IRA contributions to write off).
Don’t complete an easier form just to save a bit of time; you could end up paying more tax than you need to.