AVOID THESE MISTAKES
Whether you prepare your own tax return, or someone prepares it for you, there are a lot of common mistakes you should avoid that could cause problems in processing your return. Generally, it won’t cause a problem if your address is wrong on the return, but it could if the IRS is trying to contact you. They use the address from the last return filed as your current address (unless you notify them otherwise) so notices can get lost if your address isn’t correct.
If you’re due a refund, make sure the bank information is correctly listed on page 2 of Form 1040. Using direct deposit will significantly decrease the time it takes to get your refund so ensure that the routing and account numbers are current and correct. As you may have also found out this past year, this direct deposit information may be used for government payments to you. It looks likely that there will be a third round of stimulus payments coming out soon and having direct deposit information on your return can speed up that payment process as well.
For tax year 2020 (returns being filed now) and 2021, taxpayers taking the standard deduction can get an additional deduction for contributions to qualified charities. I saw a statistic that said over 85% of taxpayers take the standard deduction, so this probably applies to you or someone you know. For 2020 the deduction is capped at $300 for everyone. In 2021, the cap is $300 per taxpayer so joint filers can deduct up to $600 in contributions and take the standard deduction.
You probably already know that the stimulus payments last spring and earlier this year are not taxable but if you didn’t receive a full payment, be sure to fill out the recovery rebate credit form to see if you’re due an additional payment from either the first or second round of payments. This is especially true if you were a dependent of another taxpayer prior to 2020 or you acquired additional dependents on your 2020 return.
Speaking of dependents, make sure you properly report dependents on your return. There are plenty of ways to mess this one up and the rules are complex in some circumstances. For your children, they’re generally your dependent as long as they’re in school, no matter how much they earn. If your child files a tax return and you’re entitled to claim them, make sure they don’t claim themselves. Once they are out of school and on their own, make sure you don’t accidentally claim them on your return. The good thing is this is a relatively easy mistake to fix, but it can create problems with electronic filing.
If you would like additional information on any of these “mistakes” or if you’ve made a mistake and you want to know how to fix it, please contact our office. As always, I am looking for article ideas that you would like me to cover. If you have an idea for a future article, or just have a topic you would like more information on, please send me an email.
At Faw & Associates, we are always available to answer any of your tax or financial planning questions. You can get more information on this or many other topics at our website – www.fawandassociates.com or you can contact us directly by calling our office at (336) 838-3080. You can also email me at jim@fawandassociates.com any time with your question or concern.