The 4 Most Common Tax Errors You Should Watch Out For
It would be nice if we could have a simpler way to meet our tax obligations. But this is the system we have, and unfortunately errors are quite common. Let’s review some common errors that you should look out for.
1. Data Entry Errors
The IRS provides a list of common errors. The most common issue is data entry errors, such as:
- inputting the wrong social security number
- entering incorrect W-2 info
- spelling a name wrong
Some of these will be rejected immediately if you’re filing electronically. Some won’t. If it passes through the initial screening, maybe your return will never be right, or maybe it will be flagged later. This can take weeks or months to fix. Perhaps the worst of the data entry errors is to put the wrong bank account number for a direct deposit. So be attentive when entering data into your tax software!
2. Choosing the Wrong Filing Status
The five filing statuses are:
- Head of Household
- Qualifying Widow(er)
- Married Filing Jointly
- Married Filing Separately
Filing correctly ensures you aren’t making a mistake that may cost thousands of dollars. There are cases when someone can be married and file as Head of Household, but the requirements are very specific. If you’re married and don’t meet those requirements, you must file either Married Filing Jointly or Married Filing Separate.
3. Incorrect Deductions
A friend may tell you that you can deduct something, and either you or they misunderstand the deduction. But somehow you make it fit into the tax software.
I had a client who deducted her car purchase ($27,000) as an itemized deduction because someone told her she could. She wasn’t self employed or a business owner. There is a case that if you itemize and if you claim sales tax as a deduction instead of income taxes paid that you may be able to add the sales taxes paid for a car purchase to your sales tax deduction. That is two “ifs” and a “may,” and even so, it isn’t the whole car purchase. My client owed the IRS over $2,000, plus penalties and interest. If a deduction sounds too good to be true, it probably is. If you don’t understand the questions the software is asking or it doesn’t look right, then it’s time to look for professional help.
4. Mistakenly Claiming or Not Claiming a Dependent
This one can be complicated. It comes up often when parents aren’t married. But there are many other situations that involve this error as well. Read more about when you can claim someone as a dependent. For more help, check out the IRS’s Interactive Tax Assistant.
I’ve covered four common types of errors, but there are many more possible errors. You can avoid them by making sure you or your tax professional are focused and careful in your tax return preparation.
Jerry Zeigler is a Navy veteran who serves service members with financial counseling and education. As an Accredited Financial Counselor®, he is a member of the Better Financial Counseling Network and is the owner of JZ Financial Management. As a tax professional and Enrolled Agent, he has a passion for helping taxpayers navigate taxes.