Common Tax Mistakes That Could Lead to Serious Consequences

Each year American taxpayers file annual taxes to the government. However, according to the IRS, a large percentage of the returns sent in (either electronically or by mail) have mistakes, some that could lead to serious consequences. Entering information incorrectly, making mistakes with calculations, or assuming tax credits and deductions in error are top on the list for most common errors. Here are the top mistakes that you should avoid when doing your taxes.

Personal Identification Errors

Entering the wrong Social Security Number onto the form is one of the most common errors made on tax returns. If the tax return was filled out manually and mailed in, then the numbers must be legible as well as correct. Many times, tax payers think they have their Social Security Number memorized, but in reality do not. Without the correct Social Security Number, the IRS cannot identify you. If this happens, it can delay the return or the payment processing time. There could be fines associated with the delay if you waited to file at the last minute or used an extension.

Filing Status Errors

It is easy to become confused when reading the instructions on an U.S. tax return, especially when trying to determine how to file. Many tax payers file as Head of Household, when in reality they should have filed as Single. The IRS has a tool that will help you learn which way you should file, so that there is no confusion. The tool will take your information and determine which status is correct.

Misspelled Name Errors

For the purposes of paying taxes, all information must be correct, including your name. The name should be the full legal name and should not include nicknames. For example, if your friends call you Bill, but your legal name is William, then William is the name that should appear on the tax return. Also, for purposes of the return, there should be no abbreviations, so even middle names should be spelled out. Names should always match the Social Security card. Again, if the IRS cannot identify you, they cannot process the return.

Tax Deductions and Credit Errors

This is one of the most serious mistakes to make because it can cost you. If the IRS examines your tax return and determines that you have claimed a deduction to which you were not entitled, they will reject the return or, in the case that the return has already been processed, the IRS can retroactively assess fees for claiming deductions in error. Depending on the extent of the error, the IRS could levy heavy sanctions, fines and convict the tax payer of tax fraud, in some cases. If you figure out an error after you have already submitted the return, simply file an amended tax return and correct the mistake. To make sure that you qualify for a tax credit or deduction, use the IRS interactive tax tool.

Signature Errors

All tax returns require a signature of some sort. If you file electronically, then you are prompted by the software to electronically sign the return using a PIN. If this PIN number is entered incorrectly, the return could be rejected. If you are filing by mail, then you will have to physically sign the tax return. Returns that are sent to the IRS without having a signature will be rejected. Any fees for late filing may apply.

Missing Tax Return Deadlines

The IRS gives everyone ample time to get their tax returns in to them, so they are not lenient with people who miss the deadlines. If you know you are going need more time, however, you can apply for an extension using form 4868, which will usually give you up to six more months to get your paperwork in order. Filing at the last minute is okay as long as the tax return is postmarked by April 15th (or the final due date for the extension).

Donating to Unrecognized Charitable Organizations

The only way the IRS will allow you to claim a donation to a charity is if that charity is listed as a legal nonprofit organization. The organization must have a tax-exempt status registered with the IRS. Also, the rules have changed slightly for this, in that the donated goods must be in decent condition when released, otherwise the deduction is rejected. You can only claim fair market value for the item in its current condition, and not what you originally paid for the item.

Expired ITIN Numbers

Numbers can have an expiration date, especially if they are ITIN numbers. ITIN numbers are retired automatically if they are not used for a period of three years concurrently. If a return is filed with an out of date ITIN number, the IRS will not process any refunds associated with the return until the ITIN is updated. It can take up to seven weeks for the ITIN to be verified and reissued, so it is a good idea to verify that the ITIN is still viable well in advance.