Tax season is something most people don't look forward to. And unless you're expecting to get some money back, you're probably planning to put off filing until the last possible moment. While doing your own taxes can save you money, it can backfire if you're not careful. As you gear up to get your tax return in order, here are five potentially costly tax blunders you don't want to make.
Deductions reduce your taxable income for the year, which in turn, can push you into a lower tax bracket. Tax deductions can result in a smaller tax bill or a bigger refund.
When you file your taxes, you've got a choice between taking the standard deduction or itemizing. Automatically going the standard route makes filing easier, but you could miss out on the chance to claim other deductions.
If you donated a substantial amount of money to charity, for example, or you paid a pretty penny for medical and dental expenses, you may get more value from itemizing your deductions. The same goes for if you have a large amount of mortgage interest to deduct, work-related travel expenses or business expenses.
View helpful tips to avoid a tax audit:
How to avoid a tax audit
5 dumb tax blunders that can cost you money
Double check your figures to assure there are no mistakes
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Be sure to be 100% honest, and report your numbers realistically
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Those in the highest and lowest income brackets are most often targets of fraud, and thus, audits
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Don't draw too much attention with unusual or unrealistic deductions
Your filing status determines what your tax rate is and the size of your standard deduction. If you accidentally pick the wrong status, you could leave some money on the table.
For example, if you're single or legally separated and have at least one dependent who lives with you full-time, you can choose head of household instead of single or married filing separately. With the head of household status, you'd be entitled to a larger standard deduction and a lower tax rate.
If you're using an online software program to complete your return, that cuts down on room for error, but it doesn't eliminate it entirely. If you plug in the wrong numbers somewhere, for example, that can throw the whole return off track and cause you to owe more in taxes. Leaving out key information altogether, such as income or deductions, is another costly mistake.
4. Choosing the Wrong Way to Pay
Owing money to Uncle Sam is never pleasant and you may feel pressured to pay up as quickly as possible. If you can't pay the balance due in cash, taking out a personal loan or using a credit card to cover the gap may seem like the best option. The danger you want to avoid here, however, is borrowing money at a high rate of interest if you don't think you'll be able to pay it off in a short period of time. Paying 15% or 18% to a credit card company doesn't make sense if you can negotiate a payment plan with the IRS at a lower interest rate.
RELATED: 10 of the strangest ways states tax you
10 Strangest Ways That States Tax You (or Don't)
5 dumb tax blunders that can cost you money
To preserve the uniqueness of their island paradise, Hawaii since 2004 has had an "Exceptional Tree" tax allowance. Landowners can deduct up to $3,000 from their income for expenses such as pruning and fertilization for any tree designated as rare, big, old or a combination thereof. That's per tree. Top-bracket earners taxed at the state's highest rate (11 percent) would save $330 via the deduction. The work must be done by a certified arborist, and the deduction can be claimed only every third year. Hawaii has had a list of "Exceptional Trees" since 1975, and there are now estimated to be more than a thousand thus designated.
Maine legislators tax anyone who deals in their official state fruit-blueberries, at the rate of 1.5 cents per pound. The resulting revenues-more than $1.6 million to state coffers in the fiscal year that ended in June 2013-are used to promote the crop and agricultural research.
The state also taxes harvesters and processors of hard-shell clams (known in the state as mahogany quahogs) at $1.25 a bushel, but state revenues for that are much lower.
Alabama is the last in the union to tax a deck of cards as if it were a "vice," like alcohol and tobacco. Taxing decks of cards, associated with gambling, was once fairly common, but most states have since set up separate control boards to regulate liquor and tobacco, and have let the cards slide.
But in Alabama, you'll still pay a 10 cent sales tax on any pack of cards you purchase. Retailers also have to pay $2 to the state each year for the privilege of selling playing cards.
Virginia levies a 50-cent excise tax on every lamb or sheep sold in the state. Both the Maine and Virginia taxes are examples of checkoff programs that collect taxes from an industry to fund promotional campaigns for the products. National commodity checkoff programs, authorized by the U.S. Department of Agriculture, have brought you campaigns such as "Beef: It's What's for Dinner" and "Got Milk?" But the Virginia program is extremely modest by comparison, having collected only $9,000 in fiscal year 2013. The funds go to the Virginia Sheep Industry Board, which spends them largely on predator control.
In 2013, in part to meet federal pollution-control mandates, Maryland legislators enacted fees on property owners in Baltimore and nine other Maryland counties, aimed at curbing storm water runoff. The fees were meant to fund programs to improve the water quality of the Chesapeake Bay, the largest marine estuary in the U.S. Sounds simple enough, but the way Maryland legislators wrote the law has led to an angry backlash in some corners against this so-called “rain tax.” One way localities calculate the tax is by measuring how much of a landowner’s tract is "impervious" to precipitation seeping into the ground. So the more you've developed it with buildings, driveways, tennis courts and the like, the less it will absorb and the more you pay. That's how the tax is being implemented (through aerial and satellite photos) in Montgomery County, a heavily developed suburb of Washington, and many landowners are up in arms. New Maryland Gov. Larry Hogan, a Republican, campaigned against this tax in his winning 2014 campaign and has introduced legislation to repeal it, though it’s not clear that will fly with Democratic state legislators. Money still needs to be raised to satisfy the federal pollution mandates, but the methods may change.
Kansas is among a bevy of jurisdictions that allows sale of lower-alcohol beer (the term of art is “cereal malt beverage”) in convenience and grocery stores. But Kansas also taxes “3.2” beer differently -- and there lies the rub. At a liquor store, all products, including, say, a conventional six-pack of Budweiser (with 5 percent alcohol by volume), are taxed at a special rate of 8 percent. At the convenience store down the street, however, ordinary sales tax is levied on the lower-alcohol, cereal malt beverage bottle of Bud. That often ends up being more than the 8 percent alcohol tax. In Pomona, Kansas, for example, the effective rate on the weaker beer would be 9.7 percent. Go figure.
When it comes to taxation, the rule is generally the stronger the booze, the higher the tax (that's why Kansas's beer tax scheme is an anomaly). California follows that curve, but at 100 proof, you better be ready to pay through the nose. Distilled spirits are taxed at $3.30 a gallon if below 100 proof, or 50 percent alcohol. Go over that, like with Bacardi 151, and the tax doubles to $6.60. Maryland also notes the 100 proof point, but it only adds 1.5 cents per proof, per gallon to the relatively modest liquor tax of $1.50 per gallon, taking the Bacardi 151 to $2.27 per gallon.
Entertainment venues pay a business tax to Nevada ranging from 5 percent to 10 percent on admissions fees (and food, drink and merchandise sales) whenever there’s live entertainment going on. There are exemptions, however, including this one, for businesses that provide "instrumental or vocal music, which may or may not be supplemented with commentary by the musicians, in a restaurant, lounge or similar area if such music does not routinely rise to the volume that interferes with casual conversation and if such music would not generally cause patrons to watch as well as listen." So your piano player can play “Feelings” softly and even crack a few jokes, tax-free, for your business. Just make sure they're not funny enough to attract attention.
Want to own a plush or fuel-thirsty ride? That’ll cost you extra in New Jersey. Cars that cost $45,000 or more or have a combined EPA fuel-mileage average of 19 or below pay an additional 0.4 percent on top of New Jersey’s 7 percent sales tax.
In New Mexico, making it to 100 years has a payoff beyond the chance that Willard Scott will wish you a happy birthday: You don’t have to pay state income tax anymore. If you’ve been physically present in the state for at least six months and a resident of the state on the last day of the year, and you’re not someone’s dependent, you’re eligible. You’ll still need to file, and there are some complications if you’re married and your spouse doesn’t qualify.
The IRS doesn't cut taxpayers any slack when it comes to the filing deadline. If you file your return late, you're automatically subject to a 5% failure-to-file penalty. This penalty continues to accrue for each month your return is late and it can eventually max out at 25% of the total amount of taxes owed.
It's always better to file on time – even if you can't pay your tax bill in full – to avoid the penalty. If you think you're going to be late, requesting an extension will give you more time to get your return in without triggering the failure-to-file penalty.
There's no reason to hand over any more money to the IRS than you need to at tax time. Making sure that your return is error-free, adding up all of your deductible expenses and planning strategically for when and how you'll pay can keep you from throwing away your cash unnecessarily.
Though most home-sale profit is now tax-free, there are still steps you can take to maximize the tax benefits of selling your home. Learn how to figure your gain, factoring in your basis, home improvements and more.
If you receive tax form 1099-MISC for services you provide to a client as an independent contractor and the annual payments you receive total $400 or more, you'll need to file your taxes a little differently than a taxpayer who only receives regular employment income reported on a W-2.
Where you live can help or hinder your ability to make ends meet. A myriad of taxes—property, license, state and local sales, property, inheritance, estate and excise taxes on gasoline—eat away at your disposable income. Weighing the tax landscape against your financial picture lets you stretch your dollars.