How To Avoid The Most Common Tax Mistakes

Posted on Dec 11 2013 - 10:56am by Marianne Ross

Tax Form

Taxpayers have to play by the rules. It isn’t just the scheming and unscrupulous who are flagged by the IRS. Common avoidable mistakes can delay a claim, sending the most honest taxpayer into the IRS abyss.

Who is Targeted?

Returns are flagged when compared with statistical norms by both human and automated sources. Once the return is flagged it is examined by three layers of personnel, significantly delaying the process. Sometimes small and seemingly insignificant items can lead to trouble later on. Even without offshore assets, a disgruntled ex-spouse or questionable tax preparer, small inaccuracies can lead to trouble. Missing or incorrect information can flag a return.

How to Protect Yourself

The IRS has some very basic guidelines to make filing your taxes easier.

  • E-File – this significantly lowers the chance of errors. Those who paper file are twenty times more likely to make a mistake. E-file software does the math for you, so common math errors won’t hold up your claim.  Filing electronically is fast, secure and accurate as it goes right to the IRS system and can be deposited directly to your bank account.
  • Keep the number straight- incorrect bank account and social security numbers are more common that you think. Copy directly from cards and checkbooks
  • Spelling counts- Use the social security cards to copy name exactly as the cards read
  • Filing status- E-filing is also helpful here, but choosing the right status is crucial. Changes in household such as divorce and custody can be complicated. If unsure of your filing status, the IRS publication 501 explains all of the options
  • Credits and deductions- Make sure claims are correct in standard deductions. If unsure, you can go to the IRS website and if you give thembasic information like age, filing and citizenship status and income amounts, they can walk you through the process online.
  • Sign and date- An unsigned tax return is the same as an unsigned check: unacceptable. Both spouses must sign.
  • E-signature errors- E-file tax returns are signed using a Personal Identification Number (PIN). Along with the PIN, the Adjusted Gross Income from the filed federal tax returns from the prior year is required. Do not use an amended return.

Disastrous Mistakes

  • Don’t Fudge- Whether through fraud or negligence, either will cost you. A mistake could get you a 20% penalty added to your tax bill, but tax fraud brings a 75% civil penalty. What constitutes fraud isn’t always clear but it’s up to the IRS and the courts to decide. Tax fraud will not be chalked up to being irresponsible or an honest mistake. It can bring both civil and criminal charges and impose substantial fines.
  • Unreported income- Monies withdrawn from an investment account is a reported expense. Any institution that distributes funds for you will report it to the IRS. Keep track of your investments. 

Plan Ahead

The most important thing is to stay organized. Develop a system that works for you. Expanding files are cheap and easy, so use them consistently. Keep your receipts, noting what the expense is for. If it’s too much paper, use your smart phone to store a picture of the receipt and save it for up to six years, because that’s as far back as the IRS can go. You can also use a free app to track your expenses. When possible use your debit or credit card, cash is harder to verify and the cards give you a backup record.

Trust the Professionals

You don’t need an accountant for every type of return, but it is your name on those government forms and the responsibility for them is ultimately yours. With all that on the line, finding a trusted tax consultant such as Wallace and Associates can make the world of difference. A good agency will provide just about every type of tax service there is, including Audit Representation and take the guesswork out of filing.

Photo Credit: Flickr/401(K) 2012

About the Author

Marianne Ross is a freelance writer with an interest in economics and healthy living. You can contact her with any questions or comments at