Good news: You made it through winter and spring is finally here. Bad news: Your taxes are due! Fortunately, the most common mistakes made on tax returns are fairly easy to avoid. Why should you care? These common mistakes often mean you're paying more taxes than necessary or, even worse, you're under-reporting your income and setting yourself up for interest and penalties on unpaid taxes.
1. Leaving money on the table
You might be leaving money on the table by forgetting to use up all of your Flexible Spending Account (FSA) dollars or not making various tax-advantaged contributions to your individual retirement and 529 accounts. You have until Dec. 31 to contribute to a 529 account (some states allow deductions for your contributions) and to use money in your FSA account. You can make contributions to your Traditional and Roth IRA accounts until April 18, 2016.
Another common way you're leaving money on the table -- not filing a return at all. Choosing to not file a return because your income for 2015 doesn't require it might mean you're leaving money on the table. If you're eligible for a refund, you have to file a return to claim it. In 2011 the IRS reported holding about $1 billion of unclaimed refunds, simply because people didn't file a return. If you think this might apply to you, the IRS gives you three years to file old returns for unclaimed refunds.
2. Bad math
It sounds a little obvious, but year after year, arithmetic errors and copying wrong numbers from your tax forms to your tax return are among the most common -- and costly -- mistakes. When you're filling out your tax forms, go slowly and double-check yourself. A lot of mathematical errors can be avoided if you're using tax software that does the calculating for you.
3. Wrong name
A misspelled name will slow down the processing of your return. Misspelled or wrong names are most common for newlyweds or people who have changed their name in the last year. Make sure the name you use on your return matches the name on your Social Security card.
4. Wrong filing status
What is your filing status? This is a common source of confusion and an overlooked mistake. If you have a tax preparer, make sure you update them on any life changes such as getting married or divorced. Your relationship status on Dec. 31 will determine your filing status for the entire year. Head of Household causes the most confusion. In general, you must be single and have covered a majority of the costs of "maintaining a home" for both yourself and a "qualifying person."
5. Wrong bank account details
If you plan to use direct deposit to receive your refund, double check the bank account information you provide. If you enter the wrong account information you won't receive your refund or have the money you owe withdrawn correctly and it's a huge pain to fix.
6. Unreported income
This mistake -- intentional or not -- can be costly. If you have unreported income and the IRS uncovers it, you're looking at interest and penalties for unpaid taxes. An honest mistake doesn't give you a pass here so spend a few extra minutes reviewing your return, thinking through the year and your accounts to make sure you're not forgetting any income sources. It's often the 1099 income that's overlooked -- things like contract work, interest and dividends. The IRS receives copies of your 1099s and expects to see those sources of income on your return.
7. Forgetting to sign the return
It's easy to get so focused on preparing your return and filing it on time that you forget to sign your return. This also goes for your preparer. If someone else is preparing your taxes, double check that he or she has signed it.
8. Missed deadlines
This year, 2015 federal returns are due on April 18, 2016. Filing an extension? As a friendly reminder, extensions apply only to the paperwork and not the money you owe the IRS. The IRS is happy to give you an extension on filing your return but not for the money you owe. You'll owe interest and possibly penalty fees on any taxes due but not paid by April 18, 2016. Remember, a tax lien can hurt your credit score. You can see where your score currently stands by viewing your free credit report summary, updated each month, on Credit.com.
9. Not properly claiming charitable contributions
If you're charitably inclined and itemizing your deductions, remember that donations in all forms -- cash and goods -- can be claimed on your tax return. This is an area where you need to keep good records and receipts. Also, make sure that you're only claiming deductions for organizations that have tax-exempt status with the IRS.
10. Being too aggressive
It's easy to get so caught up in minimizing your taxes that you start to make unwise decisions. For example, shopping around for the biggest refund will often lead you to a tax professional that is using incorrect or aggressive accounting -- a risk not worth taking. Another form this might take is being too aggressive with deductions. For example, deductions for home offices and unreimbursed business expenses are often abused and misunderstood. A good practice is to save receipts and your company's reimbursement policy so you can support your deductions in case of an audit. If you're claiming a home office, make sure you stay up to date on the current rules and truly qualify for the deduction.
I recommend keeping a spreadsheet that lists out all of your tax information - sources of income, 1099s, charitable gifts, IRA and 529 contributions, etc. Update it each year and it will help you avoid some of these common mistakes. You're less likely to forget about a 1099 if it's listed in your prior year's tax information. This will also make passing off information to your tax preparer much easier year to year.
Here are important dates for 2015 taxes to keep on your calendar:
- April 18, 2016 -- Federal tax return due date
- State return due dates -- Most states follow the federal due date of April 18, but some states have later deadlines.
- Oct. 17, 2016 -- Last date to file 2015 federal returns for extension filers