Life is stressful. At American Home Shield®, we get that. Which is why we make it priority to reduce hassles and headaches any time and any way we can. Filing your Federal Taxes is especially stressful, so what better time for us to put our money where our mouth is?
Use the tips and advice in our handy tax guide as a starting point to help make things less hectic on tax deadline day. Then, be sure to consult your financial adviser or tax analysit for personalized professional advice.
Common Mistakes to Avoid
Nobody’s perfect. Even tax professionals can make mistakes. Unfortunately, even small mistakes on your taxes can be costly. While they might not result in you owing more, they could reduce or delay your refund, or raise red flags with the IRS which is never a good thing. Being extra careful and double-checking a few things before you file is crucial. When beginning your tax preparation, here is what to watch out for:
Missing the return deadline
Normally, the tax return filing deadline day is April 15, but this year is different. Due to the Washington D.C. Emancipation Day holiday being observed on April 15 (instead of April 16, 2022), the tax deadline day is on Monday, April 18, 2022 for everyone except residents of Maine and Massachusetts, who must file by Tuesday, April 19, 2022.
However, don’t wait too long to get your return prepared for the 2021 tax year. You and your tax professional may need extra time due to new reporting and filing requirements.
If you still can't get your tax return finished by then, you must file for an extension in time. It is important to note that Monday, April 18, 2022 is also the deadline to request an automatic extension for an additional 6 months via Form 4868 on the IRS website.
Filing status issues
This relates to your marital status, whether or not you are the head of household and if you are married, whether or not you are filing jointly or separately, etc. There are 5 options in all, so make sure you determine your filing status correctly before you prepare your return.
Yes, even in filing taxes, spelling counts. In fact, the IRS is a real stickler for spelling and when the names of a taxpayer, a spouse or their dependent children don't match the Tax ID number issued by the Social Security Administration, it causes major problems. This might seem like an unlikely problem, but it’s actually quite common for newly married women who take their partner’s last name or a divorcee who opts to revert to her maiden name. Whatever name you choose is fine. Just don’t forget to tell Uncle Sam. The IRS can kick out or slow down processing the tax return if there’s a spelling or name discrepancy.
These can be simple miscalculations or you might accidentally transpose numbers from one form to another. Using a tax software program to file your return can help reduce errors because it may catch inconsistencies, but you’ll still need to make sure your original numbers are correct.
It’s not that unusual for a taxpayer to write in the wrong Social Security Number either. So if you don’t know your 9-digit number or the SSNs for claimed dependents (or even if you think you do), make sure you’ve recorded them correctly on ALL forms.
Over estimations and underestimations
This applies to things like taxable income, earned income credits, the taxable amount of Social Security benefits, etc. You have to know what you’re working with at the start to make sure you get to the right number in the end.
Failing to report additional income
You may have had what you considered a “side job,” but to the IRS that’s just another word for “taxable income.” So you’ll need to complete a Form 1099. The same thing applies to income earned from investments or savings accounts. If you fail to report these on your return, you could be subject to penalties and owe interest on the unreported earnings.
Forgetting charitable contributions
These are allowable deductions that can reduce your tax obligation, as long as you meet the standards, i.e., giving to recognized tax-exempt charities, donating items that are in good to better than good condition, without over-inflating their fair market value. See more about other allowed tax deductions in the “Stake your Claim on Tax Credits” section.
Leaving off your John Hancock
Even in this digital age, you must remember to sign and date your return.Taxpayers filing electronically must sign the return electronically using a personal identification number, or PIN. If you are filing jointly with your spouse, you both must sign. There’s nothing worse than going through all the trouble of preparing your tax return and then making the mistake of not signing or dating it. This is usually the last thing you do, but keep it top of mind.
Refund Do's and Dont's
If you happen to get a refund, congratulations! That’s a wonderful thing. It’s always nice to get something back. But, before you rush out and spend it, be sure to read these helpful Do's and Don’ts. They may help your refund grow even more.
Save your refund
This is the perfect time to build up your emergency fund. If you don’t have one, start one. You never know when an unexpected car expense, costly home repair or medical bill will bust your bank account.
If you add to your savings account, that money can build over time and someday be used for larger expenditures, like a down payment on a car, a trip or home improvements. If you plan wisely and don’t spend beyond your means, you won’t have to max your credit cards and increase your debt. That’s always best.
Save for retirement with an IRA
The truth is, none of us know what will happen with the Social Security System, so saving for retirement is always a good idea. While it might be tempting to contribute to your child’s college fund instead, many financial advisers will tell you there are other ways to fund education (like scholarships and loans), but not retirement. You have a few different options, so be sure to consult with a financial adviser to learn more about the differences between traditional IRAs and Roth IRAs.
Reduce your debt
If you are like many Americans, you have debt. It could be student loans, mortgage loans, or balances on credit cards that carry high interest rates. Whatever debt you have, it’s always best to pay it down as quickly as possible. Your refund might only mean you can reduce the balance a little or it may help you pay it off completely. Either way, you’ll benefit by reducing the interest you would otherwise be paying. If you do this, you’ll have more money in your bank account in the long run.
Improve your home’s/car’s energy efficiency:
This can be a win/win. If your home is still running with worn out appliances or it’s been a while since you’ve replaced the roof, windows or insulation, upgrading to more energy-efficient options can save you money in the long term by reducing your heating and cooling costs. Plus, in the short term, there are many tax incentives, rebates and credits for purchasing energy efficient products. The same is true for electric or hybrid vehicles, which can help save on fuel costs, reduce harmful emissions and often afford you a sizeable tax credit.
Consider an American Home Shield® Home Warranty Plan
Household breakdowns are inevitable. Unlike most homeowner’s insurance, an AHS® Home Warranty Plan covers the repair or replacement of crucial appliances and home system components, like your plumbing or HVAC, when they break down due to normal wear and tear. An unexpected household breakdown can be a real blow to your budget. An AHS Home Warranty Plan is a way to make those costs more manageable and could even save you thousands on repairs and replacements. Download our Home Warranty Guide to learn more.
Give to charity
Making charitable donations is rewarding in a couple of ways. Obviously, it’s a kind gesture that’s gratifying for the giver, but donations are often tax deductible, too. When you give to recognized charities, you’re not only helping others, you are making a wise tax decision. Just be sure to keep your receipts/bank records, an itemized list and follow the IRS’s requirements for charitable deductions. In the meantime, check out these 8 tips for making your donation count.
Spend what you don’t have… yet
They say you shouldn’t count your chickens before they hatch. The same holds true for tax refunds. Remember, until that refund is deposited in your bank account, you technically don’t have a refund. Postpone spending until the funds are actually firmly in your account.
Spend it on wants instead of needs
As we explained above in “The Do's” section, your refund might be better used to pay down debt, save for retirement or invest in sensible home improvements.
Of course we all have wants, but you might regret blowing your refund on that shiny new “want” instead of that boring old “need.”
Increase your debt
It’s not always easy or even possible, but living within your means is a truly wise investment in your financial future. It’s not advisable to use your refund as a down payment on a new car or home that will only mean you have more debt each month. Of course, there are exceptions to every rule. If you need to buy a car to maintain employment or have no other viable means of transportation, then do what you must. If you have to use your refund for a down payment, put more money down to reduce your recurring monthly payments and use your exemplary credit history to negotiate the best rate and terms you can.
Loan the refund to friends
They say, “With money you can buy all the friends you want, but they are never worth the price.” Loaning money to friends can put a strain and unspoken tension on your relationship. Unfortunately, small claims court is full of former friends who fell out over these kinds of well-intended loans. But, if you are feeling generous and would like to gift your refund to friends, by all means do. As long as it is truly given freely, with no strings attached and no expectations of repayment, your friendship is sure to last. Just a word of caution… you may get more “friends” than you bargained for.
Stake Your Claim on Tax Credits
Making sure you claim all your eligible federal tax credits can help you keep more of your hard-earned money and may mean you can substantially reduce your tax obligation. Depending on what you qualify for and what you claim, this could save you hundreds, even thousands of dollars on your 2015 Tax Return.
With so many available credits, you’ll want to be sure you’re taking advantage of all you can, but be careful. Tax laws are updated all the time. Before you make a claim, you’ll need to confirm what’s been extended, added or has expired since the last tax year. The good news is, there are a variety of free online tools to help you know whether or not you would even qualify for these tax breaks. Of course, a certified tax professional can also be very helpful in this area. After all, CPAs shouldn’t just plug in your numbers on your tax forms. It’s their job to know what laws change from year to year and whether or not you would qualify for claimed deductions.