Common Tax Mistakes Most Accountants See Every Year
Millions of tax returns are filed to the Internal Revenue Service every year, and it’s likely some may have errors. Don’t let this be you. Most accountants usually see the same common tax mistakes, with varying consequences. Taxpayers also face a new filing landscape after the tax law introduced major changes, among them, increased standard deductions. Additionally, doubling of the child tax credit and the capping of state and local tax deduction.
Don’t Miss this New Credit
Tax pros worry that Americans may miss the new credit for dependents; the non-refundable tax credit. It is worth up to $500 for each qualifying person and begins to phase out at $200,000 in adjusted gross income. A dependent can be a child who is 17 or older or a non-relative who lived with you for the entire year. The non-child dependent must have made less than $4,150 in gross income last year and been responsible for more than half of the financial support.
Not a Filing Return
Some Americans aren’t required to file a federal tax return which is a common mistake most accountants see every year. This is because they don’t earn enough in income as income thresholds vary depending on status and age. But even if you don’t need to file a tax return because of low income, do it anyway, as you may be eligible to claim a refundable credit or may have a refund owed to you. There’s roughly $1 billion in unclaimed refunds from people not filing a return.
Picking the Wrong Filing Status
Attention single parents you may want to choose the head of household filing status, as head of household comes with a lower tax rate.
To Qualify:
- You must be unmarried on the last day of the tax year.
- You must have your children live with you for more than six months of the year.
For couples who are separated, it’s usually better to file as married filing jointly than married filing separately. It can be difficult to work with a separated spouse to file taxes, but choosing married filing separately is the most punitive filing status. The status disqualifies you from certain credits, but if you want to change your status, you must file an amended paper return.
Filing Without all Documents
Make sure you have all your W-2s, 1099 forms that show other income and other documents to claim certain deductions. For example, the American Opportunity Credit, which is for expenses from the first four years of higher education (up to $2,500 per student). If you rush to file your taxes, you will need to file an amended return.
Forgetting Big Life Events
Think about your life’s highs or lows, such as getting married, having a baby, receiving a promotion, divorced, becoming widowed, or losing your job; all of these can affect your taxes. They can move you to a higher or lower tax bracket, or qualify you for new credits. If you got a raise, the added income could affect how much you can claim the American Opportunity Credit. It begins to phase out at $160,000 for joint filers and is unavailable to couples who earn $180,000 or more.
Entering Incorrect Info
A typo can cause a lot of headaches, which is common tax mistake most accountants see every year. The IRS will reject an electronic tax return right after it’s submitted if a Social Security number doesn’t match its records. You can easily correct the information and resubmit.
The above mentioned are the common tax mistakes most accountants see every year on tax returns.
