Common Tax Mistakes to Avoid: Pitfalls That Can Trigger IRS Scrutiny

One of the most horrifying feedback to receive is a notice of audit from the IRS. Most businesses are afraid of this or receiving any sort of feedback from the IRS other than a refund or confirmation notice. So when tax time rolls around, you don’t want your filings to have a glaring arithmetic error or missing income source. The penalties can be significant and yes, the Internal Revenue Service (IRS) does check.  Your only defense against these consequences is to avoid errors in your return and to double, or even triple, check. 

It is a given that tax laws are complex. However, despite their complicacy, the mistakes that taxpayers make on their returns tend to be fairly simple. Here are the most common filing mistakes—and what you can do to avoid them.

1. Inaccurate computations or mathematical errors: According to the IRS, math errors are among the most common tax filing mistakes. These include basic operations to complex calculations and transactions. Make sure to always double-check your computation. If you have to enter an item as a negative number, check the IRS instructions. Some forms prefer parentheses, while others use the minus symbol. This ensures that IRS computers read the negative entry correctly. Moreover, consistently rounded numbers on your return might suggest fabricated figures.

2. Inaccurate information:  This is another common mistake that taxpayers commit. Even if most mistakes in information are honest mistakes, they can still cause major consequences for the IRS. There are numerous ways on how to commit an error in the information you provide and it is best to avoid the following:
   1. Wrong filing status: There are five filing statuses to choose from: Single Filer, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er). Make sure you understand what each status entails and file accordingly. The status that you should file under is whatever your qualify for on December 31^st of that tax year. 
   2. Errors in name spelling and social security number: Your social security number serves as your primary taxpayer identification number. If it’s written incorrectly, your return will typically be rejected by the IRS and you’ll need to refile. Also, the name on your tax return should appear exactly as it’s spelled on your social security card.
3. Understated income or not reporting all income sources: All income must be reported, including freelance, investment, and foreign income. Failure to report all income is a trigger for the IRS. Forgetting an income source can be an honest mistake, but in many cases, it’s a conscious decision. The IRS requires you to report all taxable income, regardless of whether or not there’s an official record of it. 

4. Claiming Tax Credits and Deductions You Don’t Qualify For: There are a lot of deductions and tax credits available for taxpayers and it is really easy to get confused on who qualifies for such. There is no simple answer for this and the only way to figure it out is to study your taxes, transactions, and your personal situation. Make sure to study these deductions and credits to make sure that you are really qualified for whatever you put down. 

When it all gets too overwhelming, the best way to avoid common tax mistakes is to work with a professional. Don’t let your tax burden become a tax nightmare. Gather all of your documents, triple-check every figure, and have an expert on your side. By being thorough and accurate in your tax preparation, you can minimize the risk of IRS scrutiny.