Don't Mess With Taxes

Photo by Gustavo Fring

We all mess up sometimes. But when you make a mistake on your tax return, it could cost you.

You could short your refund amount or end up owing more than you should.

Your error could cause the Internal Revenue Service to take extra time processing your Form 1040, slowing down the issuance of your refund.

Or it could be a mistake big enough that the IRS actually wants to discuss your filing in more detail.

Your best defense against all these unwanted outcomes is to file a mistake-free return. And you especially don’t want to make an error that’s avoidable.

Here are 10 common tax mistakes that happen on tax returns every year. This list comes from my personal experience (like I said, we all mess up sometimes), talks with tax professionals, and the IRS.

1. Not reporting all your income: It's called an income tax, and to the U.S. Treasury, that means almost all types of money you bring home throughout the year. When you're only income is from a job, all you have to worry about is entering your W-2 data.

But lots of full-time workers supplement their salaries with side hustles. In some of these side jobs, you'll get a 1099 form with details of these gig earnings. But even if you didn't get a 1099-NEC statement (generally issued when you make $600 or more) or a Form 1099-K (sent this year by third-party settlement organizations when your got more than $5,000) because you didn’t make enough to require the reporting forms to be issued, you still need to include those amounts on your tax return.

Likewise, don't forget any other payments not subject to withholding, such as investment earnings (on 1099-DIV and INT forms), certain gambling and prize winnings, and even unemployment benefits shown on a Form 1099-G.

Where a 1099 form or acceptable substitute statement is issued to you, the IRS will get a copy, too. So the tax agency will know if your earnings total doesn't match its math. And it definitely will let you know of the discrepancy.

So, double check the tax statements you got earlier this year, and enter all that info, correctly, on your Form 1040.

2. Making math miscalculations: This is the most common mistake made on tax returns year after year. Even when you have the documents in front of you, it’s easy to enter the amounts incorrectly on your Form 1040. The math errors range from transposed numerals to simple addition and subtraction errors to more complex tax item calculations, like figuring credits and deductions.

So pay very close attention when you enter your numerical data into your tax return. One wrong digit will lead to a math miscalculation that can really screw up your filing’s final result.

And no, tax software can't help you here. In fact, it can make things worse. Once you enter a wrong amount on one tax form line, the program repeats or transfers as required that number to another form, meaning a lone innocent numerical error can quickly compound, and not in the good financial way.

3. Omitting or entering 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 (SSN) has become.

If you don't enter your Social Security number and that of each individual who's included on your Form 1040, from spouse to all dependents, as they are shown on your and others' Social Security cards, the IRS won't process your return.

A Social Security number also is critical when claiming several tax credits, such as the Child Tax Credit and Additional Child Tax Credit, as well as ones for educational expenses and dependent care costs.

4. Misspelling or using 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 Social Security cards. That's yours, your spouse's 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. When the names of a taxpayer or a 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. 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.

5. Improperly claiming a dependent: Having a dependent's tax ID number, as noted in #3, 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. Such considerations also can be complicated by personal circumstances, such as divorce and shared custody of children.

The confusion often leads to an innocent mistake about who qualifies to be listed as your tax dependent. Other times, though, folks knowingly claim an ineligible 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 a criminal nature, on top of the unpaid tax and interest added to the correct tax amount you must pay.

6. Using the wrong filing status: Dependents also affect your filing status. So does divorce or marriage. All these life changes mean that every year, filing status selection that can be different. And an innocent error could be costly.

Take, for example, your first tax return filing since your divorce. You might think you should file as a single taxpayer. But since you have primary custody of your dependent children, 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 you sort out your correct current filing status.

7. Overlooking or miscalculating tax breaks: Here's a non-news flash. The tax code is complicated, despite (or, say code critics, because of) continual tweaks made by Congress and how the IRS interprets them in its subsequent regulations. That means there still are lots of mistakes to be made as you search for tax breaks.

Many of the errors are child-related tax breaks, such as the child and dependent care credit, Child Tax Credit, and the EITC mentioned in mistake #5.Overlooking the EITC is particularly notable, since the tax credit can net eligible families a sizeable amount. For large families in 2024, the EITC could mean as much as $7,830.

Although the IRS makes a special effort every January to remind lower- and moderate-income taxpayers to look into the EITC, around 20 percent of EITC-eligible filers still ignore it every year. Big mistake, as this dollar-for-dollar reduction of any tax you owe could ultimately produce a tax refund if your EITC amount is more than your tax liability. If you're unsure as to whether you qualify, check out the IRS' online interactive EITC Assistant.

8. Ignoring the virtual currency question: The IRS has been committed for years to making sure that folks who use virtual currency pay the appropriate tax on related transactions. As has been the case for several years, filers of Forms 1040, the main individual income tax return; 1040-SR, the form filed by age 65 or older taxpayers; or 1040-NR, the form for U.S. nonresident alien taxpayers will see a digital assets question. 

The crypto question has also been added to four other forms. It now must be answered by filers of —

• Form 1041, U.S. Income Tax Return for Estates and Trusts; 
• Form 1065, U.S. Return of Partnership Income;
• Form 1120, U.S. Corporation Income Tax Return; and
• Form 1120-S, U.S. Income Tax Return for an S Corporation.

Don't ignore the form question. The IRS emphasizes that it requires an answer from all taxpayers, not just by those who engaged in a digital asset transactions. Failure to answer, regardless of your response, means your return is incomplete. And that could slow the processing of your return.

If you're unsure whether you dabbling in digital currency counts, check out IRS.gov's special pages on Digital Assets and Frequently Asked Questions on Virtual Currency Transactions.

9. Entering incorrect bank account numbers: The IRS has for years encouraged us to file electronically and have our refunds directly deposited into a financial account. That process is easy for taxpayers and the IRS, unless you enter the wrong account number and accompanying routing number.

In addition to carefully entering the digits on your return, make sure they are the ones your bank wants you to use. As financial institutions expand their digital options, routing numbers could be different. Our bank uses a routing sequence for electronic transactions that is different from the numerals on the handful of paper checks we have. Double check with your financial institution for the correct routing numbers to use.

The Taxpayer First Act required the Treasury Department to establish a mechanism to deal with errant IRS direct deposits. But that still means a delay in getting your tax cash. So, your best move is to double check your account numbers so that your refund goes to your correct account.

10. Missing the filing deadline: Tax Day isn’t until April 15, so you have plenty of time to fill out your tax return correctly. But if you’re a tax procrastinator, be careful. You don’t want to push your filing task to the very last minute.

Not only will a rush to the deadline make you more prone to make some, or many, of these mistakes, you also run the risk of missing the deadline altogether.

Don't do that. If you miss the filing deadline and owe Uncle Sam, penalties and interest will start accruing on that unfiled return and unpaid amount as soon as the clock ticks past midnight April 16.

If you just can't complete your return Tax Day, then file Form 4868. It will get you an automatic six-month extension, during which you can finish and send your return to the IRS. Note, however, that this is only an extension to file your return. You must pay any tax you owe when you submit your Form 4868. By April 15.

Since nobody wants to pay Uncle Sam a penny more than necessary, don't make this 10th filing mistake of missing the filing deadline and facing added tax payment amounts.

And don't make any of the other nine avoidable tax filing errors either.

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