Tax season is something most people don’t look forward to. And unless you’re expecting to get some money back, you’re probably planning to put off filing until the last possible moment. While doing your own taxes can save you money, it can backfire if you’re not careful. As you gear up to get your tax return in order, here are five potentially costly tax blunders you don’t want to make.
Check out our federal income tax calculator.
1. Automatically Taking the Standard Deduction
Deductions reduce your taxable income for the year, which in turn, can push you into a lower tax bracket. Tax deductions can result in a smaller tax bill or a bigger refund.
When you file your taxes, you’ve got a choice between taking the standard deduction or itemizing. Automatically going the standard route makes filing easier, but you could miss out on the chance to claim other deductions.
If you donated a substantial amount of money to charity, for example, or you paid a pretty penny for medical and dental expenses, you may get more value from itemizing your deductions. The same goes for if you have a large amount of mortgage interest to deduct, work-related travel expenses or business expenses.
Related Article: The 50 Worst Charities in America
2. Choosing the Wrong Filing Status
Your filing status determines what your tax rate is and the size of your standard deduction. If you accidentally pick the wrong status, you could leave some money on the table.
For example, if you’re single or legally separated and have at least one dependent who lives with you full-time, you can choose head of household instead of single or married filing separately. With the head of household status, you’d be entitled to a larger standard deduction and a lower tax rate.
Related Article: 5 Ways New Filers Can Screw up Their Tax Returns
3. Not Checking for Errors
If you’re using an online software program to complete your return, that cuts down on room for error, but it doesn’t eliminate it entirely. If you plug in the wrong numbers somewhere, for example, that can throw the whole return off track and cause you to owe more in taxes. Leaving out key information altogether, such as income or deductions, is another costly mistake.
4. Choosing the Wrong Way to Pay
Owing money to Uncle Sam is never pleasant and you may feel pressured to pay up as quickly as possible. If you can’t pay the balance due in cash, taking out a personal loan or using a credit card to cover the gap may seem like the best option. The danger you want to avoid here, however, is borrowing money at a high rate of interest if you don’t think you’ll be able to pay it off in a short period of time. Paying 15% or 18% to a credit card company doesn’t make sense if you can negotiate a payment plan with the IRS at a lower interest rate.
5. Filing Late
The IRS doesn’t cut taxpayers any slack when it comes to the filing deadline. If you file your return late, you’re automatically subject to a 5% failure-to-file penalty. This penalty continues to accrue for each month your return is late and it can eventually max out at 25% of the total amount of taxes owed.
It’s always better to file on time – even if you can’t pay your tax bill in full – to avoid the penalty. If you think you’re going to be late, requesting an extension will give you more time to get your return in without triggering the failure-to-file penalty.
Related Article: How to File a Tax Extension
There’s no reason to hand over any more money to the IRS than you need to at tax time. Making sure that your return is error-free, adding up all of your deductible expenses and planning strategically for when and how you’ll pay can keep you from throwing away your cash unnecessarily.
Photo credit: ©iStock.com/LeoGrand, ©iStock.com/mediaphotos, ©iStock.com/Juanmonino