How much could they be costing you?
Most of us do not exactly love doing our taxes. Some of the disdain likely stems from a lack of understanding. Tax codes are long and overwhelming, and it's easy to miss something important as you try to figure out what you owe, what you can deduct, and what credits you're eligible for. You can minimize your risk of over-paying, and perhaps even make tax time a little less burdensome, by avoiding these common tax mistakes.
1. Itemizing When You'd Be Better Off With the Standard Deduction
This one has become more common over the past few years. The IRS gives you the choice between itemizing your deductions and simply taking the standard deduction. In 2017 and prior, most people who owned homes would save more by itemizing. But the standard deduction increased substantially in 2018, turning this strategy on its head.
If you're a homeowner who is still itemizing because you learned that was the best strategy years ago, you owe it to yourself to re-calculate. For 2019, the standard deduction for a single person is $12,400, and for a married couple filing jointly, it is $24,800. Add up the deductions you would get by itemizing — it's less likely than ever before that they'll exceed the standard deduction.
2. Leaving a Blank Empty
Leaving a blank empty will result in your tax return being rejected, which will be an inconvenience. If you use tax software to file, you can reduce the risk of empty blanks and incorrect information by importing your information from last year's return. (Most tax software lets you do this.) Then, you can just change any information that has changed, and leave everything else as-is.
3. Filing Late
With the chaos of COVID-19 that has occurred this year, many of us are extra busy and uncertain. But don't forget: 2019 taxes are now due on July 15, 2020. You can also file an extension, if needed, but if you happen to owe money, the IRS will still charge you interest on the amount owed. One of the best tax tips, therefore, is to think ahead and file on time. Plan on filing by July 1; that way, you'll have a few weeks' worth of wiggle room if you encounter any unexpected snares.
4. Forgetting to Keep a Copy
Failing to keep a copy of your return may not hurt you immediately, but it can lead to major headaches later on if you happen to be audited. You might also need a copy of your return if you apply for a home loan, an apartment lease, or another major purchase in the next year or two. Print a physical copy of your return, and also save a digital copy. Do not discard or delete the copy for at least three years.
5. Taking Deductions You Don't Qualify For
While you don't want to leave any deductions on the table, you also don't want to take deductions you're not qualified for. Doing so may land you in hot water if you're audited. A common example is the home office deduction. Many people claim this deduction without realizing that in order to be considered a home office, a space must be used as an office only. If it doubles as a storage space or spare bedroom, it does not count.
If you avoid these tax mistakes and follow the general tax tips discussed above, you should be in good shape. Remember that if you do not feel confident filing your taxes yourself, you can always hire a tax professional who can file for you and offer additional tax tips.