10 Mistakes to Avoid When Filing Your Taxes
Tax season feels like a rite of passage to adulthood more than almost any other milestone, but as someone who has made more than a couple of blunders on her taxes before that resulted in an unexpected tax bill or a smaller refund than I planned for, I've become a little skittish about doing them myself. At the same time, I hate the idea of paying to outsource them. So when I heard that we were partnering with 1040.com (an online platform that takes all the guesswork out of DIYing your taxes and is backed by a team of tax professionals without the crazy price tag) I immediately volunteered to be the one to interview Sydnie Fiesel, a 1040.com tax analyst, on the most common mistakes we all make when filing our taxes each year.
The process is incredibly straightforward. After completing their easy, interview-style process (no need to change out of your sweatpants — this is done completely online!) to answer specifics of your work and financial situation, their app does the due diligence to select all of the applicable credits and deductions for you.
Whether you're self-employed or happily in a 9-5, working a side hustle, single or married, these are the 10 biggest mistakes you've been making when filing your taxes.
Source: Melissa Vossler for The Everygirl
1. Filing Before You're Ready
Let's face it, we all want those tax refunds like YESTERDAY and we assume that filing as early as possible is also the responsible thing to do. Unfortunately, many people try to file before they even receive all of their necessary forms (income information, interest and dividends, mortgage interest statement, retirement account information, etc.) and end up entering incorrect or incomplete information. Be sure to wait until all of your information has been received in order to ensure 100% accuracy and a smooth process from start to finish. You should expect to receive a W2 form from every employer (part-time or full-time) before filing, and a 1099 from any contract work that was billed for $600 or higher, unless it was done with an individual as opposed to a business.
2. Making Clerical Errors
It sounds trivial, but according to the team at 1040.com, typos and misspellings are one of the most common mistakes made on tax returns every year. Take your time when filling out your form, and be sure to double check all of the information that you've entered, as incorrect income amount or social security number can seriously set back the filing process. If you DO make a blunder, however, the 1040.com app can help you submit an amendment, so don't panic.
Source: Jen Kay for The Everygirl
3. Not Understanding the Difference Between Filing Joint or Separate as a Couple
My first year as a newlywed, I decided to file separately from my husband simply because I thought that it would be easier, and didn't take the time to really understand how it would alter the outcome of our tax bill and refunds. It turned out that because I filed separately, I wasn't able to write off my student loan interest, which led to a bigger tax bill for me than I was anticipating. The 1040.com team explained to me that the biggest benefit of filing separately is simply keeping your finances separate from your partner or if two partners have a drastic difference in income, but that overall most people receive more deductions and credits when filing jointly. Be sure to research and use the tax guide at 1040.com to determine which option is best for you before making the final call!
4. Keeping Inaccurate or Incomplete Records for Your Side Hustle
If you have a side business in addition to your full-time job, it's all too easy to not spend as much time and energy as necessary to keep accurate and complete records of your extra income and expenses. "One of the biggest mistakes we find people make is not treating their freelance work as a business," says Sydnie. Keeping track of all your invoices and business purchases along the way will drastically save your business both time and money come tax season.
Source: Tiffany Grant-Riley for Curate and Display
5. Missing Out on Credits or Deductions
Whether in your business or personal life, it's important to make sure you're accounting for any applicable credits or deductions in order to give yourself the lowest tax bill or biggest refund possible. Make sure you're considering your mortgage interest statement, student loan interest, retirement accounts, home office expenses, adoption, etc. If your taxes are complicated, working with a tax specialist ensures that you don't miss out on any opportunities that can save you money in the long run, so be sure to walk through every possibility thoroughly before finalizing your return.
6. Neglecting to Write-Off Business Expenses
Many of us are unsure of what really qualifies as a business expense, and therefore we end up leaving money on the table by not writing off items that we use for both work and play. "Whatever is ordinary and necessary for your business can be a write-off," says Sydnie. For example, if I purchase a laptop, even if I only use it for work 50% of the time, I can write off 50% of the cost. If you have a room in your home that you use as an office AND as a playroom, however, you can’t write off the percentage of the space that you use for work purposes. In order to qualify for a home office deduction, the specific area of your home must be used exclusively for business purposes.
Here are a few more common examples of appropriate write-offs:
- Printer or fax machine (either the full amount if you use solely for your business or a percentage if you use it both personally and professionally).
- A percentage of your car payment if you use it for work outside of your daily commute
- Office supplies (pens, notebooks, calendars, etc.)
- Office furniture (desk or office chair)
Items that do NOT qualify as write-off:
- Business attire that you can wear anywhere else aside from work (so only scrubs or a work uniform are eligible for a write-off)
- Rug or decor for your office (these items can be used elsewhere in your home and therefore do not qualify as necessary business expenses)
7. Waiting to File Because You Can't Pay Your Tax Bill
When I was unexpectedly hit with a tax bill last year, I knew I wouldn't be able to pay it in one lump sum, but I wasn't sure how to file without being prompted to pay the full amount. Many people hold off on filing when they owe money because they are under the impression that they don't have another option, but the best thing to do in this situation is to pay as much of the cost upfront as you can, and then schedule a payment plan through the IRS for the remainder.
Source: Jennifer Kathryn for The Everygirl
8. Incorrectly Filling Out Your W4
Heed my warning and take your time filling out your W4 to really understand all of the necessary information that needs to be completed before submitting it to your employer. If you don't accurately complete this information and don't have enough taxes being withdrawn from your paychecks, you'll find yourself owing money back at the end of the year. The IRS withholding calculator can help you ensure you are paying enough on a weekly basis to avoid being hit with an unexpected bill later.
Common mistakes on your W4 that could result in a tax bill include:
- Not accounting for working with multiple employers
- Claiming too many allowances (the more you claim, the less will be withheld). If you claim "0" allowances (meaning you have no spouse or no dependents), you will likely receive a tax refund, but it will mean that more taxes than necessary may be taken out throughout the year, than if you had claimed "1."
- Not considering other sources of income
Be sure to review thoroughly with your HR staff to ensure complete accuracy!
9. Anticipating a 1099 From Every Client or Contract Position
If you are waiting for a 1099 to come in the mail from every contract job you took on this past year, you may want to first confirm that you should be receiving one. Only contract jobs totaling $600+ are required to submit a 1099; otherwise, you are responsible for reporting the income based on your own records and invoices. Another reason to stay on top of that accounting!
Source: Alexa Holtz for Remodelista
10. Not Planning Ahead for Your Tax Bill or Refund
Whether you are anticipating a hefty tax bill (shout out to all the small business owners out there!) or relying on your refund to pay off that credit card bill, it's in your best interest to utilize a tax refund calculator to ensure you know what to expect and enter the new year without any financial surprises.
Source: Waiting on Martha
1040.com offers both Federal and State filing and will even file a basic 1040EZ for free. In 2017, for every tax return filed with them (including returns that are filed for free), $2 will be donated to Healing Waters International (HWI), a nonprofit on a mission to end the global water crisis. HWI not only works to provide clean water but they partner with the communities to educate them on proper health and hygiene. With Healing Waters, $25 gives fresh water to 1 woman or child in an underdeveloped part of the world for a year! Read more about their #25for25 campaign aimed at empowering women through clean water.
So let's turn it over to you guys. How do you file your taxes? DIY? Outsource? Any tips or tricks to share with us? Comment below!