When you only file your tax return once a year and aren't a professional preparer, mistakes can and will happen.
The Internal Revenue Service started the nation's tax season when it began accepting electronic tax returns at the end of January. More than 155 million individual tax returns are expected to be filed in 2018, and the first refunds claiming the Earned Income Tax Credit, or EITC, and the Additional Child Tax Credit, or ACTC, start arriving at the week of Feb. 27.
However, as the IRS notes, folks who file their taxes on paper are about 20 times more likely to make an error than those who file online with a bit more guidance. In fact, the IRS keeps a running list of some of the most common errors made by taxpayers.
- Wrong or missing Social Security numbers: When those numbers aren't entered correctly or are illegible, that's an issue.
- Wrong names: While misspellings happen, putting down a name other than the one that appears on your Social Security card creates problems, especially for newlyweds who've just changed names.
- Filing status errors: You really should know the difference between "single" and "head of household" before filing your taxes. While IRS.gov can help you out, tax software and tax preparers will typically sort that out.
- Math mistakes: There are folks who swear by calculators and worksheets, but that means double-checking your math. Add and subtract twice, file once.
- Errors in figuring credits or deductions: Many filers make mistakes figuring their Earned Income Tax Credit, Child and Dependent Care Credit, and the standard deduction, and recent tax reform will only exacerbate the issue.
- Wrong bank account numbers: If you choose to get a refund through direct deposit, it helps to put the right bank and account numbers on your return.
- Forms not signed or dated: An unsigned tax return is as good to the IRS as an unsigned check. It's invalid and can imperil the process. This is an acute issue for married couples filing jointly, who need to remember that both spouses have to sign the return.
"The IRS has a number of ways to help taxpayers this filing season, and we encourage people to look into the many options available," says acting IRS Commissioner David Kautter.
However, tax law is dense, layered and intimidating, which explains other mistakes made by U.S. taxpayers. For example, more than 1 in 3 U.S. taxpayers with household income less than $50,000 a year hired someone to prepare their taxes last year, even though they may have qualified for the IRS' FreeFile service or free tax software, according to NerdWallet survey conducted last year.
Of the questions NerdWallet asked about IRS rules for common deductions, retirement and education savings plans, taxpayers, collectively, answered just 25% of the questions correctly. A whopping 46% of taxpayers had no idea which of the seven tax brackets between 10% to 39.6% covered their income.
"When you pay a dollar in mortgage interest, for example, your bracket determines whether you can save 10 cents or 39.6 cents," says Liz Weston, NerdWallet columnist and certified financial planner.
Most taxpayers (58%) in the survey think that if they file for a tax extension, they can delay tax payments. No. You have to pay at least an estimate of what you owe by the April deadline. If you don't, what you didn't pay is subject to interest and a late-payment penalty — even with an extension.
This is all somewhat frightening when you consider that 17% of taxpayers do their taxes the hard way by using paper and mailing (9%) or getting a friend or family member to do so for them (8%). While 40% of taxpayers hire a preparer, 35% of taxpayers used commercial tax software such as TurboTax or TaxAct to file their taxes, and 9% used free tax software tools like Free File, one of the biggest mistakes taxpayers make is paying for that privilege.
As was mentioned earlier, taxpayers who make under $50,000 are still choosing more costly options. Last year, 26% hired a tax professional, such as an accountant, which costs an average of $273 for each return. Another 12% hired a national tax preparation company like H&R Block (which averages $154 per return) or Liberty Tax Service ($228). A whopping 33% used commercial software that, as of Feb. 1, cost on average $69, though commercial software providers, including as TaxAct, FreeTaxUSA and H&R Block's online tax service, allow customers to file simple federal returns (Form 1040EZ and Form 1040A) for free.
Just 12% filed their federal income taxes with IRS software that is free to taxpayers who make $64,000 or less. That's a shame, as the IRS estimated in 2016 that more than 70% of Americans -- or about 100 million people -- qualify to file their taxes for free.
"It's never been cheaper or easier to file taxes electronically," Weston says. "But people are still worried about doing it wrong or missing out on tax savings, so they're paying for that reassurance."