Tax time can be daunting, especially if you’re filing your taxes for the first time. Yet, you might be surprised at some of the most common tax mistakes made by millennials (and others).
If you are getting ready to file your return, here are six of the biggest tax mistakes you should watch out for.
Beware these common tax mistakes
1. Failure to file
“It seems basic, but one of the biggest tax mistakes is not filing, or filing late,” says Eric Nisall, an accountant and the founder of AccountLancer. He’s prepared taxes for close to 20 years and seen plenty of tax time mishaps.
Nisall points out that many people just forget to file, or they think that they don’t need to file if they don’t owe taxes. Even seasoned veterans sometimes forget to file.
“I have clients that I have to call regularly to remind them that they need to take care of their taxes,” Nisall adds.
However, even if you don’t expect a refund or to owe, you need to file a return in some cases. The Internal Revenue Service (IRS) says if your income for 2016 is equal to or exceeds $13,350, you’re expected to file. No matter what.
Nisall suggests filing a tax extension on general principle if you are afraid you’ll miss the deadline.
“You can still file on time if you make the deadline,” Nisall explains. “It’s just nice to know that you aren’t going to end up penalized for failure to file if you need a little extra time.”
2. Forgetting the student loan interest tax deduction
Even better? You don’t have to itemize to take advantage of the student loan interest tax deduction.
Nisall points out that many millennials and others think that itemizing is always going to be their best bet. However, he says, you can’t assume that itemizing will work in your case.
Instead, take advantage of the deductions you qualify for beyond itemizing, like the moving tax deduction. Similar to student loan interest, the deduction for costs incurred when you move for job-related reasons is available even if you don’t itemize.
3. Not reporting all of your income
“Many people think that if they don’t see it on a W-2 or 1099, they don’t have to report it,” says Nisall. He says this is one of the most common tax mistakes, especially among millennials with side gigs.
CareerBuilder points out that millennials significantly outpace other age groups when it comes to side gigs. So if you have a side gig you must prepare to report the income even if you didn’t get a 1099, Nisall says.
If a company didn’t pay you at least $600 during the year, they might not issue a 1099, according to the IRS. However, you are expected to pay self-employment tax on side-gig income once you make $400. That means you need to keep records of all your income throughout the year.
Nisall says other income oversights include interest earned from savings accounts and dividends. If you’ve received income from any source, he insists, you should report it to the IRS.
What’s more, if the IRS catches you fudging your numbers, you’ll be required to pay what you owe and may even be charged a penalty.
4. Relying too heavily on apps
We love convenience and technology. Is there anything our phones can’t do? There are even apps that allow you to file your taxes from your smartphone.
While it can be easy to make it happen from just about anywhere, Nisall insists that it’s possible to rely too heavily on apps when it comes to filing your taxes. He says one of the most common tax mistakes is assuming that the app is going to be the best way to save money and file your taxes.
Even though there are great apps that do a good job, Nisall warns against putting full faith in them — especially if your tax situation is a little more complicated than W-2 income and a few deductions. Nisall thinks millennials, who use apps more often than other age groups, are more susceptible to this problem.
“You can’t assume the app is going to have all the info you need,” Nisall says. “Plus, they don’t prevent you from using wrong information.”
If you have a tax situation that requires a little extra help, consider skipping the app and getting another set of eyes instead.
5. Rushing your taxes
A sure way to end up with a mistake on your tax return is to rush through the process, Nisall states.
The faster you go through your taxes, the greater the chance that you’ll mess up. Whether it’s transposing a number or claiming the wrong deduction, it could cost you.
Give yourself time to plan your taxes. Once again, Nisall says filing an extension can give you a little breathing room.
It’s important to get it right the first time because filing an amended return can be a hassle. Not only do you have to fix the mistake, but the IRS won’t let you file an amended return electronically. You have to do it on paper and through the mail.
6. Failure to plan year-round
Finally, Nisall says that too many people, including millennials, think tax season only happens from January to April. “You should plan for taxes year-round,” Nisall insists. “Everything decision you make affects your life and your taxes,”
Nisall points out that many of us make big financial choices in our mid- to late-20s. Therefore, planning for these items should be part of your overall tax plan.
“Marriage, kids, what you spend on your business, moving to a new state. All of that impacts your tax bill and you should be ready for it,” Nisall explains.
At the end of the day, make sure you always keep good records and think about your decisions in terms of tax implications. When you pay attention and manage your records year-round, you’re more likely to make better, more informed decisions that can save you money on your taxes in the long-run.