Millions of us file taxes every year. And millions of us, even those who get refunds, dread it.
Why? We worry that we'll make a mistake.
That's a legitimate concern. Despite lawmakers' perpetual promises to make our tax lives easier, they somehow seem to screw up that political pledge. Yes, I am looking at you Tax Cuts and Jobs Act (TCJA), with your new forms and confusing tax breaks even when they provide some relief. Thanks, Congress!
But sometimes, we filers have to bear some of the blame. We make things worse by making easily avoidable mistakes when we fill out our 1040s.
Here are 10 common errors you can dodge by taking a little care when you file your tax return.
1. Missing or inaccurate Social Security numbers: This nine-digit number was not intended to be our universal identifier, but, for better and in this age of identity theft often for worse, that's what the Social Security number has become.
There's been some talk about changing that for tax filing, but until that happens, you've got to include it on your annual return. The IRS won't process a 1040 without it. This identity number requirement extends to you as the primary filer, as well as the Social Security numbers for your spouse and any dependents.
These numerals are crucial because so many tax-related transactions, from income statements to investment earnings to retirement plan contributions and distributions, are keyed to this number.
A Social Security number also is critical when claiming several tax credits, such as the child tax and additional child tax credits, as well as ones for educational expenses and dependent care costs.
At best, a missing Social Security number will slow down the processing of your return. At worst, it could cost you valuable tax benefits. So be sure to enter on your 1040 each person's number exactly as it's printed on the Social Security card.
A quick note here for filers who use an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number to file. It your ITIN is expired, go ahead and file using the expired number. The IRS will process that return and treat it as a return filed on time. However, the IRS won't allow tax breaks claimed on these returns. Once you renew your ITIN, the IRS will process your return normally.
2. Misspelled or different names: Most of the information on your tax return is numerical, but words — specifically names — are important, too. Spell all names listed on a tax return exactly as listed on your Social Security card, as well as the ID cards of your spouse if you're filing jointly and those of any dependents.
What's the big deal if you've gone by a middle or nickname all your life and enter that on your Form 1040? Plenty.
The tax agency warns that each Social Security number on a tax return should appear exactly as printed on the Social Security card. When the names of a taxpayer, his or her spouse or their children don't match the number that the Social Security Administration (SSA) has on record, the IRS processing machine likely will kick out or slow down the tax return.
Name issues often are a problem for the newly married. Many folks still change their surnames when they marry, whether the "I do's" are exchanged by a bride and groom or spouses in same-sex marriages.
In these cases, if you didn't alert the SSA of your name change after your wedding, your new name on your 1040 or other tax statements could cause a problem when you file your first joint tax return. Get in touch with the SSA ASAP to reconcile this.
The same issue also arises when marital bliss doesn't last and ex-spouses change names after a divorce. Again, make sure Uncle Sam's appropriate agencies know that, too.
Finally, remember to also let the IRS know when you move, even if you didn't change your name a part of a major lifestyle modification. That update will help ensure that your filing goes smoothly.
3. Improperly claiming a dependent: Having a dependent's tax ID number (see #1) generally means that you know that person can be claimed on your return. Or maybe not.
Sometimes determining just who is your tax dependent, be it a child or qualifying relative, can be messy. There are lots of rules about relationships and support earned or provided and who lives for how long in your house.
The confusion often leads to an innocent mistake as to who is eligible to be listed as your tax dependent. Other times, though, folks knowing claim a person as dependent to get the added exemption amount or to claim the refundable Earned Income Tax Credit (EITC).
Faking dependents is not a good idea. This is willful disregard of the tax laws and your responsibility to meet them. Such intentional tax violations could lead to tough penalties, sometimes of the criminal nature, on top of the unpaid tax and interest added to it that you thought you were escaping with your fake dependent ploy.
Think the IRS might be too busy to catch your suddenly larger family? Think again. The IRS knows that filers sometimes add people, either real or imaginary or even pets, on their returns. That's why tax examiners look at who has and hasn't been listed before on your returns.
4. Using the wrong filing status: Every year, some taxpayers claim the wrong filing status. This innocent error could be costly, as each filing option could make a difference in your ultimate tax bill. And it's a selection that can be different from year to year as your tax and personal situation change.
Take, for example, your first tax return filing since your divorce (and item #2 name change). You might think you now should file as single. But since you have primary custody of your dependent children (see #3), your more advantageous filing status is head of household. In fact, you could be a head of household taxpayer even if you've never married and don't have kids, but are providing the bulk of support for someone else.
Check out all five filing status options. If you're unsure about which you should select, use the IRS' Interactive Tax Assistant. This online tool can help your sort out your correct current filing status.
5. Figuring credits or deductions: Here's a non-news flash. The tax code is complicated, despite (or, say code critics, because of) tweaks made by the TCJA. That means there still are lots of mistakes to be made as you look for tax-saving credits and deductions. This search has its own errors obstacle course.
The EITC mentioned in mistake #3 is notable here. Plus, taxpayers also are still getting used to the new (again, thanks TCJA) additional dependent claim.
Even folks whose returns seem simple could run into trouble. Take, for example, older filers — that's age 65 or older in the IRS' eyes — or filers who have vision issues. These folks typically qualify for a higher standard deduction. It's automatic as long as you check the correct box(es) on your return. To ensure that this isn't overlooked is one of the reasons the IRS created the new 1040-SR for these files.
Again, you might want to use the Interactive Tax Assistant to help determine if you're eligible for certain tax credits or deductions.
What about savings and investment accounts? For these, you should have received Form 1099-INT and Form 1099 DIV statements.
In these 1099 situations, the IRS knows precisely how much extra money, either as wages or unearned investment income, you made because it got copies of those forms, too.
If you forget to include any of these earnings on your return, IRS examiners will let you know you that it knows and that you owe taxes on that money, too. And depending on when your oversight is discovered, you also could owe penalties and interest on the unreported earnings.
7. Math miscalculations: As we've already seen in many of the filing errors listed far, the IRS is all about the numbers. So it's no surprise that the most common mistakes made on tax returns, year after year, is bad math.
Arithmetic errors range from simple addition and subtraction to more complex tax items, like the credits and deductions mentioned in mistake #5. Figuring things like the EITC or the taxable portion of a retirement account distribution, for example, is more difficult and, not surprisingly, produces more math errors.
In processing 2017 tax year returns during the 2018 fiscal year, the IRS sent almost 2 million notices to taxpayers regarding math errors examiners found on their filings for that year, according to the IRS 2018 Data Book. But, notes the IRS, since a notice could address more than one type of math error, the total number of math mistakes made by filers on their 2017 returns came to more than 2.4 million.
The bulk of the mathematical mistakes, as the chart above from the latest Data Book shows, are basic tax calculation and other tax computation errors. This includes mistakes associated with the calculation and assessment of income taxes, as well as other taxes, such as self-employment, household employment and alternative minimum taxes.
Considering that most of us use tax software, in large part because it does the math for us, that's bit alarming. But it also underscores why that adage garbage in/garbage out is so apt when it comes to tax returns.
The wrong number on one tax form's line produces a wrong calculation that gets transferred to another form, automatically with software. That math error then is exponentially compounded. So pay close attention when you enter your numerical data into your tax return.
One piece of good news in this area is that a recent tax law change has eliminated one previous common math error. The figuring of exemptions and the amounts to claim, which accounted for 19.5 percent of math mistakes on 2017 returns, was eliminated when the TCJA took effect beginning with the 2018 tax year.
8. Entering incorrect bank account numbers: The IRS has for years encouraged us to file electronically and have our refunds (some of y'all can explain these mythical refunds to me, OK?) directly deposited into a financial account.
That's easy for you and the IRS, unless you enter the wrong account number and accompanying routing number. These numbers usually are found on your paper check, like the example image below.
But in some cases, especially as financial institutions expand their digital options, routing numbers could be different. Our bank uses a routing sequence that's different from that on the handful of paper checks we have. So double check with your financial institution as to what numbers to put on your tax return.
Previously, a bad account or routing number meant potential total loss of your tax refund. Unlike paper check refunds that were replaced with another printed U.S. Treasury check, the errant direct tax deposit was, in many cases, finders keepers for the owner of the account where the direct tax deposit ended up.
The good news is that the Taxpayer First Act requires the IRS to work out a way to deal with direct deposits mistakenly sent to wrong accounts. The IRS issued on Dec. 23, 2019, a proposed rule on how it plans to deal with wrongly delivered electronic refunds. That's good, but it'll still be a hassle. Your best defense is to double check your account numbers so that your refund goes to the accounts you choose.
You noticed the plural accounts in the prior sentence, right? You have the option to subdivide your directly deposited tax refund into as many as three accounts. That's a good financial move for many, sending some of the refund to savings, a bit to an IRA and the rest to checking for immediate access. To accomplish this split, just file Form 8888 along with your individual return.
But remember, the more numbers you enter on a tax form, the more chances you have to enter them incorrectly. So again, double check all these account and routing numbers to ensure that your refund doesn't end up in someone else's account or is sent back to the IRS.
9. Not signing your tax return: A tax return that's unsigned gets the same treatment as ones missing Social Security numbers. A return lacking a signature — or signatures; when married couples file a joint return, both spouses must sign the 1040 — isn't valid and the IRS won't process it. There are some possible exceptions for members of the armed forces or other taxpayers who have a valid power of attorney.
The easiest way to avoid this oversight is to file electronically and digitally sign it before sending it to the IRS. Your tax software, either the package you bought or the one you're using on Free File, will walk you through the e-signature process.
If, however, you're still mailing your return, don't be in such a hurry to be done with the job that you stuff your 1040 in the envelope sans signature.
10. Missing the deadline: It's still early in the tax season, so missing the April 15 filing deadline isn't an imminent error. But the longer you put off filing, the possibility that you'll make this mistake increases. And it could be your biggest one.
Not filing and paying any tax you owe by the annual filing deadline will mean that you'll face added penalty and interest charges. And those just keep adding up until you do file and pay.
You can get six more months to file by sending the IRS Form 4868. But that extended Oct. 15 is just to get all your forms done. You still must send by the April deadline any tax you owe with your extension request. If you don't, the clock starts on those accruing late-filing or non-filing penalties.
Nobody wants to pay Uncle Sam a penny more than necessary, so don't make the mistake of missing the filing deadline.
Sorry if this mistakes list means you have to spend a bit more time messing with your taxes.
But a preview of what to avoid and then a review of your 1040 before you hit send to e-file it or drop it in the snail mail box can literally pay off in the final IRS handling of your return.