Tuesday, January 26, 2016

Six Mistakes to Avoid When Filing Taxes

  1. Filing out tax forms with incorrect SSC numberThe IRS computers will automatically reject your deductions and credits if your Social Security number is wrong. This mistake seems careless and trivial, but it is paramount to have the right Social Security number when filing your taxes.  Your social security number is your tax ID number, which is linked to numerous transactions such as income statements, savings account interest, and retirement plan contributions. It is also vital to claiming tax credits. Since the majority of returns are now being filed electronically, a correct social security number is crucial. An incorrect social security number will result in the reject of an e-filed return. Double check all the numbers before submitting your return to ensure they are not transposed or missing digits.

  2. Incorrect Federal ID number used on 1099 MISC.Although your accountant can easily fix this, the less the IRS has to contact you, the better it is. The IRS matches 1099MISC and the Social Security number or Federal Identification number used. If you provide services, and the client you did the work for issues a 1099MISC, be sure they know to use the federal identification number of your business and not your social security number.  If they use the wrong number, the IRS will send you a notice that you did not report income on your personal return, when in fact it was reported correctly on your business return. Also, watch out for spelling your business name incorrectly. Simple spelling errors can lead to rejected returns.

  1. Not reporting non-deductible IRA contributions.Any contribution to an IRA, whether it is deductible or non-deductible, should be reported, so when you withdraw it, you are not taxed on it.  Plain and simple, all contributions to an IRA must be reported.

  1. Incorrectly reported estimated tax payments.If your accountant instructed you to make quarterly estimated tax payments, be sure to let him or her know the details of the payment for each installment.  Provide the check numbers, dates of payment, and the amount of each payment.  What often happens is people claim they made the payments as their accountant told them, but did not keep any records and inadvertently forgot a payment or two.  If the accountant includes all of the estimated payments on the return when they all were not really made, the IRS or state government will send a notice of tax due with penalties and interest.

  1. Incorrect bank account information entered for refunds.If you are having your accountant file your returns electronically and want your refunds directly deposited (or payments automatically) withdrawn from your checking or savings account, provide the correct account information including name of bank, bank routing number, and account number. This will avoid delays in processing your refunds and/or payments.

  1. Forgetting your signature on your return!You must sign your taxes for the IRS to process your taxes.  Filing your taxes electronically is a foolproof way to ensure your taxes will not go unsigned.  These software packages do not allow documents to be sent unless every step is completed.