Tax filing season kicked off as scheduled on January 28. But tax returns for 2018 may require extra time to file and process due to confusion over the sweeping tax law changes under the Tax Cuts and Jobs Act (TCJA). Most the TCJA provisions that affect individuals are effective for 2018 through 2025, unless Congress extends them.
In addition, people who prepare their own returns may experience further delays and possibily incur unexpected tax liabilities (including penalties and interest) if they make one of the six common do-it-yourself tax filing errors listed below. These are some of the ways an experienced tax preparer can help at filing time and ensure you claim all the tax breaks to which you are entitled.
1. Inserting Incorrect Names and SSNs
It's surprising how often taxpayers misspell their own names and transcribe incorrect Social Security numbers (SSNs). Getting a digit wrong on your SSN throws your entire return into jeopardy. You also can't use a nickname or shorthand version of your name, such as Nick for Nicholas or Liz for Elizabeth.
IRS computers match up information, so it's likely that this type of mistake will be flagged right away. Then, a return may be rejected, causing refund delays and sometimes costing extra tax dollars.
2. Providing Inaccurate Financial Account Information
Another potential trouble spot involves reporting information from banks, brokerage firms and other financial institutions. Generally, taxpayers are required to report capital gains and losses, dividends and interest on their returns. Again, if just one digit is wrong or missing, it can create problems.
If a taxpayer files electronically, data usually can be imported from most major institutions into the tax software program. However, some taxpayers have difficulty using this function or make mistakes when they input numbers manually.
In the same vein, if a taxpayer arranges for a direct deposit of a tax refund, he or she must enter the bank's routing numbers accurately. If not, he or she may have to wait months until the error is discovered and corrected to receive a refund.
3. Using the Wrong Filing Status
One of the first items to enter on Form 1040 is your filing status. Depending on a taxpayer's situation, an unmarried individual may be eligible to file a return as a single person or as a head of household. Married people can file a joint return or opt for separate returns. The tax rates and thresholds vary based on filing status, so this choice can make a big difference in the amount of taxes a taxpayer incurs for the year.
Usually, a married couple fares best by filing a joint return, but that's not always the case. For instance, under the TCJA a taxpayer may be able to preserve a deduction for "qualified business income" (QBI) received from a pass-through entity by filing separately. There may be significant tax savings to be won or lost with the filing status election. Plus, it's a hassle to fix things if a taxpayer doesn't qualify for the status chosen.
4. Missing or Omitting Income
Sometimes taxpayers forget to report sources of income, such as Form W-2 from a side job or Form 1099-G from the previous year's state tax refund. Taxpayers are required to report all sources of income, even if an employer doesn't send a W-2 or a 1099. This can be especially challenging for self-employed people who receive multiple 1099s for services rendered.
It's easy for a 1099 form to be unintentionally discarded or fall into the wrong pile of papers. So, it's important to assemble all the forms in an organized fashion.
5. Filing Paper Returns
Technically, filing a tax return on paper isn't a "mistake." But doing things the old-fashioned way can lead to errors and delays. With a paper return, it's more likely that taxpayers will enter information incorrectly, such as a name or SSN or make math errors. To help prevent common errors, a tax preparer is aware of items from the previous year and will ask questions to help eliminate discrepancies.
Furthermore, if you file electronically, you generally will receive a refund faster than you would if you mail your return to the IRS. Typically, in a normal tax filing season, the IRS processes e-filed returns within 48 hours. Plus, you'll receive confirmation of receipt when you e-file. Keep in mind that DIY software isn't a substitute for the expertise of an experienced tax professional. Using software without an in-depth understanding of tax law can lead to inadvertent mistakes and missed tax-saving opportunities.
6. Filing in Haste
Even if taxpayers file electronically, instead of by paper, they can make mistakes if they're in a rush. This usually happens when the filing deadline is approaching. April 15 is the deadline for most taxpayers to file (or extend) a return for the 2018 tax year. For taxpayers in Massachusetts and Maine, the deadline is April 17 due to holidays. (April 15 is Patriots' Day in Maine and Massachusetts; April 16 is Emancipation Day in Washington, D.C., where the IRS is located.)
Some early filers also may complete their returns at breakneck speed or try to "wing it" before they receive supporting figures from their employers, banks and other third parties.
If you're not ready to sign off, you can request an automatic six-month filing extension. This gives you and your tax preparer until October 15, 2019, to complete your return. But filing an extension doesn't extend the deadline for paying taxes. You still must make a good faith estimate of your tax liability by either withholding from your paycheck or making quarterly tax estimates.
Using an experienced tax preparer is the best way to avoid mistakes and achieve peace of mind when you file your tax return. Most CPA firms have implemented quality control measures — such as checklists and review procedures — to prevent common mistakes. Moreover, a trained tax professional understands the ins and outs of current tax laws and can inform you about tax-saving opportunities to lower your tax bill for 2018 and beyond.
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