4 Common Tax-Return Mistakes to Avoid
Even the most diligent can—and do—make mistakes when filing their taxes. Real Simple asked tax experts on what trips people up most. The answers may surprise you.
73,954 pages. That’s the length of the Internal Revenue Code. And the CliffsNotes-like version, the document most referred to during tax season, is not exactly short, either, logging in at 286. No wonder some Americans end up filing returns that are less than perfect. Making matters worse, “tax laws are perpetually changing,” says Melanie Lauridsen of the American Institute of Certified Public Accountants, a professional association. “People have preconceived notions of what the rules are, but they don’t necessarily apply them correctly.” To make sure that you’re not one of those filers, take a good look at this list of frequently flubbed sections before filing your taxes this year.
Mistake No. 1: Omitting Your Income
Perhaps you worked part-time at your friend’s boutique. Maybe you earned dividends from an investment account. When you have numerous sources of income (and most people do), it’s easy to overlook something. “But regardless of how much or how little you earned, you must declare it as income on your taxes, even if you were paid in cash,” says Cindy Hockenberry, the manager of the Tax Knowledge Center, an educational division of the National Association of Tax Professionals. Failure to do so could result in penalties. Stay organized by keeping a folder near where you open mail and place all tax paperwork (such as W-2 and 1099 forms, any applicable receipts, and pay stubs) inside.
Mistake No. 2: Misstating Your Social Security Number
Yup, you read that right. Apparently, entering these identification digits is so easy, filers rush through and don’t bother proofreading. Transposing digits or leaving a number out is one of the most common mistakes that filers make, says Lisa Greene-Lewis, a certified public accountant and a tax expert for TurboTax, the tax-filing software company. So double-check—or even triple-check—your work before submitting. Getting it wrong could mean a longer wait for your tax refund, if you earned one.
Mistake No. 3: Filing the Wrong Status
To the Internal Revenue Service, you’re either married or single. Unfortunately, “It’s complicated” is not an option, which probably explains why so many people file under the wrong status and ultimately over- or underpay their taxes. “Some married couples think that because they’re no longer living together, they qualify as a single filer, but that’s not the case,” says Hockenberry. “You must be formally divorced. Otherwise you still have to file a joint return or a ‘married, filing separately’ one.” Keep in mind, too, that single parents might qualify as the head of household, the financially favorable choice (compared with filing as single). If you’re unsure, take a brief quiz on the IRS website to determine your correct standing. (Go to irs.gov and search for “What is my filing status?”)
Mistake No. 4: Overvaluing Noncash Charitable Donations
You finally cleaned out your closets and donated your goods to charity, and impressively, you remembered to pick up a receipt. But just because you paid $100 for those pants and $200 for the vacuum doesn’t mean that you’re entitled to the same amounts in deductions, even if you never pulled off the price tags. There are guidelines, after all. To be specific: The pants may account for a deduction of at least $3.50 but no more than $12. However, your husband’s pants can get a bigger deduction, starting at $5. (The IRS makes the rules, and it doesn’t provide an explanation.) As for the Hoover, it’s worth at least $15 but no more than $60. For a complete list of deduction guidelines, check out the Donation Value Guide at the Salvation Army website (satruck.org). While you probably won’t get hit with a penalty for mistakenly overestimating the value of a donation, says Lauridsen, the IRS may adjust your return. So you could end up with a smaller refund, or a larger tax bill, than you had anticipated.