12 Common Tax Mistakes That Waste Time and Money

Experience is simply the name we give our mistakes. – Oscar Wilde

As parents know, some lessons are best learned the hard way. Taxes, however, aren’t one of those times.

Messing up on taxes is common. In the best cases, it could mean a delayed refund. But it could also mean a smaller refund, spending extra money and time to amend your return, or in the worst case, facing an audit.

Tax software helps avoid a lot of errors – especially the math kind – but it can’t fill out personal information or replace common sense. These days, that’s where the most frequent mistakes happen.

In the video below, Money Talks News founder and CPA Stacy Johnson covers some of the most common tax errors. Check it out, and learn more on the other side….

The tax code runs thousands of pages and is constantly changing, so it’s easy to make mistakes. But experience shows we tend to make the same ones, over and over. Here’s a checklist to help you out…

1. Social Security info

What’s on your Social Security card goes on the return – if your name is wrong there or has been changed, contact the Social Security Administration. Getting your number wrong, or that of a dependent or spouse, is even worse: The number might belong to someone else. This kind of error can completely stop the whole process.

2. Math

Software can help, but not every program spells out every step of the process. In some cases you may still have to tally numbers on the side to enter totals. When you do, triple-check your work.

3. Signature

It’s like turning in homework without your name on it: no name, no credit. Make sure you sign your return – and the check, if you’re sending one. Otherwise you may face delays or penalties.

4. Wrong form

Again, software often helps here by picking the relevant forms. But sometimes using a 1040EZ won’t get you as much money as a 1040 or 1040A. And certain situations require additional forms or numbers in different places. For instance, where you claim a home office deduction differs depending on whether you are an employee, self-employed, or a business partner.

5. Paying

There are a lot of tax software options, with varying fees for preparing, filing, and amending, not to mention state returns if that applies. But if your income is under $51,000, chances are you can get your taxes prepared and filed for free. Check out 4 Ways to Get Your Taxes Done Free.

6. Going pro

If you have a simple tax situation that hasn’t changed much since last year, there’s no reason to pay a professional: All they’re going to do is use the professional version of software you can buy (or get free) yourself. Check out 9 Tips to Pick a Tax Pro– If You Need One.

7. Waiting on a check

Filing your return electronically through the IRS Free File is always free, no matter your income. But however you file, do it electronically and sign up for direct deposit and your refund will most likely hit your account in less than two weeks. Just don’t forget to triple-check your bank account number to make sure the money doesn’t end up in someone else’s account.

8. Hiding income

This can happen accidentally if you have multiple employers, or if a W2 or 1099 goes missing. So take your time, think it through, and make sure you report everything – not just from your job but also investments and anywhere else that might be reporting to the IRS. Ideally you’ll track this throughout the year so you can’t forget.

9. Missing deductions and credits

Polonius from Hamlet said, “Neither a borrower nor a lender be.” He was a jerk.

But he was right too – don’t leave money on the table, at least not for the government. Did you buy a home in the past year? Go back to school? Life changes and major purchases may mean tax benefits. And don’t forget to see if you can claim a home office deduction.

10. Taking out a refund loan

If you’re desperate for your refund money, realize the interest charges on a refund anticipation loan or check only make things worse. Read why in our story from last year, Kiss Refund Loans Goodbye, and learn about a better idea: changing your tax withholding so you get bigger paychecks year-round.

11. Procrastinating

Tax Day is April 15 – and many people have already received their refunds. From the date this article was published, you have 53 days to get the job done right. So don’t short-change yourself literally and figuratively by waiting until the last minute, and then rushing through it. That’s how you make dumb mistakes and forget things that could have lowered your bill or gotten you more back.

12. Blowing it

Once you get your refund, don’t make the mistake of misspending it. Use it wisely: to pay down debt, get tax advantages for next year, or at least do something memorable and fun. Whatever you do, don’t fritter it away. We’ll have a story next week on smart uses for your tax refund.

This article was originally published on MoneyTalksNews.com as '12 Common Tax Mistakes That Waste Time and Money'.

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Avoid the Most Common Tax Mistakes to Get a Faster Refund

As the United States tax code clocks in at 18,500, pages, it's easy to see how taxpayers can make a mistake or two when filing federal income tax forms. And with over 97,000 full-time employees, you can bet it's not going to go unnoticed.

Here are some of the guiltiest repeat offenders -- steer clear of them and you'll get your refund faster and can avoid having your IRS agent over for a cup of tea.

1. Sign on the dotted line.

Probably the easiest part of preparing your taxes is signing your John Hancock, but it's still one of the most common mistakes year after year. The IRS will not accept your return if you fail to sign and date your income tax form. It delays the process and your refund. Remember also that when filing jointly, both spouses must sign.

2. Check the right box.

Another common mistake is checking the wrong filing status. You have five choices: Single, married filing jointly, married filing separately, head of household and qualifying widower. Taxpayers often incorrectly claim head of household filing status without meeting the requirements. You can qualify for head of household status (and a larger deduction) if you are unmarried at the end of the year, have cared for a closely-related dependent for over half the year and paid more than half the cost of maintaining a home for yourself and your dependent.

3. Be a diligent scribe.

This is another mistake that you can sidestep if you're just a little more careful. The names and Social Security numbers for the taxpayer, the taxpayer's spouse, dependents and children who qualify for the Earned Income Credit or Child Tax Credit must be included on the return exactly as they appear on their Social Security cards.

4. Show them the money.

According to the IRS, taxpayers often make the mistake of failing to report income that's not included on a W-2 or 1099 form, including rental income and self-employment income. If you neglect to report that type of income, it may cost you in the long run: The IRS can assess interest and penalties, not to mention criminal prosecution. Don't risk it.

5. Get the numbers right.

One of the top reasons the IRS adjusts returns is math mistakes, so get out that calculator and start number crunching. It also doesn't hurt to have a second set of eyes check your work. This is another advantage to filing online -- the electronic filing software double-checks your math.

An error-free return means faster processing and a faster refund check for you, so cross your T's and dot your I's and before you put it in the mail, make a copy.

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Lesser-Known (But Common) Tax Mistakes to Avoid

The April 15th deadline is quickly approaching. For those who have yet to file, this can be an overwhelming time. When rushing to get taxes prepared, sometimes things go wrong. Before you sit down to prepare your taxes, relax, and take a few minutes to review these eight common yet lesser-known tax mistakes.

Entering incorrect Social Security number. Make sure you've entered the correct Social Security numbers for yourself, your spouse and any dependents. Your Earned Income Tax Credit (EITC) and other dependent-related tax benefits could be at risk if you enter an incorrect Social Security number for your dependent child.

Not claiming all dependents. Are you caring for a parent or supporting a friend? If so, he or she may be claimed as a dependent. The same is true for your kids in college. On your 2012 tax return, you can claim a $3,800 dependent exemption deduction per dependent. The exemption reduces the portion of your income subject to federal tax--just be sure no one else is claiming the same dependents as you. For example, you and your sibling can't both claim your parent as a dependent.

Not comparing this year's return to last year's. Take a look at your completed return and paperwork from last year. It might remind you of a deduction you took in 2011 and you are eligible for in 2012.

Overlooking irregular deductions. There are a number of unusual expenses that can be deducted. For instance, you may be able to deduct job-related expenses. Some credit card companies and banks itemize a year's worth of expenditures for you and enable you to sort them by category online. If you use personal finance software, spend some time going through all the categories to ensure you're not missing out on a deduction.

Not filing electronically. Doing your taxes with software and e-filing reduces common mistakes, as many common errors are corrected by computer software. When you e-file with direct deposit, you also get your tax refund faster than paper filing.

Not disclosing all your income. In the last-minute rush, taxpayers often forget important tax documents. Make sure you have important tax forms like W-2s and 1099s in front of you when you sit down to prepare your taxes. If you have multiple employers, or if a W2 or 1099 goes missing, you may end up accidentally forgetting to disclose all your income.

Forgetting to sign. It sounds basic, but not everyone remembers to sign their tax return and their check to Uncle Sam (if they owe money). Check to make sure you've signed in the appropriate places; otherwise, you may face delays receiving your refund.

Wasting your refund. If you're due a tax refund, plan ahead for what you'll do with it before it arrives. Use your windfall to pay down debt. Invest it in tax-deferred retirement accounts. Put it in a savings account for the inevitable rainy day. Use it to take a class to help advance your career or take a nice vacation. The worst thing you can do is spend your refund on something you'll forget about a month or two later.

Lisa Greene-Lewis, Lead CPA, American Tax & Financial Center at TurboTax, has more than 15 years of experience in tax preparation, including positions as a public auditor, controller, and operations manager. For up-to-date tax tips and tax news, go to the TurboTax Blog.

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The Most Dangerous Tax Mistakes

Despite calls to raise tax rates on the wealthy, the reality is that we all want to pay as little in taxes as possible. Most of us look for opportunities to eke out bigger deductions and reduce our overall taxable income. But it's easy to cross the line and unintentionally do things on our tax returns that make us auditing targets.

With only a few days left before April 15th, here's a roundup of some of the potentially most dangerous tax errors you can make. For the whole list, check out LearnVest for its interview with CPA Gary Craig.

Don't be too aggressive with unreimbursed business expenses. Craig recommends keeping both receipts for business expenses as well as a copy of your company's actual reimbursement policy. Without those items, the IRS has no obligation to recognize your expenses.

Don't take inappropriate real estate deductions. According to Craig, if you're not a real estate professional and you make more than $150,000, you can't take losses on any rental properties that you own to lower your taxable income.

Don't inflate the value of a donated car. What's your car worth? That's an important question if you donate it to charity. Be able to back up any claim with documentation, even if it's the Kelly Blue Book. If you claim more, have receipts for any work you made to improve the car.

Correctly interpret the stock transitional wash sale rule. This is tricky, which is why it trips up so many people. If you sell stock at a loss, you could normally deduct those losses to lower your taxes. But if you buy more stock within 30 days of the sale, then the first sale is disregarded. It's like the sale never happened, Craig said.

Be wary of the home office deduction. Everyone knows that home office deductions are treacherous and can raise audit flags. Starting in 2013, the rules are changed. You can now take a "standard" home office deduction that adds up to $5 for every square foot of office space. But until then, make sure you understand the rules and use a home office appropriately.

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Five Costly Mistakes to Avoid With Obamacare

Organizations large and small are quickly running out of time to ensure that they are compliant with the Patient Protection and Affordable Care Act (PPACA), signed into law in 2010. Also known as the Affordable Care Act (ACA), major portions of the law begin to take effect next year. However, an employer's actions this year will have a significant impact on its ability to comply with the reforms in 2014 and the company's financial liability for noncompliance.

To date, discussion has focused on the topic of employers "playing" (buying health insurance coverage) or "paying" (being assessed the penalty) under the ACA. The majority of employers, which are likely to play, now need to be wary of costly errors that will result in companies playing and paying — buying health insurance for their employees and paying the ACA fines.

To understand the common errors, employers must have a basic understanding of the ACA penalties. Those penalties only apply to employers that employ 50 or more full-time employees, which are defined as employees who work 30 or more hours a week or the equivalent when all of the part-time employees' hours are aggregated.

There are two primary penalties, known generally as the "a" and "b" penalties. The "a" penalty applies when the employer fails to offer an appropriate health plan to substantially all of its common-law FT employees and their dependents. The term "substantially all" is generally defined as 95 percent of FT employees. The "a" penalty is calculated as $2,000 times the number of FT employees (minus the first 30 FT employees).

The "b" penalty occurs when the employer offers an appropriate health plan to substantially all of its FT employees and their dependents but the plan is either not affordable or does not meet the minimum value test and an employee goes to a government exchange and receives a subsidy to purchase health insurance. The "b" penalty is the lesser of the "a" penalty or the number of employees who receive a subsidy times $3,000.

1. Failing to Offer Coverage

At first blush, it would seem simplistic to ensure that an employer offers health care coverage to 95 percent of its FT employees. If, however, the employer misses the 95 percent mark — even by a fraction of a percentage point — the employer will pay the full "a" fine and the cost of the health insurance. Accordingly, employers should not be complacent with respect to the "substantially all" threshold and must be proactive to ensure that they have correctly accounted for all FT common-law employees. Easy employees to miss are those who are misclassified as independent contractors. There is no such creature as the "1099 employee," which is a fiction that places the employer at substantial risk under the ACA, as well as a plethora of employment and tax laws. Other easy-to-miss employees include temporary and certain leased individuals who might qualify as common-law employees. The employer must be precise in its classifications to ensure that it has accounted for all common-law employees and is, in fact, offering health insurance benefits to substantially all of those common-law FT employees. Otherwise, the employer will play and pay.

2. Failing to Offer Coverage

No, this is not a typographical error. The first two mistakes are the same but for very different reasons. Employers need to recognize that the determination of who is or is not a FT employee — working 30 hours or more per week — is measured right now in 2013 to determine and lock in the individual's FT status in 2014. Employers must have databases and payroll systems that allow them to accurately track, quantify and average hours, particularly if they have a variable-hour workforce. Failure to appropriately implement and conduct a 2013 measurement period and 2014 stability period under the ACA regulations is a potentially catastrophic error, particularly for employers with a significant number of part-time or variable-hour employees.

If the employer inadvertently misclassifies employees as part-time individuals and deems them to be ineligible for employer-sponsored health care insurance when they are actually working 30 or more hours a week, these employees will count as FT employees who weren't covered for purposes of the "substantially all" requirement. If enough of these employees are accidentally excluded from the plan, it could reduce the number of FT employees who are covered below 95 percent and expose the employer to the full "a" penalty. An employer's counting methodologies are critical and those methodologies must be in place now, or the employer risks making mistakes in classifying employees that will cause it to play and pay.

3. Misunderstanding the Term 'Dependents'

Historically, employers have had great latitude in choosing to offer employee-only, employee-plus-spouse and/or f?amily coverage. That flexibility has just evaporated. So have creative tactics such as the "birthday rules." These rules seek to keep children from enrolling in one parent's group health plan and purport to force the child onto the other parent's group health plan depending on which parent has the first birthday during the calendar year or based on some similarly arbitrary date determination. The ACA requires that plans offer (although they do not have to pay for) coverage to dependents. Interestingly, the ACA generally defines dependents as biological, step- and foster children up to age 26, but the reforms do not include spouses. A failure by a plan to offer dependent coverage will result in the employer playing and paying the full "a" penalty. The only exception is some brief transition relief, which will allow the employer to avoid the "a" penalty in 2014 if the health plan historically did not offer any dependent coverage and is diligently moving toward offering dependent coverage.

4. 'B' Penalty Can Apply Despite Offering Coverage

If an employer offers health care insurance that is either not affordable (generally, the employee contribution for employee-only coverage must be less than 9.5 percent of household income or the employee's W-2 wages) or does not meet the minimum value test (generally, the coverage must pay for 60 percent of the costs) and an employee obtains a subsidy from an exchange, the employer will be assessed the "b" penalty. The "b" penalty is equal to $3,000 per year for every employee who obtains a subsidy up to the amount of the "a" penalty that would apply in the absence of any coverage whatsoever. If a sufficient number of employees obtains subsidies, the "b" penalty will eventually equal the "a" penalty and, once again, the employer will play and pay.

5. 'A' and 'B' Penalties are Not the Only Consequences

Employers that are subject to the Employee Retirement Income Security Act and choose to play must document the material terms of the plan that they choose to offer. It is a regular occurrence to find employers that do not have the required plan document or summary plan description (SPD) or that mistakenly think the insurer's booklet on services is sufficient documentation. The U.S. Department of Labor is actively auditing health plans for compliance with the ACA, ERISA and a host of related laws. These audits can be complaint-driven or random. They are a painful and often lengthy process for the unprepared employer that does not have a legally compliant SPD, up-to-date plan documents, good records of participant communications and other important written information about the plan.

Similarly, employers need to be aware that employees can complain to the Occupational Safety and Health Administration and other government agencies if they feel the employer has failed to comply with the ACA. This will trigger an OSHA investigation. This is not an exhaustive list of other penalties and financial pitfalls, but it highlights that the "a" and "b" penalties are not the only ones to be concerned about. The unprepared employer who is playing and who is on the receiving end of an investigation may find itself with fines, attorney fees and related external/internal costs and will surely play and pay.

Complying with the ACA is a complicated process that requires careful planning and assessment. For employers of all sizes, the key is to understand the law and avoid the costliest mistakes so the company either pays or plays, but not both.

Anne Lavelle is a director and attorney in the labor and employment practice group with Cohen & Grigsby in Pittsburgh. Contact her at alavelle@cohenlaw.com.

This article originally appeared in The Legal Intelligencer.

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