More than 150 million tax returns are expected to be filed to the Internal Revenue Service this year. It’s likely some may have errors. Don’t let it be you.
Every year, tax professionals usually see the same common errors, with varying consequences.
This year is extra thorny because taxpayers also face a new filing landscape after the tax law introduced major changes. Among them are the increased standard deductions, the doubling of the child tax credit and the capping of state and local tax deduction.
These changes could make it easier to get tripped up. So, it pays read up on the new tax law, take it slow and review your return before filing.
Here are 10 mistakes to avoid:
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 up to $500 for each qualifying person and begins to phase out at $200,000 in adjusted gross income ($400,000 for joint filers).
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The dependent must have made less than $4,150 in gross income last year, while you provided more than half of the person’s financial support. A dependent can be a child who is 17 or older, a relative, or a nonrelative who lived with you for the entire 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 if you don’t need to file a tax return because 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 need to file a return, she says. That’s because some 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 wrong filing status
Attention single parents: You may want to choose the head of household filing status, rather than single status. Head of household comes with a larger standard deduction and often a lower 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 better 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 want to change your status after you file your taxes, you must file an amended paper return.
4. Filing without all documents
Make sure you have all your W-2s from every employer, 1099 forms that show other income and other documents to claim certain credits or deductions, such as 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 need to file an amended return.
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“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
Think about your life’s highs or lows last year, such as getting married or divorced, having a baby or becoming widowed, receiving a promotion or losing your job. All these can affect your taxes. They can move you to a higher or lower tax bracket, change your filing status, or qualify or disqualify you for new credits or deductions.
For instance, if you got a raise or your spouse went back to work, the added income could affect how much you can claim of the American Opportunity Credit, which begins to phase out at $160,000 for joint filers and is unavailable to couples who earn $180,000 or more.
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6. Entering incorrect info
A typo can cause a lot of headaches. In some cases, the IRS will reject an electronic tax return right 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.
But if you enter the wrong bank account number for your direct deposit, the IRS won’t know until the deposit is rejected by your bank. In that case, the IRS will send a paper check, but it will be six to eight weeks later, Jaeger says.
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Similarly, if you enter the wrong income amount – say you forget a zero – you won’t be able to correct it until you hear back from the IRS, which doesn’t receive your income information from your employer until March.
7. Missing Earned Income Tax Credit
Every year, almost a quarter of taxpayers miss out on this valuable credit worth up to $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.”
But changes in life circumstances – such as a job loss or a spouse staying home with a newborn – may be enough to make you eligible for the credit this year.
8. Paying someone to do your taxes
Forget the tax accountant if you have an easy 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
Most major tax preparation software, such as TurboTax and H&R Block, offer a free-file service.
9. Not claiming a child
Who gets to claim the child? The correct answer can become complicated if someone other than the child’s parents is supporting the child.
For instance, a single grandparent whose grandchild lives with them may be able to claim head of household status and claim a child tax credit. In some cases, 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. But there’s another credit for other educational expenses. It’s the Lifetime Learning Credit, and it’s worth up to $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.