I have relied on tax preparation software to guide me through filing my tax return for the last 20 years. It’s easy to be lulled into a feeling of safety, believing the software will help you accurately fill out your tax return while identifying all your deductions and credits based on your answers. The reality is, the tax software is only as good as the answers you give it, and if you don’t have a basic understanding of what’s going on with your return you could end up missing out on a huge refund. It almost happened to me this week. One small error just about cost me $2100.
My taxes this year were very much like the last several years, with one exception. I now have a child in college, and had read that I was eligible for the American Opportunity Tax Credit. I answered the questions and expected my refund to skyrocket. It didn’t. I just stared at the screen that said I did not qualify for any education credits. I went back through the questions, I looked at the actual worksheet filled out by the software and couldn’t figure out why it was filling a zero for the amount of credit I was eligible for. I read document after document on the IRS website, and I was sure I qualified. Then, I found my mistake. I had forgotten to click the box saying my son was enrolled at least half time in college. Once I did that, my refund increased by $2100.
Forgetting to click one box might have cost me $2100.
To be honest, I almost gave up. I had talked myself into believing that somehow I wasn’t eligible for the tax credit. But doubt lingered, and I persisted in my investigation. Had I not had IRS documents in front of me that suggested I should get the credit, I may have missed out on some extra cash.
If you use tax preparation software, you may want to keep these points in mind:
- Read the questions carefully: Finishing your tax return is not a race. It’s better to be careful, methodical, and accurate.
- Understand what has changed since last year: If a major life event has occurred in the last year, it may have an impact on your tax return. Research online what those changes are, and make sure your tax return reflects what you’ve researched.
- Look at the worksheets: The first indication that something was not right in my scenario was there was a value I didn’t expect entered into a worksheet outside of the main 1040 tax return. These won’t be shown to you explicitly unless you go into the menu of the software and specifically display the worksheet.
- Look over your return: Once you think you’ve completed your return, let it sit for a day or two, and then look it over again before submitting to the IRS.
- Consider a professional: If you’ve had major life events In the last year, you may consider having a professional look over your return. It will cost some money, but by doing so you will ensure it’s done correctly, and then you can just follow it’s example in the future.
Filing a tax return is a complicated process. Tax preparation software is a great way to do your taxes on your own and save money, but you have to be careful when three are changes in your tax return. If you don’t know how the change impacts your tax return you may end up missing out on a $2100 refund.
How about you EOD Nation, do you use tax preparation software? Have you ever almost made a mistake that would have cost you major cash?