Avoiding Common Tax Errors

We’ve all received a few letters that have brought black clouds to our day.  Like the bill for the third of five payments for the Garden Growler, the revolutionary ground-hog repellant that seemed such a bargain a few months ago, but which remains unopened in the garage.

There are, however, envelopes that we receive designed to create a hail-driven stampede back to the porch.  One sure-fire lightning bolt of terror: a white windowed size ten envelope with the return address: “Internal Revenue Service Center. 

When this happens my advice is to take a deep breath, smile, and go take a walk.  Draw some faith from the fact that the vast majority of such letters are a notification of an error that is easily fixed.  Others let you know of a minor discrepancy between your return and IRS records caused by something you forgot, didn’t consider relevant, or entered in the wrong place on your tax return.  Generally, these notices have little or no tax consequences.  Such letters are also easily avoided.  Here are a few examples of errors taxpayers commonly make on their personal returns.  Understanding these mistakes will help you avoid unwanted IRS correspondence.  It may even save you some money.

First: you forget to sign your return.  It’s surprising how many people mail their returns to the IRS without a signature. Before sealing the envelope, double check to make sure you (and your spouse) have signed and dated your return in the proper place.  A return is not considered filed unless it has the required signatures.  Mailing an unsigned return could open the door to additional penalties if you owe unpaid taxes.  This mistake is also easily avoided by filing your return electronically. 

Second, you forgot to include all income on your return.  Businesses use Form 1099 to notify the IRS of the amount and type of income you earned in 2008.  The IRS checks the amounts reported on these 1099s against the income you report on your tax return.  If you received a Form 1099 (there are many types of 1099s), be sure this income is properly reported on your return or you may receive a notice from the IRS.

Worried that you may not be in compliance with form 1099-MISC? Check out our 1099-MISC Basics course to get all of your compliance questions answered.

A third common error: you forgot to make estimated tax payments or forgot to report all the estimated taxes actually made.  If you made estimated tax payments, double-check the amounts and the dates these taxes were paid. Forgetting to include a payment, especially the April payment from the previous year or the January payment of the current year, is a frequent error. 

A related error involves itemizing state taxes.  If you itemize deductions, estimated income taxes paid to states are deductible in the year paid, not the year to which they apply.  For example, payments made to WV in January of 2009 for 2008 taxes should not be reported on 2008’s Schedule A.  This deduction will be reported on 2009’s return. 

A fourth, more costly error is filing your tax return late when you owe taxes.  If you owe tax and file your return late, penalties on the unpaid balance are 5% per month up to 25% of the tax due.  If you file over 60 days late, the minimum penalty is $100.  By comparison, the penalty for late payment of taxes due is .5% per month up to 25%.  If you are unable to pay your taxes and owe less than $25,000, include an installment agreement request (Form 9465) with your return.  The IRS will generally accept your request if you owe no other taxes. 

A final mistake is entering a wrong social security number on your return. Transposing two is the most common form of this error.  Incorrect numbers will generate a notice and, possibly, the disallowance of a dependent’s exemption. Don’t mail the return without verifying that all social security numbers have been entered correctly.

Take a few extra minutes to review your return and avoid these common errors.  Your efforts will be rewarded in peace of mind and unwanted mail from the IRS.

Brett Hersh's avatar
  • Author: Brett Hersh
  • Bio: Brett Hersh, EA, MBA, is the owner of HBS TAX & Small Business Experts. He is an Enrolled Agent (EA) with the IRS and licensed by the US Treasury Department to prepare all tax returns and represent taxpayers before the IRS for audits, collections and appeals. He is also Dave Ramsey’s ELP for Tax and Accounting, a continuing education instructor for tax professionals through Lorman Education, and a local speaker/presenter on the topics of tax and business growth. He can be reached at (304) 267-2594.