Take care to start working on your taxes because the due date is near. There are many options for tax preparation including doing it on your own with tax preparation software.
It is immensely important to be vigilant in preventing tax return mistakes and avoiding an IRS Red Flag.
Far too many taxpayers rely on tax preparers to make sure everything is correct in their tax return and fail to review their tax returns for errors. They simply sign at the bottom. Even worse, many taxpayers have fallen victim to tax preparer fraud.
So, if you are preparing your own tax return or are having someone else do it for you, do not get lulled into a false sense of security. One data error could end up costing you a lot of money and a tax audit. Be sure to review your tax return carefully whether using a tax preparer, CPA, tax software or doing it yourself. Keep these considerations in mind:
1. Filing status error
Make sure you designate yourself the correct filing status for your situation. There are five options: single, married filing jointly, head of household, married filing separately and qualifying widower with qualified child.
Take a close look into what each filing status entails. The selected chosen status should first qualify you under the requirements of the law and second, should be selected based upon which status would be most beneficial for your personal tax situation.
Which one you choose and qualify for can make a difference in your tax bill. For example, if you have recently divorced and are a single parent, choosing “head of household” may likely be the best filing status.
2. Incorrect social security number and name
The name on your tax return must match up with the tax identification number or social security number provided to you by the Social Security Administration as required by the IRS. This includes your children’s and spouse’s identification numbers. If they are in any way different or misspelled, the IRS will have processing issues with the tax return or even worse, may require corrections to process it.
This issue commonly comes up when new wives decide on taking their husband’s last name or when divorced women change their name back to their maiden name. If these circumstances happen, it is first important to change your name with the Social Security Administration after you wed. This will ensure that your new name will not cause a problem when you file your first joint tax return.
Also, don’t be one of those taxpayers that forget to put down their social security number on their return or insert it incorrectly. If either of these occur, the IRS will not process your return. It is also the only way to claim many tax credits including the child tax credit.
3. Math and computation mistakes
The most common mistakes on tax returns are math errors. This type of mistake can cause you to incur IRS tax debt or may cause you to miss out on some or all of a tax refund. Using tax preparation software definitely helps in reducing such errors due to built-in calculators, but the software can only do so much. The taxpayer must be the one to input the numbers correctly.
Be sure all computations are correct especially when your tax return is self-prepared or when using a tax preparer where there are numerous forms and worksheets. When everything is inputted correctly, check withholding, deductions, taxable income, credits and estimated tax payments for computation accuracy.
Review and check overall numbers inserted into your tax return. This vigilance will make it highly unlikely that you will receive an IRS notice of deficiency or notice of tax audit. The IRS will investigate reported taxable income on their end from w-2’s and 1099’s to make sure everything matches up with what is reported on your tax return. If something is incorrect, they will make the mathematical correction. Try to avoid this happening and make sure your math calculations are correct.
4. Failure to report additional income–a serious IRS Red Flag
Taxpayers commonly forget to report extra income aside from their w-2 earnings throughout the year. If you have a side job, you must report this extra income. Make sure you receive a 1099-MISC detailing these extra earnings from the company that you provided this work.
Also, other income that needs to be reported includes savings and investment accounts income. You should receive a 1099-INT and 1099-DIV for these types of income. Do not forget to include these types of income on your tax return because the IRS will know of it if you don’t. If you have self-employment income, information on the 1099 form is reported to the IRS.
If you forget about this type of income or the company you worked for did not provide you with a 1099, the IRS will notify you of the unreported income and consequential tax deficiency. You may also be subject to interest and penalties on the unreported earnings.
5. Forgetting your signature
If you forget to sign and date your return, the IRS will not process it. If you are filing your tax return by E-file, make sure you sign using a personal identification number or PIN. Also, if you are married and filing married, both spouses must sign.
Taxpayers can experience IRS tax problems pretty quickly by making simple avoidable mistakes on their tax return. These small mistakes can easily result in an IRS tax audit resulting in quite large amounts of IRS tax debt. If tax resolution is necessary, there are many options to consider, including an offer in compromise or IRS payment plan.
The Los Angeles Tax Attorneys at Delia Law have many years of tax resolution experience and will competently represent you before the IRS. Please call for a no-cost tax attorney consultation at (310) 494-0100. We look forward to helping you.
This blog post on IRS RED FLAGS is not intended as legal advice and should be considered general information only