What Are the Most Common Income Tax Errors?

Money, Taxes

Thanks to tax-preparation software and online sites, doing your own income taxes is easier than ever before. You’re still the one typing those numbers into the boxes, however, and if you make a mistake entering information, it could end up costing you big time. Here are some common tax-filing errors to avoid:

1. Bad Math

This is still one of the most common errors on income tax forms, despite software that practically does all the calculations for us. It’s unfortunately easy to transpose numbers, however–entering $3,600 instead of $6,300–and this can lead to calculations that are technically correct but based on incorrect information. Math mistakes, errors in transferring numbers from one schedule to another, and transposed numbers could cost you big time. You could end up owing more taxes than you expected, or could be cheating yourself out of some of your return.

What’s more, you can bet that the IRS will be double-checking your numbers against their copies of your tax statements. If what you’ve entered doesn’t match your W-2 or 1099, the IRS will let you know and, in some cases, refigure your taxes to see if you owe Uncle Sam any additional cash.

2. Direct Deposit Danger

Many of us are choosing to have our refunds deposited directly into our bank accounts. It’s a great way to get your refund more quickly, and to make sure some of it goes directly into savings or an IRA. You can divide your refund into up to three accounts by filing Form 8888 along with your return. By the time you get to this point, however, you’ve already typed in a lot of numbers, and you need to be extra careful inputting your account identification. If you make a typo, your refund could end up in someone else’s account, or be sent back to the IRS. The IRS has no procedure for replacing electronically lost funds, so if your refund turns up in someone else’s account, you might be out of luck.

3. Unearned Income Errors

The IRS already knows how much unearned income you received in 2011, because the bank reports it on required 1099 forms. If you were lucky enough to make money from savings and investment accounts but fail to include this information on your return, odds are that sooner or later IRS examiners will notice and send you a bill for taxes owed. The same goes for money earned at a side job or contract position. Depending on when the, er, oversight is discovered, you could owe interest and penalties, too.

4. Social Security Screw-ups

Ever year, according to the IRS, thousands of taxpayers neglect to include their Social Security numbers on their tax forms, or they enter their own or their kids’ numbers incorrectly. With an incorrect SSN, the IRS can’t verify your income statements, bank accounts, or retirement plan contributions. Processing your return will be delayed, sometimes for months, and if you’re expecting a refund this is extra frustrating. Additionally, Social Security numbers are vital to claiming some credits and deductions, particularly educational expenses, child tax credits, and dependent care costs. Without correct numbers, the IRS will reject all your deductions and credits.

5. What’s My Status?

If you got married or divorced in 2011, or experienced any other change in your filing status, make sure you choose the correct option for your new situation. Newly divorced with children? Head-of-household, rather than single, is probably your best choice. And that’s just one of five options. Investigate what each tax filing status means and choose the one that is best for your financial situation.

6. Sign On the Dotted Line

According to the IRS, 75 percent of us are now filing electronically. If this is the case for you, your tax prep software probably won’t let you send off any forms until each step is completed. You’ll have to sign your return electronically with a personal identification number (PIN). The IRS verifies a filer’s identity via this pin, or last year’s adjusted gross income figure.

And for millions of people who still send in paper forms, be aware that the IRS won’t process your return at all if you’ve neglected to sign it.