The deadline for filing your tax returns is midnight Thursday, and thousands of Americans are busy crunching numbers in hopes of getting a tax refund. But experts warn that with frantic last-minute filing, you could make costly mistakes.
Even a simple mistake such as forgetting to sign your return could result in your owing interest or penalties, said Beth Stetson, an assistant professor of accounting at Oklahoma City University.
Stetson, who worked as an IRS attorney for nine years, has seen nearly every kind of mistake that can be made in filing tax returns. "If you make a mistake and you're audited, you can owe more tax, interest and penalties," she said.
Here are some tips to avoid some of the most common mistakes that rushed people make when filing:
1. Do make sure you understand your filing status. For example, she said, one woman she helped file qualified for head of household status because her disabled sister lived with her.
When determining your status, remember that the term "child" can mean your biological children living with you. But "child" could also mean another person, such as a disabled relative or elderly parent. But Stetson warned that the term "child" can have different definitions when used to determine eligibility for earned income credits and child tax credits. So read those definitions carefully.
2. Do use helpful Web sites such as IRS.gov or www.tax.state.ny.us, which offer valuable information for free.
3. Do take advantage of free help if you qualify. IRS VITA (Volunteer Income Tax Assistance) program sites and AARP's Tax Counseling for the Elderly are two services that can help you file your taxes free of charge.
4. Don't assume that just because you've received a Form 1099 that the income reported on that form is taxable. For example, if you received a state tax refund for 2008 in 2009, the state likely sent you a 1099, but the refund will not be taxable if you did not itemize deductions on your 2008 federal return.
5. Don't make what Stetson calls "mechanical" mistakes. Be sure to sign your tax returns in the correct place (not in the preparer's slot), include all your W-2 forms, put proper postage on envelopes, include a check for taxes owed and be sure you put your forms in the right envelopes.
6. Don't put your federal form in your state envelope and vice versa. "I've seen that happen once or twice, and then you're late in both places, technically," Stetson said. And, to avoid any late penalties, if you're filing late in the game, Stetson recommends sending your taxes via certified mail.
7. Don't not file. Even if you owe money and you don't have the money to pay, it's much better to go ahead and file, then you can request some extension for time to pay," Stetson said. If you can pay in full within 120 days, the IRS may agree to a payment arrangement with no fee.
You will still owe interest but may request a waiver of penalty. For longer time periods, for a fee you may be able to obtain an installment agreement. However, the IRS advises that you usually come out ahead if you can borrow funds from other sources to pay your tax liability.