In excess of 150 million tax returns are expected to be filed to the Internal Revenue Service this year. It’s likely some might have errors. Don’t let it be you. Each and every year, tax professionals end up finding the same common errors, with varying consequences.
This year is extra thorny because taxpayers also face a new filing landscape following the tax law introduced major changes. Among them are the increased standard deductions, the doubling of the child tax credit along with the capping of state and local tax deduction.
These changes could possibly make it easier to get tripped up. So, it pays read up on the new tax law, take your time and review your return before filing.
Minimize typical tax-filing issues
Here’s 10 mistakes to watch out for.
1. Don’t miss this new credit
Tax pros worry that Americans may miss the new credit for dependents introduced by the tax law. The nonrefundable tax credit is worth as much as $500 for each qualifying person and begins to phase out at $200,000 in adjusted gross income ($400,000 for joint filers).
The dependent needs to have made under $4,150 in gross income last year, while you provided over fifty percent of the person’s financial support. A dependent can be a child who is 17 or older, a relative, or a non-relative who lived with you for the whole year.
2. Not filing a return
Some Americans aren’t required to file a federal tax return because they don’t earn enough in income. Those income thresholds vary depending on status and age. But even when you don’t have to file a tax return as a result of low income, do it anyway, says Kathy Pickering, executive director of H&R Block’s Tax Institute.
“You may be eligible to claim a refundable credit or you may have a refund owed to you,” Pickering says. “There’s roughly $1 billion in unclaimed refunds from people not filing a return.”
If you lost your job and claimed unemployment benefits, you also have to file a return, she says. That’s because many people don’t request for taxes to be withheld from their unemployment checks and end up owing the government. “That can get people in trouble,” she says.
3. Picking the incorrect filing status
Attention single parents: You may wish to select the head of household filing status, as opposed to single status. Head of household includes a larger standard deduction and in most cases a reduced tax rate. To qualify, you must:
Be unmarried on the last day of the tax year.
Contribute more than half of the financial support of your home.
Have your children live with you for more than six months of the year.
For couples who are separated or going through a divorce, it’s usually advisable to file as married filing jointly than married filing separately, Pickering says.
“I know it can be difficult to work with a separated spouse to file taxes, but choosing married filing separately is, unfortunately, the most punitive filing status,” she says. That’s because the status disqualifies you from certain credits and deductions.
If you would like to modify your status after you file your taxes, you have to file an amended paper return.
4. Filing without all documents
Ensure that you have all your W-2s from every employer, 1099 forms that show other income and other documents to claim certain credits or deductions, for example a tuition statement for 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 and forget a document, you will have to file an amended return.
“Those can’t be e-filed, so it’s a super pain,” says Mark Jaeger, director of tax development at TaxAct. “You must fill out the paperwork and send it in, which takes another six to eight weeks to process.”
5. Forgetting big life events
Consider your life’s highs or lows last year, such as getting married or divorced, having a baby or becoming widowed, getting a promotion or losing your job. All these can affect your taxes.
6. Entering incorrect info
A typo can result in a lot of headaches. In some circumstances, the IRS will reject an electronic tax return immediately after it’s submitted if a Social Security number or misspelled name doesn’t match its records. You can easily correct the information and resubmit.
However if you enter the wrong bank account number for your direct deposit, the IRS won’t know before the deposit is rejected by your bank. In that case, the IRS will send a paper check, however it will be six to eight weeks later, Jaeger says.
7. Missing earned income tax credit
Every single year, almost 25 % of taxpayers miss out on this valuable credit worth as much as $6,431 in 2018. It’s forgotten so much that the IRS has dedicated an awareness day for the credit.
“This is a huge credit for low and middle-class taxpayers,” says Lisa Greene-Lewis, a certified public accountant and tax expert at TurboTax. “People usually think they make too much money to qualify.”
8. Paying someone to do your taxes
Forget the tax accountant if you have a straightforward tax return. You probably have a simple one if you:
Take the standard deduction.
Receive a W-2 statement rather than 1099 form for your income.
Claim the earned income tax credit or child tax credits.
Have limited interest and dividend income.
9. Not claiming a child
Who is able to claim the child? The appropriate answer may be complicated if someone aside from the child’s parents is supporting the child.
For example, a single grandparent whose grandchild lives with them could possibly claim head of household status and claim a child tax credit. Occasionally, the grandparent may also qualify for the earned income tax credit.
10. Missing the other education credit
Many taxpayers may be familiar with the American opportunity credit for higher education expenses. However, there is another credit for other educational expenses. It’s the lifetime learning credit, and it’s worth as much as $2,000 per tax return. “That one can cover expenses even if you’re not in a four-year degree program, such as training for a job certification,” Pickering says.
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