Common Tax Filing Mistakes You Need to Beware Of

One of the tasks a person cannot put aside is filing taxes even though this might not be an interesting task to do on a weekend but filing your tax return evades a person from embarrassment and big trouble with the Internal Revenue Service (IRS). 

These are the 5 common filing mistakes a person might want to avoid to get ready for a tax period and minimize stress. 

Losing the opportunity on tax credits

Taking advantage of the opportunity on tax breaks upon filing taxes. For instance, tax credits can assist the decrease of what a person is in debt for the year on a dollar for dollar basis. 

These are the comparison of tax credit and deductions. The tax credit is the debt with the due tax. On the other hand, the amount that can be subtracted from the taxable income for the year is called deductions. 

A few of the important tax credits consist of the following:

1. Earned Income Tax Credit.  Those who have qualifying dependents and who also meet the rules even without a qualifying dependent especially for those low-income earners, this credit is offered.
2. Child and Dependent Care Credit. To balance the cost of the expenses for the care of children, taxpayers with qualified dependents may opt to avail of this credit. 
3. Savers Tax Credit. To those who make contributions to a qualified retirement plan, this tax credit is designed especially for those who are lower to middle-income earners.
4. American Opportunity Tax Credit and Lifetime Learning Credit. If expenses are paid for eligible higher education, then you can claim these credits.
5. Child Tax Credit. For those with dependent children, then this credit is available to taxpayers

Terms and conditions apply to each credit and it also varies in regards to each credit value. 

How to avoid this mistake

Researching the right tax credit can be an approach to evade missing the credits. 

If the taxpayer, for instance, has kids these tax credits might be claimed:

• Earned Income Tax Credit
• Child Tax Credit
• Child and Dependent Care Credit

American Opportunity Tax Credit or the Lifetime Learning Credit is an option for the students or the parent of a student. Savers Tax Credit is also an option for young adults who are just beginning their careers. 

If the taxpayer is not a tax pro then there is a breakdown of eligibility guidelines that IRS offers. To prepare your tax return, usage of tax prep software is another way to figure out what you're eligible for. The taxpayer’s information and the credits that he might be missing out on will be examined and reviewed through online tax preparation companies. 

Filing under the wrong status

When it comes to claiming tax credits and/or deductions, filing the correct tax status is important because it determines what you're eligible for and also aids in determining the tax you owe.

How to evade this mistake

Filing the correct tax status is the most effective way to evade this mistake. For instance, the taxpayer is eligible to file as the head of the household however, he won’t want to file single. Opportunities for getting a larger tax refund like these types of mistakes can be an additional waste. 

These are the five filling statuses a taxpayer can choose from:

1. Single. Option for those taxpayers who don’t qualify for another filing status and unmarried. 
2. Married filing jointly. Married couples could choose this status if they want to pool their income, tax credits, and deductions.
3. Married filing separately.  Option for couples also who opt to independently pay income tax from each other.
4. Head of the household. For those who have a home to maintain for himself or herself and have at least one qualifying dependent are head of the household, which means they are single or married but are separated.
5. Qualifying widow(er) with a qualifying child. After the taxpayer’s spouse demise the living spouse maintains the tax benefits of married filing jointly for two years.

To aid in choosing the status to choose from, the IRS has a tool to help the taxpayer selected.

Not Organizing Paper Work

Organizational skill is your best friend if your tax return is together and have successfully filed your tax deadline on time. W-2 or 1099s and receipts for deductible expenses are essential because, without these documents, the person is prone to late filing or can miss out on tax break. 

How to avoid this mistake: 

• These are the techniques if the taxpayer aims to be organized for the tax period. 
• Track deductible expenses which include charitable donations by using an expense tracking app. 
• Filing your taxes online and use the feature import in order to add W-2s and 1099s could be one of the choices 
• Setting up a filing system for paper receipts categorized by month or by expense. 
• Keeping a checklist of documents needed to file for income tax return. 
• Tracking expenses through an existing bank account. If the taxpayer is spending from checking account, for example, reviewing through electronic or paper statements to check the expenses for the whole year.