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Filing your tax return can be one of the most stressful tasks on your to-do list this time of year. A 2019 survey from TaxSlayer® found exactly that, with 61% of the respondents saying they felt stressed out during tax season.
While tax time can certainly be anxiety-inducing, waiting until the last minute causes additional worrying you can avoid. With a month to go until the April 18 tax deadline, if you haven't already prepared your paperwork now's the time. In doing so, keep in mind of the below commonly made tax mistakes. 2022 makes for an especially important year to avoid errors, especially as more Americans anticipate receiving their tax refunds to help offset the rising cost of living.
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1. Mailing in a paper tax return
While nearly everything is done digitally these days, some Americans still choose to mail in their taxes. In 2018, the IRS expected fewer than 10% of Americans to send their annual tax return through the mail — and for good reason.
"There are a million horror stories," Bill Smith, national director of tax technical services at accounting firm CBIZ, tells Select. "With the state of the chaos at the IRS, if you file a paper return there is no telling what the consequences might be."
By filing your taxes electronically, there is less of a chance that your tax return will get lost in transit, damaged or run into any other issues that could cause a major headache. Additionally, by filing electronically and opting for direct deposit, your tax refund is estimated to show up in your checking account within 21 days. When you submit by mail, it could take several weeks before it's processed and your payment is sent out.
To get started filing electronically, consider using one of the free services provided by the IRS. To qualify, your adjusted gross income, or AGI, must have been under $73,000 in 2021.
If you don't qualify, there are plenty of other online tax services to choose from that offer free versions, as well as paid for more complicated tax returns. Here are some of our favorites:
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2. Not filing a tax return because you may not have the funds
If you're sure you're going to owe Uncle Sam, it may be tempting to avoid filing your taxes altogether — the Tax Foundation found that 32 million households did not file a tax return in 2020 — but that is simply making today's problem a much larger problem for tomorrow.
For those who choose not to file, the penalties can be steep and add up quickly. Here's a look at the exact fines Americans face if they don't file, according to the IRS website:
- Failure to File Penalty: 5% of the unpaid taxes for each month (or part of a month) your tax return is late, not exceeding 25% of your unpaid taxes.
- Failure to Pay Penalty: 0.5% of the unpaid taxes for each month (or part of a month) your tax return is late, not exceeding 25% of your unpaid taxes.
- If both a Failure to File Penalty and a Failure to Pay Penalty are applied in the same month, you'll pay a combined penalty of 5% for each month (or part of a month) your return was late. In other words, you'll pay 0.5% for one penalty and 4.5% for the other, resulting in a total of 5% in penalties.
- The Failure to File Penalty maxes out after five months, while the Failure to Pay Penalty continues until your taxes are paid, up to 25% of the unpaid tax by the due date.
- If your tax return is more than 60 days late, the minimum Failure to File Penalty will be $435 or 100% of the tax shown on your return, whichever of the two is smaller.
Even if you're unable to pay, Smith says it's better to file and not pay than to not file at all.
If you're afraid of receiving a tax bill you know you can't afford, there are several steps you can take. Consider applying for a payment plan through the IRS, which breaks down your bill over time, or paying your tax bill with a 0% intro APR credit card like the Wells Fargo Active Cash® Card. This way, you can charge your tax bill onto a credit credit to pay the IRS immediately and then have more time to pay off your credit card bill interest-free.
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3. Itemizing when the standard deduction is sufficient
The two most common terms associated with taxes are "itemizing" and "standard deduction" and, according to Mamie Wheaton, a CFP with LearnLux, many Americans make the mistake of choosing the wrong one.
"The standard deductions increased significantly due to the Tax Cuts and Jobs Act, made into law in Dec. 2017," Wheaton says. "For 2021 tax filing, the standard deduction is $12,550 for singles, $18,800 for head of household and $25,100 for married filing jointly. This can make itemizing less attractive than it once was. If you have always itemized, make sure that it isn't more advantageous to take the standard deduction."
Because the standard deduction is higher than in it has been in the past, it's best to calculate ahead of time which option will be the best for you. Tax software such as H&R Block, TurboTax and online deduction calculators can help you decide which option best suits your needs.
Taxes are sure to be a complicated part of your personal finances, but taking into account the above can help you avoid making headache-inducing errors.
With the April 18 deadline quickly approaching, the anxiety of being late could also lead some to rush and make less-than-ideal decisions regarding their taxes. If you're unsure about doing your taxes this year, it may be best to either utilize tax software or get help from a certified tax professional, just in case.
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