The Risk of Filing Your Own Taxes

by Kevin on February 22, 2010

In my previous post I told you that doing your own taxes was a good idea. I firmly believe you should do your own taxes at least once just to get a better understanding of the how the income tax process works.

But filing your own taxes is not a risk-free venture.

Income Tax Filing Mistakes

The risk, of course, is making a mistake on your taxes that results in:

  1. you reporting your taxes incorrectly, getting audited by the IRS, and having to pay penalties, additional tax, or fees
  2. you missing out on a larger refund than you would have received had you filed your taxes correctly

Missed Deductions and Credits

Do you know every page of the tax code? (There are more than 66,000 pages.)

If you are like me and you haven’t had the time to sit down and read it, you might just end up missing a deduction or two. Those missed deductions are dollars in your pocket.

My Story: Deducting Tuition Expenses

I speak from experience when I mention missing deductions. As I did my taxes this year I noticed I had received a statement from the school I received my MBA from. They sent me Form 1098-T for Tuition Expenses.

My online tax software asked me if I had any tuition costs during the year. I grabbed the information off of the 1098-T and was pleasantly surprised to see extra money land in the “Refund” section of the page.

That’s all well and good — more money for me — until I realized I had not taken this deduction in 2007 or 2008. D’oh!

I haven’t run the exact numbers, but there is a potential of hundred if not a few thousand dollars in refund money that I flat out missed the previous two years.

In both those years I used the exact same software. I received a 1098-T statement in both years. I just neglected to input the information.

How did I miss it? I have no idea. But I did, and it is a great example of the risk you take of doing your taxes on your own.

How to Fix Tax Return Mistakes

Thankfully (knock on wood) I don’t have any experience in reporting my taxes incorrectly. I’ve never been audited, but I can imagine it isn’t a fun experience.

Whether the tax filing mistake you made is to your benefit or to the government’s benefit, there is a way to rectify the situation.

It’s called Form 1040X — Amended US Individual Tax Return. More on how to amend your tax return in my next post.

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