Avoid These 7 Tax Mistakes That Cost You Money

What you don’t know can cost you when it comes to taxes. The tax code is complicated and changes frequently, so it is no wonder that there is so much confusion when it comes time to file your taxes.

Every year, many people make mistakes on their taxes, and these mistakes cost them money. Also, don’t assume that having your tax return prepared by a professional is a fool-proof way to prevent mistakes because the tax preparer relies on the information you give them and may not be completely up to date on the tax code themselves.

Whether you prepare your taxes yourself or have a professional do them, you are still responsible for filing your tax return accurately and claiming all of the deductions and credits you are entitled to. I have listed a few of the common tax mistakes that cost you money so you can avoid them when filing your taxes.

No one likes to do taxes, but putting it off until the last minute is likely to cost you. Unless you have a very simple tax return, filling out the forms and collecting all of the information takes time. If you wait until the last minute to file your tax return, you are more likely to miss deductions and credits and make mistakes in your calculations. You may also find that your tax return is more complicated than you originally thought. While you can always request a filing extension, any taxes you owe are still due on April 15. You will have to pay interest and possibly fines on any taxes that you don’t pay on time, regardless of when you actually file your taxes.

By the time you are done wading through all of the information, calculations and tax forms, your brain is probably mush. Something as simple as signing your tax forms can easily slip your mind, especially if you are filing electronically.

According to the IRS, if the forms aren’t signed, you never filed. This is not a problem if you filed your tax return well before the deadline because you will have time to sign and resend the appropriate paperwork.

If you waited until the last minute, however, forgetting to sign could mean that you end up filing your taxes late and have to pay interest and penalties on any taxes you owe. If you are filing as married filing jointly, make sure your spouse signs the tax return as well.

Just because you are married, doesn’t mean you have to file jointly. In general filing jointly gives you the best tax breaks, but not always. Prepare your taxes both ways to see which one gives you the biggest refund.

Whichever way you choose, your spouse must agree. For example, if you are filing as married filing singly, your spouse must also file singly. Also, if you are separated from your spouse, you should file as married filing singly so that you aren’t stuck with your estranged spouse's tax burden if they owe taxes.

You don’t have to miss out on money the government owes you just because you forgot to claim a deduction or credit on your tax return. You can fill out form 1040X to amend your tax return and claim that money.

You aren’t limited to amending this year’s tax return either. In most cases, the IRS will let you amend tax returns for three years after the date they were due, so check your last few tax returns for errors as well.

You should also amend your tax return if you forgot to include some of your income. Although, you will have to pay taxes on the additional income, you will be able to save money on the interest and penalties that would accrue if you don’t pay and the IRS finds out.

You may be tempted to maximize the tax withholdings from your paycheck to avoid having to owe taxes at the end of the year, but this is not necessarily the best plan. When you get a big refund, you are not paying less in taxes, you simply overpaid to begin with. The government has been holding onto that extra money interest-free all year until you file your tax return and get it back. Instead, reduce your withholdings and put that extra money in an interest bearing account or invest it. If you are worried about owing taxes, reduce your withholdings a little each year until you find a good balance between the amount withheld and your tax refund.

Many taxpayers miss out on money they should be getting back in their tax refund by not claiming all of the credits and deductions they qualify for. There are so many different deductions and credits that a professional can really come in handy here. At the very least, use a tax preparation program to catch some of the deductions and credits you may not be aware of.

However, no program is sophisticated enough to know when the numbers you enter are wrong, so double check your math when you are adding up your deductible expenses. Also, find out as much as you can about what is deductible and what is not—you may be surprised.

Keep a record of your tax deductible expenses in one place. Don’t rely on your memory, because it is easy to forget about one or two deductions over the course of the year.

Also, make sure you get a receipt for your donations or deductible expenses in the first place. For things like deductible mileage, keep a log book and record the beginning and ending readings from your odometer and the reason for the travel.

If you forgot to get or lost the receipt, you can still claim the deduction, but you will be out of luck if you are ever audited. If you can’t prove that you actually made the donation or purchase, you will have to pay it back along with any interest and penalties. You will have to decide if the gamble is worth it.