Spring is here, March Madness is in full swing, and it’s no longer pitch-black before dinner. All good stuff. But for me, March means crunch time – or rather, time to organize and file my taxes. I’d rather be doing just about anything else, including cleaning out my basement.
Indeed, filing taxes can be stressful. If you’re still procrastinating or worrying about making mistakes on your tax return, you’re not alone. To help you file your taxes correctly and put your mind at ease, we’ve pinpointed three common mistakes. Read on to learn how you can avoid making them.
1. The Math Doesn’t Add Up
According to Forbes Magazine, math is one of the first things the IRS checks for on tax returns. In other words, your numbers should add up correctly. Sounds easy, right? Yet, entering figures onto forms can make your eyes glaze over and before you know it, you’ve transposed a number or two. Seemingly small mistakes can add up. Not only can a math error trigger a correction notice from the IRS, but it can potentially delay an expected refund. Mathematical errors might also result in a lower tax refund than you were counting on. Worse yet, you might even end up owing money to the IRS.
How to Avoid Making Math Mistakes
- If your taxes are pretty simple – as in you’re an employee and receive a W-2 form, you don’t own a home and you don’t have a large stock portfolio – the simplest solution is to use tax software from companies like TurboTax, H&R Block, or TaxSlayer. The calculators on these platforms will add up your figures and help ensure that your math is accurate. Most tax software programs offer free versions as well as more immersive options that you’ll have to pay for. Yet, if you earned less than $64,000 in 2016, you can file your taxes using the IRS’ Free File software.
- Hire an accountant. It’s hard to beat free or low-cost tax filing software. However, if you’re a married freelancer like me with piles of 1099 tax forms stating your self-employment earnings, a house, dependents, and investments of some nature, you may need a little more hand-holding. Years ago, I hired an accountant and have never looked back. Every March, I gather my information, fill out a tax organizer, and drop off a big thick folder to my CPA’s office. From there, I let him do the math.
2. You Forgot or Neglected to Report Income From All Sources
If you’re a freelancer or an employee who has a side hustle, like driving for Uber or Lyft, you probably received one or more 1099 forms this year. These forms state the amount of untaxed money you made. At the same time, if you earned interest income in a savings or investment account, you’ll receive a 1099 for that as well.
While it’s certainly easier to exclude your 1099 income on your tax return, this can throw up a red flag with the IRS – not to mention that neglecting to report all of your income can result in a penalty.
How to Avoid Inaccurate Reporting
- Stay organized and as soon you receive 1099 forms, put them away in a folder. If you are missing a 1099, call the business and ask for one. Companies are required to send 1099 forms to all independent contractors who earned in excess of $600 during the tax year.
- Prepare to do some extra legwork and fill out all necessary forms to report your additional earnings. It’s also important to understand that the IRS receives copies of all of your 1099s. This means the government knows how much you earned and your tax return should reflect this accurately. Another tip: Extra forms can seem overwhelming and tax software can help you stay on point.
- This may sound like a broken record, but if you need extra help, hire an accountant. For me, launching my freelance career was the tipping point that led me to hire a CPA.
3. You Didn’t Enter the Correct Banking Information
If you’re expecting a tax refund, the easiest way to get your cash fast is to have the funds directly deposited into your bank account. Yet, in order for the money to go into your account, you need to enter the correct bank account information and routing number on your return. Yup, more numbers. What happens if you fill out the wrong account number? Your refund may get sent back to the IRS or end up in someone else’s bank account. You’ll then have to spend your time trying to track down your money and this is no fun.
How to Avoid Problems with Your Direct Deposit Refund
- Triple-check your account and routing number for accuracy and then e-file your return, designating on the tax form that you want to receive your refund via direct deposit. For example, to look up your spending account number at Chime, all you have to do is log onto the website or open the app on your phone and go to the “Move Money” tab. From there you can see your account number and routing information under “Deposit Funds.”
- If you opt for direct deposit on your tax return, you can expect to receive your refund from the IRS within 21 days. This is the fastest way to receive your money, according to the IRS. If you haven’t received your money within this time frame, it’s time to check on your refund status through the IRS’ refund tracker tool. Some banks, like Chime, will send you an email and text alert as soon as you receive a deposit.
According to the IRS, 83% of tax filers received a refund in 2015, This means that you’re more likely to get a refund than owe money to Uncle Sam. Yet, it’s always a good idea to be prepared with money set aside to pay taxes – just in case. With this in mind, there’s no time like the present to take advantage of automating to boost your savings, To help you save without even thinking about it, Chime rounds up each of your transactions to the nearest dollar and stashes this into your savings account. With automated savings and a possible tax refund in your future, this will give you some newfound cash to sock away. A sweet reward for avoiding pitfalls this tax season.