No one wants to pay more taxes than they owe. Unfortunately, making certain mistakes can cost you hundreds or thousands of dollars on your tax return. The good news is many common mistakes are easily avoidable. Let’s look at some ways you may be short-changing yourself.
Selecting the wrong filing status
One of the first steps in preparing your tax return is choosing your filing status. Taxpayers have the option of filing Single, Head of Household, Qualifying Widow(er), Married Filing Separately or Married Filing Jointly. It’s important to know which one is right for you because it will determine your standard deduction amount, which credits you qualify for and your tax liability. If you’re unmarried and taking care of a child or an aging parent, filing as head of household instead of single will entitle you to a higher standard deduction. Although married couples can file joint or separate returns, it’s much more beneficial to file together. When you file separately, you’ll pay more taxes and be ineligible for popular tax breaks like the earned income credit and student loan interest deduction. ezTaxReturn.com can help determine your filing status when you use them to do your taxes.
Not contributing to a 401k or traditional IRA
Everyone needs to save for their future and one of the best places to park your cash is in a tax-advantaged account. When you contribute to your employers 401k or a traditional IRA, you reduce your taxable income dollar for dollar. Therefore, maxing out the account is a smart move. Most people can contribute up to $19,000 to a 401k for 2019. However, those closer to retirement (age 50 and up) can contribute an additional $6,000 towards the account. The contribution limit for an IRA is $6,000 ($7,000 if you’re age 50 or older). Savers have until April 15, 2020 to max out their IRA for 2019.
Failing to pay your estimated taxes
Not everyone is interested in working a traditional 9 to 5. Some workers prefer to freelance and be their own boss. When you work as a freelancer, taxes typically aren’t withheld from your pay, but you’re still responsible for making sure Uncle Sam gets his fair share. If you anticipate owing more than $1,000 in taxes for the year, you must make estimated tax payments. They are due in April, June, September and January. Fail to make your payments and you’ll be handing over a large chunk of your earnings at tax time.
Forgetting to review your tax withholding
You have enough bills to worry about during the year. The last thing you want is a surprise from Uncle Sam at tax time. It’s a good idea to check your withholding annually, especially if you’re newly married, recently had a baby or owed the IRS this season. Some people aren’t happy getting a refund because they’ve essentially given Uncle Sam a tax-free loan. They’d much rather have the extra money in their paycheck during the year. In that case, they may want to have less taxes withheld from their pay. On the other hand, those who had a large tax bill can benefit from having more taxes withheld from their pay. To adjust your withholding, you’ll need to complete and submit a new W-4 to your employer.
Missing your opportunity to get a refund
Some people don’t earn enough money to be required to file a tax return, but always prepare one anyway. There’s a possibility that you may qualify for a refundable credit which can put some cash in your pocket. The only way to claim your refund is to file. ezTaxReturn.com makes the whole process easy. They guide you step-by-step through your return and help you claim every tax break you deserve.
Entering the wrong direct deposit information
Most people choose to get their refund via direct deposit because it’s faster than waiting for a check. As long as you provide the correct routing and bank account numbers, you’ll get your refund as quick as possible. But what happens if you mess up? Often, when the IRS is unable to deposit your refund, they’ll send a check to the address listed on your tax return. However, if the money is deposited into someone else’s account, you’ll need to work with your bank to get things straightened out, which may take a while.
Paying for tax preparation when you don’t need to
Hiring a professional to do your taxes is costly and often unnecessary. Most taxpayers can save money by preparing their own return using tax software like ezTaxReturn.com. Simply answer simple questions and the program will complete the forms and calculations. You may even qualify for a FREE federal return.
Accumulating penalties and interest for filing late
The tax deadline is April 15, 2020. Write it on your calendar, set up a reminder on your phone, do whatever it takes to remember the date, so you file on time. Missing the filing deadline is an expensive mistake you don’t want to make. If you owe the IRS, the penalty for filing late is 5 percent of your unpaid taxes per month. Additionally, you’ll be charged a penalty for late payment which is 0.5 of your unpaid taxes per month. Both penalties can climb as high as 25 percent. Plus, your debt will continue to accumulate interest until your balance is paid in full. If you need more time to finish your taxes, requesting an extension will give you an extra six months to file. But if you owe Uncle Sam, you still need to pay an amount equal or greater than your tax obligation on or before April 15 to avoid late interest and possibly penalties.