According to various sources, the most common mistakes made when filing income tax returns are as follows.
- Math miscalculations and computation errors.
- Misspelled or different names.
- Incorrect social security numbers.
- Incorrect bank routing number or bank account number for direct deposit of refunds.
- Improper reporting of independent contractor (1099-MISC) income and expenses.
- Filing status errors.
- Failing to report that health savings account (HSA) distributions were used for qualified medical expenses.
I might add a few notes to the items above based on our experience with assisting clients to file tax returns and learning from past mistakes they might have made. Regarding miscalculations and computation errors, the advent of software to perform most all calculations has eliminated many of these errors. Still, the concept of garbage in, garbage out is applicable when filing tax returns today. It is important to enter the correct information in the correct input screen even within software.
The error most often made with names on tax returns is not including a middle initial and newly married taxpayers not legally changing their name with the social security administration prior to using a new last name on their tax returns.
Outside of crooks who use others’ social security numbers for evil intentions, the most common mistake here is mistyping a social security number of yourself or one of your dependents. This can create much unneeded hassle and love letters from the IRS.
It is very important to check and double-check bank routing number and bank account number on a tax return before filing the return. An incorrect routing or bank account number will, at a minimum delay your refund because it will eventually have to be mailed to you instead of coming via direct deposit. At worst, your funds may be deposited into someone else’s bank account which can be very difficult, if not impossible, to retrieve.
Many taxpayers tend to make errors in the first year where independent contractor income is a factor in their income. They do well when their income is only comprised of W-2 wages, but the new world of self-employment can cause trouble if they don’t seek assistance on how they should report this new avenue of income. One additional note here is that sometimes third-party entities issue a form 1099-MISC to a taxpayer in their personal name and social security number when it should have been issued in the name and tax identification number of the business entity instead. In this case, the 1099 amount issued in the name of the taxpayer needs to be reported on the individual 1040 return so that the IRS computer check matches and then to back off the amount indicating that the income is reported as revenue on the business income tax return for that year.
Filing status errors often arise after a life event has occurred such as marriage, divorce or the birth of a child. It is important to claim the correct filing status each year a return is filed in order to avoid issues with the IRS and possible higher tax liabilities.
Whenever HSA distributions are taken during a calendar year, the tax return for that year must report these distributions and declare whether the funds were used to pay for or reimburse for qualified medical expenses. If this is not reported, the IRS will contact you and attempt to assess tax on the amount of distributions taken.
We are in the heat of tax season and all is well in the world! Okay, I may have had my tongue in cheek with that last comment.
The 2019 partnership and S-corporation income tax return filing deadline of March 16th is fast approaching and C-corporation and individual filing deadline of April 15th is not much further down the road. The deadline we have given to submit your information to us for the April 15th filing deadline will be on March 18.
If you have any questions, please contact us!
Mark J Weech