When it comes time for people all across America to start working on their taxes this year, Wall and Associates warns them to be careful. All too often, taxpayers accidentally start to dig their way into bigger tax debts by accidentally or, in some cases, intentionally making errors on their tax returns.
When this happens, often the only viable course for taxpayers to get back out of this debt is to hire professional tax help and work through the problem. It is much easier, however, to simply avoid these problems in the first place by gaining a better understanding of what to watch out for, says W&A.
Types of Filing Errors
To better help taxpayers understand and avoid a large variety of these tax return errors, the IRS has made several guidance documents available on their website. These official guides to tax mistakes can help taxpayers realize what types of errors they may be making.
Frivolous Tax Arguments
“Some of the errors are clearly frivolous positions that taxpayers may take in either a misguided or deliberate attempt to impede the government’s tax administration function,” says the IRS.
As they explain, these frivolous errors concern the IRS because they may come as the result of promoters and con artists who sell such schemes to their victims before leaving them to fend for themselves once the IRS catches on. An individual who has knowingly or unknowingly made a frivolous tax argument may face such consequences as tax debt, penalties, interest, and in some cases, criminal prosecution.
When these errors are deliberate on the taxpayer’s part, they are obviously a huge mistake, says Wall and Associates. The IRS can often be reasoned with, but very rarely can taxpayers fool it.
A more common type of error for the average taxpayer is math errors, which the IRS describes as “things that are obviously wrong and that the IRS has the authority to correct as it processes the returns.”
Examples include taxpayers who enter the wrong amount for their withheld taxes, claim an Earned Income Tax Credit on a return showing no earned income, or list a dependent with an incorrect Social Security number.
When this happens, the IRS has the authority to remove improperly claimed credits or change incorrect withheld tax amounts at their discretion. They can also withhold the exemption amount of dependents until a correct SSN is provided. While these mistakes are not as dire as frivolous arguments, Wall and Associates explains that it is still best to take caution to avoid them whenever possible.
Mismatches and Omissions
“Some errors are not evident on the face of the return, but may be discovered later when the IRS matches payment documents with the recipients’ returns, or audits returns for particular items,” says the IRS.
This type of error is again a common one faced by many taxpayers who simply fill out their returns incorrectly or leave important sections blank.
For example, taxpayers may fail to report their dividend income, interest, or wages. When the IRS finds this omission by matching payment records from brokerages, bankers, employers, and so on, they notify the taxpayer about the proposed additional tax. In most cases, adds Wall and Associates, the taxpayer will also have to pay an additional penalty and interest as the price of their inattention.
The Most Commonly Made Mistakes
According to a report from DailyFinance.com, in 2013, the IRS reported that it had discovered 2.7 million tax return mistakes made by 22 million taxpayers on their returns in 2011. While this was a much smaller amount of errors than the 6.6 million that taxpayers made the year before, it was still a great deal of unnecessary stress for those 22 million taxpayers who could have avoided making them in the first place, says Wall and Associates.
In addition to the types of taxpaying mistakes listed by the IRS, DailyFinance also gathered their own list of the most frequently made blunders that end up costing taxpayers money needlessly.
Waiting Until the Last Minute
This is one of the biggest mistakes that taxpayers can make simply because it exacerbates the odds of making even more mistakes. When taxpayers find themselves rushing to meet their tax filing deadlines, they drastically increase their chances of making a mistake during the filing process. Even when taxpayers manage to get their returns in full compliance, says Wall and Associates, they may still be missing out on additional ways to save money that they would have noticed had they not been in such a rush.
Not Filing at All
This is the biggest mistake that a taxpayer can make, even more so than waiting until the last minute. By not filing any taxes whatsoever, taxpayers are resigning themselves to fall even deeper into their pits of tax debt.
Many times, taxpayers may simply choose not to file their returns out of a sense of hopelessness at their tax situation. They fear making too many of the above mistakes, or they are already dealing with so much debt that they have given up on ever making it better. This inaction and inattention will not make their problems go away, though; it will only make them worse. As Wall and Associates explains, the only way for taxpayers to free themselves from their financial stress is to take a proactive stance on their taxes, learn from their mistakes, and start seeking the professional assistance they need to help them take the first steps to tax debt recovery.
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