Common tax return filing mistakes and misconceptions
Not claiming children in college because they were no longer living in your home. This is a common mistake that can cost thousands of dollars. The parents could be losing out on the education credit which can be as much as $2,500. Additionally, lower income taxpayers could be losing out on thousands of dollars in earned income credit.
Not claiming a parent because they didn’t live with you. A parent does not have to live with you to be claimed as a dependent.
Not filing with the best filing status. Not filing with the best filing status can have a significant impact on your tax return. As an example, I have a client who had a tax attorney recommend a tax professional. After filing her return she owed over $500. She came to me the following year. I changed her filing status from “married filing separately” to “head of household” which she was legally entitled to do. She owed $500 for the past year and anticipated $500 for the current year. Instead of owing $500 each year, I was able to get her a refund of over $10,000 for the two years. Additionally, with the new 20% business deduction, choosing the best filing status can have a substantial effect on your taxes.
Thinking that filing an extension increases your audit risk. This is like thinking the police will be mad at you if you take the interstate. The IRS doesn’t care whether you file an extension than the police care if you take the interstate. Everyone is entitled to file an extension and the IRS doesn’t care. It does not increase your chances of being audited.
Not filing tax returns because you can’t pay the taxes. Do not make this mistake! Be sure to file your return on time even if you don’t have the money. If you can’t afford to pay your taxes, tacking on late filing penalties will make it even more difficult to pay your tax liability. Approximately a month after you have filed your return, you will receive a letter from the IRS giving about a month to pay your taxes in full, or the option to set up payments.
Owing and not sending your return by certified mail. If you owe the IRS money and mail your return, you need to send the return by certified mail. Should your return get lost in the mail or by the IRS, you would have no way of proving that you mailed your return on time. Eventually, you would receive a letter from the IRS stating that you never filed, and would be subject to a 25% late filing penalty.
David Zubler is the author of three tax books and a philanthropist. All of the proceeds from the books go to a charitable foundation he created for underprivileged children. He is also the founder of Your Tax Care.on.