NEW YORK (MainStreet) — When Kayleigh Terranova self-filed her tax return last year, the 26-year-old Buffalo resident found the process confusing and time-consuming.
“I would second guess myself and wonder if I had done everything correctly,” she told MainStreet. “I hated the stress of it all, but I also didn't want to have to pay money to get my tax return filed.” Though her then-fiancé is a CPA, his new job during tax season and their wedding planning left him with scarce free time to help.
Terranova is not alone in her misery: some 47 million of the 145 million annual tax returns filed to the IRS are self-prepared. But that self-reliance can spell trouble for tax-filers.
To prevent the costly consequences of mistakes wrought by independent and budget-minded filers, experts advise avoiding certain pitfalls, because one misstep could cost hundreds of dollars in potential return money or could lead to possible fines and jail time.
Presenting yourself as overly altruistic can tip the IRS off to possible tax fraud.
The national average for charitable contributions is about 3% of Annual Gross Income, according to the IRS, and tax payers who inflate their charitable contributions beyond what could be expected in their income range could invite the scrutiny of an audit.
“If you gave 1% of your AGI to charity last year and now you are reporting a 5%, it will create a red flag,” said John Gregory, tax practitioner and founder of 1040Return.com. “When giving money to a charitable organization, make sure you pay with a check and have a receipt from the organization showing your generous gift.”
Another wrench smooth tax filing plans? Dependents. A child can only be claimed one time, but if divorced spouses both claim the same child as a deduction, the mistake can cause delays.
“You may have a dishonest spouse that will claim the child when they should not,” Gregory said. “When that happens, the spouse who is rightfully entitled to receive those deductions will need to mail in their tax return with the divorce decree showing that they are entitled to that deduction. But it will take at least three months before the client receives the refund.”
Sucking It In
Don't try to make your earnings skinnier than they are. The IRS will send a notice to consumers who under report their income, because they neglected to declare stock transactions with a small loss or gain.
“The IRS will receive Form 1098 from the brokerage firm, which notes only the sale of stocks not the cost of equities,” said Gregory. “Only if your AGI does not change by more than $25.00 is it considered immaterial.”
-Written for MainStreet by Juliette Fairley