Be Smart, Not Stupid when e-Filing Taxes
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Many people dread (and love) Tax Day. Whether they will owe taxes or expect a tax refund, stress levels usually rise during this time of year. Tax stress can affect everyday activities, such as driving. In fact, fatal car crashes increase 6 percent on Tax Day, according to 30 years of car crash statistics from the National Highway Traffic Safety Administration (NHTSA).
Unfortunately, when people are stressed about taxes, they may be capable of making mistakes on their tax returns. Take a deep breath and consider the following things to avoid when doing your taxes; scroll to find stupid and smart things to do when preparing and filing your tax return.
File your return on eFile.com and we will walk you through simple questions to help you avoid any mistakes when filing your taxes.
Stupid Things to Avoid When Doing Your Taxes
Use the PENALTYucator and estimate potential penalties.
- Not file at all: The IRS considers not paying on time and not filing as two separate issues, thus a penalty is involved for each. The highest IRS penalty is the failure to file on time penalty. Even if you file a return and you owe taxes, and you cannot pay anything, it is still better to at least file a return, than to not file at all. You should pay as much as you can when you file your return because the IRS assesses penalties and interest on the amount not paid. Even if you can only pay a little, it can make a big difference. When you file your tax return, you have several options to pay taxes you owe. You can make monthly payments through an IRS installment agreement, apply for an "offer in compromise," or temporarily delay paying. Whichever is best for you, contact the IRS right away to let them know you cannot pay, and to make payment arrangements with them.
- Reporting false tax information: It is a waste of time to include income that does not exist or report tax credits that you do not qualify to claim. Not only is it wrong to lie on your tax return, but it is also a crime. Even if you do not get charged for tax fraud, the IRS tracks patterns of tax behaviors (filing now to avoid paying, claiming deductions that you do not qualify for), and you will be flagged eventually. Not only would you face a hefty tax bill and eventually pay what you owe plus interest and penalties, it may slow down the processing of future refunds and increase your audit risk.
- Not saving tax records or receipts: If you have made charitable contributions during the year, the IRS requires you to keep a record of any cash donation - a canceled check, bank statement, credit card statement, or written statement - from the charity showing the date of the contribution, the amount of the contribution, and the name of the charitable organization. Otherwise, the IRS will not allow you to claim a deduction for the donation. Generally, you should keep records of any donation you make, just in case of an audit. This applies to other tax information you may report your return, such as business expenses you are claiming deductions for - hang on to all your receipts.
- For cash donations less than $250, you will need to provide bank records that prove the donation such as a cancelled credit card statement or check, or written communication from the qualified charitable organization. You must acquire written acknowledgment from the qualified organization for any cash donation over $250. Unfortunately, small, undocumented cash contributions, such as money dropped in Salvation Army pots or checks placed in church collection baskets, will not be accepted by the IRS; you will need to obtain a receipt for that small donation in order to claim the tax break you deserve.
- Interested in donating household items (furniture and furnishings, appliances, electronics, linens, etc.) or used clothes? Here is a catch: the IRS will not let you claim them as tax deductions unless the items are in "good" condition or better. In other words, the IRS will not accept junk! However, there is one exception: you are allowed to claim a deduction for any single item appraised at over $500, regardless of its condition. Review IRS Form 8283 for details by searching "8283" on the search page.
- Claiming a dependent (for example, one born during the tax year) without an SSN: The IRS will disallow your dependent and any related dependent deductions or credits, re-compute your tax, and either send you a lower-than expected refund or a tax bill. See important information about the advance payments of the Child Tax Credit.
- Entering incorrect information: SSN, date of birth, or other personal information entered incorrectly may result in an IRS rejection and/or delay the time you receive your tax refund, especially if you enter incorrect bank direct deposit information or mailing address. If you are not sure about the information you entered, ask a person you trust to review your return.
- Waiting until the last minute to file: This might increase your chances of making mistakes on your return. Additionally, if you make a mistake which results in an IRS rejection, you may miss the deadline. Make sure you have all your documents gathered before you file; better yet, collect and organize your documents throughout the year to save time on tax planning. Prepare to prepare with eFile.com by visiting our comprehensive checklist of tax preparation resources and guides. Also, if you attempt to electronically file your return and wait until the last minute before 12:00 pm, IRS systems might get bogged down as so many other taxpayers waited as well and your return might not get filed before midnight on Tax Day.
- Not getting your refund the fastest way: e-File your tax return - eFileIT - and request direct deposit into a bank account. According to the IRS, this is the fastest way to get your refund and you can generally expect your tax refund to be deposited in your account within 21 days. The other option is to wait approximately four to six weeks to have your refund check mailed to you. Learn more about the statistics of e-Filing our use the DATEucator tool to see exactly how quickly your 2022 Refund could be deposited.
- Immediately spending a tax refund: Spending your refund may not be such a good idea, no matter how tempting. If you have large credit card debt, inadequate savings or limited retirement funds, a better use of your refund may be to pay down tax debt, open a savings account or establish an IRA. See other money saving tips.
- Using tax refund products: These are advertised heavily during tax season (mostly off-line). However, the advertising does not tell you about the fees and steep interest rates associated with a short-term refund anticipation loan. Also, don't forget that it is a loan: If the IRS turns down any deductions or credits on your return and you don't get the refund you were expecting, you will still be responsible for paying back the amount of the loan.
- Ignoring a letter from the IRS: Bottom line, do not ignore mail from the IRS. If you owe taxes, the IRS will collect them. Those who do not communicate with the IRS about inability to pay can expect a "Notice of Federal Tax Lien" to be filed against their property. A lien is a public record that is attached to your property including your house, car, and any future property you might obtain, telling all that you owe creditors money. If there is a lien on your property you generally cannot sell it or refinance it, until you have paid the debt and the title is cleared of the lien. A levy, which is a legal seizure of property to satisfy a tax debt, is another legal means the IRS can use to collect taxes. This means the IRS can seize your car, boat, or home and sell it to satisfy your tax debt or it can place a levy on your wages. These levies and liens often stay on your records long after the issue has been resolved or until the IRS gets around to removing it, so IRS liens and levies are something to be avoided at all costs.
Smart Things to Do When Doing Taxes
- File on time: File a tax return or extension on time, regardless if you don't have the money to pay your taxes. Filing a tax return or tax extension on or before Tax Day will eliminate any failure to file penalties, which are ten times more expensive than penalties for not paying the tax you owe (4.5% vs. 0.5%). Consider IRS installment agreements and other tax payment options if you cannot pay all the tax you owe on Tax Day. Though an IRS tax extension or state extensions gives you extra time to prepare and file your tax return, do not think of the extension as an excuse to procrastinate on your taxes for 6 more months. Take advantage of the additional time by figuring out how you are going to file your return and pay any taxes owed if necessary. However, please be aware that an extension does not give you more time to pay the tax you owe penalty free. Use the extra 6 months wisely to prepare and file your tax return on time if you filed an extension by Tax Day. It is faster and more secure to e-File a tax return or extension than filing on paper. Generally, you will receive a notice within 24 to 48 hours after e-Filing a return or extension if it is accepted (or rejected, which is easy to fix online). In addition, if you are expecting a refund, you can expect it in as little as 7 days, according to the IRS.
- Get your refund the fastest way: e-File your tax return - eFileIT - and request direct deposit into a bank account. According to the IRS, this is the fastest way to get your refund and you can expect your tax refund to be deposited in your bank account within 21 days. The other option is to wait approximately four to six weeks to have your refund check mailed to you. Learn more about the statistics of e-Filing our use the DATEucator tool to see exactly how quickly your 2022 Refund could be deposited.
- If you owe taxes, review tax payment options: review the several options to pay taxes you owe before you e-file so that you know the best way for you to pay your taxes.
- If you are preparing and e-Filing a federal tax return on eFile.com: you can pay your taxes owed during the e-Filing processing via direct bank transfer to the U.S. Treasury by entering your bank account information. Once you submit your tax payment, your bank statement will list "U.S. Treasury" and a PIN or access code for referencing the transaction.
- Instead of using direct bank transfer: you may choose to submit your tax payment via check or money order in the mail. Your return usually includes a payment voucher, which contains instructions on how to submit your payment to the IRS and/or state tax agency.
- Alternatively, you can submit an online tax payment using a credit or debit card. You can do this after the e-Filing process. The IRS accepts MasterCard, American Express, Visa, and Discover through an authorized payment processor, Value Payment Systems. Please be aware that the processing company may charge a "convenience fee" based on payment amount (generally 1.90%-2.35% of the total for credit card payments and 1.90%-3.95% for debit card payments). The credit card convenience and interest fees may or may not be greater than the IRS interest, so compare your options before choosing the option that benefits you the most.
- Although this is a better approach than not paying your taxes at all, you should investigate the best way to borrow the money. Compare the interest rate of your credit card with that of a personal loan from your bank or credit union. The idea is to incur the least amount of money in interest. Try to pay off the loan as soon as possible and do what you can to avoid the same situation next year. To pay your taxes on time, you may need to adjust your withholding on your W-4 with your employer or put aside money each pay period in a savings account.
- Save a copy of your return: Once a tax return has been e-filed and is accepted by the IRS, you should download and save a copy of your return; be sure to save other tax documentation, such as W-2s or 1099s, for your records. That way, if the IRS sends you a notice about your tax return, such as missing or confusing information about your return, you can provide them with any documentation they request from you.
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