12 Tax-Filing Mistakes First-Timers Always Make

The tax-filing process can be especially nerve-wracking for first-time filers who are afraid of getting it wrong. And there is a good chance they will. A mistake on your return can slow down a refund or result in a letter from the IRS pointing out the error and asking you to correct it. In some cases, it can even lead to an audit.

Discover some of the most common tax mistakes filers make and learn tips to avoid them.

If it’s your first time filing taxes, you might hear that you can pick up tax forms at the public library or download them from IRS.gov. You are better off exploring electronic filing options at IRS.gov or using tax preparation software, though. People who do their taxes on paper are about 20 times more likely to make an error than e-filers, according to the IRS.

If your adjusted gross income is $66,000 or less, you can use the IRS Free File software. Otherwise, you can buy tax prep software such as TaxAct, TurboTax or H&R Block’s products.

“This option not only offers the most flexibility to file on your own time schedule, but e-file with direct deposit is the fastest way to get your tax refund,” said Lisa Lewis, a certified public accountant and tax expert for TurboTax.

Another common mistake taxpayers make is entering the wrong Social Security number for themselves or dependents, according to the IRS. So, pull out your Social Security card to make sure you get your number right.

“A simple mistake such as a mistyped letter in your name or the wrong digit in your Social Security number can cause problems with the IRS,” said Jessie Seaman, vice president at Community Tax in Chicago.

It can delay the processing of your return or even lead the IRS to reject exemptions for dependents if you get their numbers wrong. That’s why you should review your return the following day or night with fresh eyes before submitting it, Seaman said.

The IRS says many taxpayers use the wrong filing status — such as “head of household” instead of “single.” E-filing software helps you figure out the correct status. Or, you can use IRS Publication 501 or the IRS Interactive Tax Assistant tool.

Your filing status affects the amount of the standard deduction you can claim, the tax breaks for which you qualify and the tax you owe. So, you want to get it right.

Exemptions reduce your taxable income, and you can claim one for yourself and one for each of your dependents. If you’re filing for the first time, you might not have dependents (such as children) of your own, but you might still be a dependent yourself on your parents’ return.

“I see many instances where college students file a tax return and claim an exemption for themselves, even though they could be claimed as a dependent on their parents’ tax return,” said Neil Johnson, a certified public account and partner at The Dolins Group in Northbrook, Illinois.

This can create a tax headache for your parents. “When this situation happens, not only does the parent potentially lose a dependent exemption, they also potentially lose any education tax credits available for their dependent college student,” Johnson said.

Check with mom and dad before filing your return to see if they’re claiming an exemption for you.

If you fill out a paper return, you will have to do all the calculations on your own to figure out how much you owe — or how much the IRS owes you. As mentioned before, math errors on paper returns are common, though.

If you end up paying less than you owe because of a math mistake, the IRS will likely make you pay the rest of what you owe plus interest, according to TurboTax. Using tax software can help you avoid this costly mistake.

Ted Kleinman, a certified public accountant with Redmond, Ore.-based US Tax Help, said he often sees first-time filers fail to include all of their income sources on their return. That is especially true of earnings from independent-contracting work.

“Some taxpayers might decide to ‘ballpark it’ or round their numbers to expedite the filing process,” he said.

If you were paid by a company for contract work, however, you should receive a Form 1099 — and the IRS also receives a copy.

“The IRS can easily identify numbers that do not match what was submitted by the employer,” Kleinman said. And this sort of mistake can increase your chances of being audited, he said.

You can lower your taxable income — the income on which you are taxed — by itemizing deductions on your tax return. But about 75% of taxpayers opt for the standard deduction, according to a recent Forbes article.

Even if you claim the standard deduction, though, there are some other deductions you might be able to claim without itemizing, said Lewis.

For example, you can deduct up to $2,500 in student loan interest you paid without itemizing. Moving expenses related to a new job can be deducted without itemizing, Lewis said. And for many taxpayers, a traditional IRA contribution of $6,000 ($7,000 if you’re 50 or older) is deductible on this year’s return.

Using tax software can help you identify these deductions and lower your taxable income.

Tax credits are even better than tax deductions because they directly reduce your income tax liability, Lewis said. Such credits include the Earned Income Tax Credit for low-income workers, the Child Tax Credit and the Retirement Savings Contribution Credit for retirement contributions made by low- to moderate-income workers.

Using tax software, including IRS Free File, can help you identify whether you qualify for credits that will reduce your tax liability.

Even if you get everything right on your return, it will not do you any good if you forget to sign the return. “An unsigned tax return is like an unsigned check — it’s not valid,” according to the IRS. If you are married, both you and your spouse must sign the return.

If you file electronically, the IRS will assign you a personal identification number, or PIN, that acts as your signature. You will be prompted to enter the number in order to file your return.

Technically, tax returns can be electronically filed up until the last second of tax day, said Michael Eckstein, owner of Eckstein Tax Services in Huntington, New York. “But that doesn’t mean you should leave them to the last second,” he said. “Procrastinating can lead to mistakes and maybe even a penalty if it doesn’t get sent on time.”

The penalty for filing late is 5% to 25% of your unpaid taxes, according to the IRS. There is no penalty if you file late but are owed a refund.

You probably are hoping for a big refund. But getting a refund means you made a mistake with the number of withholdings you claimed on your W-4 form. When you do that, you let the IRS hold too much of your money during the year.

“Most people love a huge refund, not realizing that they are giving the government an interest-free loan,” said Stephen Alred Jr., director of advisor success at XY Planning Network.

File a new W-4 form with your employer to claim additional allowances and have less tax withheld. IRS.gov has a withholding calculator you can use to figure out how many allowances to claim.

Plenty of taxpayers forget to file a return — or do not realize that they need to — and leave money on the table, as a result.

“Each year, the IRS reports that they have $1 billion in unclaimed refunds due to filers not filing their taxes,” said Lewis. “A big portion of those refunds belongs to people who think they don’t make enough money to file their taxes.”

If you had taxes taken out of your paycheck or are entitled to credits such as the Earned Income Tax Credit, you could be missing out on a refund by not filing. On the flip side, if you forget to file and owe taxes, you will pay the late filing penalty for each month your return is late.

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