Doing your taxes can be one of the most painstaking tasks to perform. Nobody likes having to do their taxes, but it is necessary. The only thing worse than having to spend all that time doing your taxes is finding out that you made a costly tax mistake after filing your taxes.
Making a tax mistake can have its consequences. From possibly shrinking or delaying your tax refund to resulting in owing money or even triggering an audit from the Internal Revenue Services (IRS), tax mistakes can cost you a lot of money.
Millions of Americans struggle to get their taxes right the first time around. The IRS has even created a whole section on its website to help people recognize the common tax errors people make all the time.
It is going to be even more crucial to stay updated with all the pitfalls while filing your taxes, considering the legislative changes to the tax code due to the global health crisis.
This post will discuss some of the most common tax mistakes that could be costly for you. Knowing about these mistakes can help you avoid making them when you file and possibly save yourself a lot of money (and even trouble with the IRS).
5 Common Tax Mistakes That Could Be Costly For You
While many of the changes introduced in light of the pandemic have been good for taxpayers who suffered lost wages and layoffs, it does not make doing your taxes an easier task. If you want to make sure that you do not make any tax mistakes amid the recent changes, here are some of the common tax errors you should be wary of this tax season.
1. Paying income tax on the entire unemployment benefits you received
Based on the pandemic relief bill due to the pandemic, anybody who received unemployment benefits amid the pandemic-riddled year could exclude $10,200 of the benefits they received from their federal income tax.
Households that generate less than $150,000 qualify for the exemption, and the tax credit can be applied per individual in the household. It means that if married couple is earning less than $150,000 collectively and assuming that both received over $10,200 each in unemployment benefits, the married couple can exclude up to $10,200 from their tax bill.
Unfortunately, many people had already filed their taxes without knowing about this tax credit because the change was introduced in the middle of tax season.
2. Not claiming any more stimulus money you have yet to receive
Another common tax mistake that could cost you a lot of money is not claiming the additional stimulus money you have yet to receive. The first two stimulus checks sent out in 2020 were effectively an advance on a special tax credit for the year. The Recovery Rebate Credit was calculated based on information about your income and dependents from 2018 and 2019.
If you qualify for it and are awaiting a stimulus check, it is important to complete this new step on your tax return this year to avoid making a major tax mistake. Taking on the help of a seasoned tax attorney can help you figure out how to handle this if you are not sure how to calculate the unclaimed stimulus funds you are supposed to add.
3. Using auto-fill for your personal information
There are several tax-preparation programs available to help Americans have an easier time doing their taxes. Many of these make tax filing easier by finding your information from previous years and auto-filling most of the forms for you.
Typically, this can be quite convenient because it speeds up filling the forms. However, rolling over your taxes from last year might not be the best decision. If you roll over your information from the previous tax year without updating it, your return could be delayed or even rejected by the IRS.
Make sure that you fill in the details on your forms manually and check for any errors. You would be surprised at how many people make mistakes when typing their information.
4. Not taking advantage of the Earned Income Tax Credit
If you were laid off by your employer or saw a drop in earnings due to the pandemic, you could qualify for the Earned Income Tax Credit. This is a very generous tax credit that is also refundable. You can expect it to reduce up to $6,600 from your tax bill. If you are getting a tax refund after everything else is sorted out, you could get $6,600 through this tax credit.
The temporary tax credit is available for low-income taxpayers. Depending on your filing status, income, and how many dependents you have, you could get a substantial amount of tax savings through this credit.
5. Not claiming tax breaks due to fears of an audit
Many people believe that claiming certain types of tax credits and deductions could look like red flags to the IRS and even risk triggering an audit. Tax credits like home office deduction and mileage tax deduction are two such tax credits that people mistake as being red flags that the IRS is on the lookout for during tax season.
However, the IRS does not regard such tax deductions as a viable reason to conduct an audit on taxpayers. The IRS audits around 0.45% of all tax returns. Most of the people that the IRS audits are wealthier taxpayers earning $10 million or more.
Do not pass up on the opportunity to avail any tax breaks that are rightfully available to you. Make sure that you have all the supporting documentation for your tax credits and claim them. You can end up saving a substantial amount through these tax credits.
As you begin organizing your receipts and checking the mail for your W-2, it always helps to understand how you can avoid making common tax filing mistakes and maximize your tax savings.
You might not be used to relying on help to file your taxes. However, tax season can be tricky, and many people can make costly mistakes despite their best preparations for it. There is no shame in taking on help from experienced and professional tax attorneys. If you also think that it is better to be safe than sorry, you should consider working with a firm like Polston Tax.
The team at Polston Tax is licensed to practice in all 50 states as tax attorneys. If you are facing challenges with your individual taxes this season or for your company’s tax returns, working with professionals can help. You can file your taxes with the peace of mind that the professionals did not make any mistakes, and you have maximized your tax savings.