You can avoid these common goofs if you will pay close attention or get qualified help in preparing your tax return. Any of these costly mistakes can not only cost you money, but they may cost you an audit and confrontation with the IRS. They are:
- Claiming the wrong filing status. Your filing status determines a number of tax benefits like the child tax credit, earned income tax credit and dependent exemptions. Filing status choices are single, married filing jointly, married filing separately, head of household, and qualified widow with dependent child. Each choice comes with requirements. Making the wrong status choice can cost you money and a date with the IRS.
- Claiming ineligible dependents. Make sure your dependents qualify for such, because if they do not have Social Security numbers, the IRS may disallow the exemption.
- Failing to report all income. This means you should report every source of income, even if you don’t get a W-2 back from an employer, or a 1099 form from someone else you did work for. If these sources are ever found out, the penalties are stiff and can carry criminal prosecution.
- Bad Math. Although your bad math may be an honest mistake, the IRS takes your returns very seriously. Make sure to double check your math and know your figures are correct. Failures in figuring you taxable income, tax amount, deductions, capital gains, credits, or money you owe or due as a refund are all red flags to the IRS. Making these “honest” mistakes can cost you an audit or a penalty.
- Not filing the right forms. IRS instructions go to a lot of trouble to spell out who has to file which form. Filing the wrong form raises a red flag for an audit. The IRS makes publications that will instruct you in which forms to use. Supporting documents and schedules must be filed for certain deductions, credits and other items. One of the most neglected forms to file on time is the self employment tax forms. They have to be filed correctly and timely.
- Using the wrong social security numbers. If you miss write or incorrectly use the wrong social security numbers, they will not match your government records. The IRS may disallow exemptions, credits, and deductions when this happens.
- Failing to sign and date your return. If you do not sign or date your return, the IRS does not consider the return filed. Even E-filed returns have to be electronically signed.
- Not claiming or misusing the earned income tax credit. Millions of low-income families qualify, but do not claim it for a variety of reasons. There are many who do not understand the requirements for claiming the earned income tax credit and do anyway.
- Failing to report documented workers. Some taxpayers do this to avoid paying Social Security taxes or Medicare taxes for their workers, but it is against the law. It will cause the IRS to not only audit you, but they can even charge you with criminal violations.
- Failing to check whether or not you are subject to the alternative minimum tax. If your deductions and taxes are so high as to wipe out much of your tax liability, it is a good chance you may be subject to the alternative minimum tax. This relatively new tax is a parallel tax system designed to make sure the wealthy pay their fair share, but you do not have to have vast wealth to fall under the tax. It is best to check.
If you live in or around the Santa Fe area of New Mexico, and you are facing an audit due to one or more of these common mistakes, you may need legal representation in the form of a tax attorney. Contact us today, and we will get you in touch with a tax lawyer in your area who will be able to help you answer all the questions you may have about tax law.