10 Ways To File Your Taxes That Will Tick Off The IRS

This is a guest post by Chris Bennett of Creditloan.com. And yes, I know the tax-filing deadline was last week, but I was late publishing this.  Consider it an early jump on next year.

There are certain people (and groups of people) in life that you just shouldn’t tick off. And with April 15 only two weeks away, it’s tough to think of a better example than Uncle Sam. Sure, they’re hidebound, bureaucratic and slow, but make no mistake: hell hath no fury like an IRS agent annoyed by your careless tax filing mistakes. IRS punishments for incorrect tax filing run the gamut, from having to explain yourself when they call to to being audited to being fined or even imprisoned, depending upon the severity of your errors. History is filled with people who lived to tell about their tax filing mistakes, but wish they hadn’t. To spare yourself such a fate, be sure to avoid these ten ways of filing taxes that tick off the IRS.

Filing late

Sure, it seems harmless enough. And if you’ve ever filed late, you know the IRS doesn’t react with anything remotely close to immediacy. In fact (as we explained in our next tip), you can likely go several years without filing at all and not hear from the IRS. But don’t be fooled – filing late can trigger substantial penalties and/or interest depending on how late you filed and the amount of taxes you owed. Ticking the IRS off later is still ticking them off, and you can’t outrun them forever. In fact, your punishment will in all likelihood be worse in direct proportion to your lateness because interest will be assessed on both the late amount and how late you were. Don’t be one of the many people who will read this article and still file a late return. It’s not worth it.  If you’re not quite finished, you can always go ahead and file your taxes and then file an amended tax return soon after.  Not recommended, of course, but it’s one option.

Not filing at all

Late filing wont make you any friends at the IRS, but not filing at all can land you in serious hot water. Again – it’s not something you’ll get in trouble for right away. The IRS is responsible for collecting and processing the tax returns of over 100 million people every year. Consequently, they freely admit that they cannot and will not identify late and non-filers very quickly. What happens instead is that you get picked up by their computers months or years later, at which point Uncle Sam’s enforcement machinery springs into action. And whether it’s a slap on the wrist, an audit or a prison sentence, you can rest assured that punishment of some kind is coming your way at some point in the future.

Not identifying yourself

The SATs, it is often joked about, actually gives students points just for correctly printing their names. It’s an extra incentive for students to focus throughout the entire testing process. The IRS does not reward you for putting your name on your tax return. But if you get interrupted at the dinner table by a haughty IRS agent a month or a year later asking why you didn’t file a return, it will sure seem like a reward to have not gone through that. This one is an easy fix. Before mailing, give every form included in your return a once-over and make sure your name is correctly affixed everywhere it belongs.

Leaving out needed forms

The tax code is at times bewilderingly complex. The Tax Foundation, for instance, clocks the annual cost of tax compliance to businesses and individuals at over $275 billion per year. But just like a stern teacher or parent, the IRS doesn’t want to hear your excuses. As a taxpaying citizen, it is expected that you will file a return containing all of the forms that are needed to convey the full extent of that year’s tax obligation. Failure to do so can trigger everything from angry, probing phone calls to penalties or even audits if it the omitted form makes you appear dishonest. If you are unsure of whether your return contains all the needed forms, consult a tax preparer or attorney for advice. In addition to reducing the chances of all forms being included, using a qualified tax preparer lets you pin the blame on them (legally) if any substantive mistakes are made.

Rushing

The typical IRS employee has seen thousands (perhaps even hundreds of thousands) of tax returns in his or her lifetime. Like a veteran of the police force, they have seen it all. That makes it especially important for you to take your time in preparing an honest and accurate return for them to examine. Because their career is processing returns, IRS employees can quickly and effortlessly spot the signs of a rushed, sloppy or carelessly prepared return. And while rushing per se is not a punishable offense, it can get you into trouble if your rushing produces an error that makes you look dishonest or suspicious. In short, make the commitment to doing it right the first time, so there need not be a second or (God forbid) third time.

Shoddy math

While shoddy math is a frequent consequence of rushing, it ticks the IRS off enough to be explored separately. As noted, the problem with shoddy math being on your tax return is not simply the embarrassment or frustration of making a mistake. Remember what, fundamentally, an income tax return is. It’s the way you certify to the IRS (who does not know you personally nor have the slightest clue what the details of your working life are) how much money you made, the way that you made it, and the taxes you owe for that year. The way you express that on a tax return, primarily, is with numbers. Therefore, screwed up numbers distort some or all of what you are required by law to accurately report to the IRS on your return. If your math mistakes understate your income (more on that soon), for example, you will soon become painfully aware of how that was far more than an harmless math error. Double-check all your calculations, or, if you feel uncertain of your math, turn the job over to a tax preparer.

Improperly taking deductions

Another surefire way to infuriate Uncle Sam is by trying to sneak deductions through your return that you are not legally permitted to take. Legend has it, for example, that an athletic trainer tried to write off the cost of a pool table as business related because it improved the hand-eye coordination of his players. One man even tried to deduct the cost of making a sperm donation as a medical expense, according to TaxProfBlog. Funny as all of this may seem, thousands of people try to illegally take deductions in this manner every year, and the IRS frowns on such attempts highly. If your deductions are questionable enough, your return can land you in Tax Court – a most unforgiving chamber, let us assure you. Consequences include penalties and even interest on the amount of taxes illegally not paid due to the wrongful deduction you claimed. The lesson here is simple: don’t get cute with which and how many deductions you take. If you would not feel comfortable justifying a deduction before a judge with a straight face, don’t take it.

Understating your income

This is a big one. For one thing, it’s blatant fraud. If you are caught understating the amount of your taxable income so you can pay less or fall into a lower tax bracket, there will be little (if any) mercy. Furthermore, the IRS is well aware of how widespread and common this is. According to an IRS publication on the “tax gap”, which is the yearly difference between the taxes they are owed and what they collect, 80% of the gap is from taxpayers who under-report their income. In other words, you are not fooling anyone. Reporting less than the full amount of your income is far and away the biggest way Uncle Sam gets screwed and the IRS devotes an appropriate level of attention and resources to punishing such people. As with filing late or not filing, it may not happen today, and it may not happen tomorrow. But very few people outrun the IRS forever, and if you’re debating whether to try pulling a fast one on your return, you should probably accept that you wont be one of them.

Using the wrong tax bracket

The amount of income tax you owe is determined largely by which of six marginal income tax brackets you fall into. The higher your income, the higher a percentage you will owe to the IRS in taxes. Predictably, the fact that there are six different tax brackets leads to confusion every year as people misunderstand which bracket they are being taxed at. And while you can be sure the IRS wont complain if you file with a too high of a tax bracket, they will be none too pleased if you file using a lower than required bracket. Bargaineering has a freshly updated table of 2010′s marginal income tax brackets and to whom each of them applies. Familiarize yourself with these brackets and determine carefully which of them you fall into. Otherwise, filing your return using the wrong tax bracket could become the epitome of learning something the hard way.

Incorrect filing status

Your tax return (and more importantly, the amount you owe) will look very different depending on whether you are married and filing jointly or not. As you saw if you clicked through to Bargaineering‘s table of the different income tax brackets, those brackets have different income requirements for married vs. single people. Basically, you can earn more income while paying a lower rate of taxes if you are married and file jointly. The problem occurs when, for example, a married couple files at the lower rate they are technically qualified to use without also stating that they are filing jointly. In the eyes of an IRS employee, it simply looks like two people trying to use a lower tax bracket than they are entitled to. While the IRS might detect what really happened, you cannot count on that. Be sure that your tax filing status is correct and clearly stated on your return.

Chris Bennett is the marketing director for Creditloan.com. Established in 1998, Creditloan.com has been providing insight, advice and news on a range of financial topics, such as personal loans, debt consolidation and credit cards. In addition to the thousands of articles, you will also find reputable service providers and tools that will help you with all of your budgeting needs.