Almost half of Americans have admitted to making a mistake when filing their tax returns, as filers struggle to keep on top of the changes regularly made to the tax code.
With this year’s delayed filing deadline of July 15 fast approaching, TaxAct has revealed that 44% of Americans have made at least one tax return error in their lives. However, what was also discovered is that the propensity to make a mistake was markedly different depending on how people choose to file.
Indeed, only one-third (33%) of those who self-file, likely using the best tax software, said they had made some kind of miscalculation, compared with almost half (48%) of those who pass the responsibility to others, such as tax preparers.
Tax refund the priority
Perhaps unsurprisingly, the survey revealed that the main concern of tax-filers was making sure they get back the biggest tax refund that they can. Nearly two-thirds (64%) of those questioned listed the maximum refund as their top priority - with three-quarters of taxpayers receiving an average refund of $3,000 from the IRS in 2018, it is easy to see why.
Yet despite this aim, understanding of the deductions that could impact refunds remains distinctly limited, with 95% of Americans admitting they do not fully understand the changes to tax laws that could influence the amount of money the IRS will refund.
Less than half (46%) knew about the latest changes to the standard deductions, while even fewer (22%) knew that personal exemptions have been eliminated. Individual tax deductions, which vary greatly state by state, were also a source of considerable confusion, with not a single person questioned able to identify all of the genuine tax deductions from a list that included both real and imaginary examples.
Recent changes to the tax code
Changes are made to the tax code each year, with the list of credits and deductions regularly updated with extensions and amendments. Among those extended for the 2019 tax year and retroactively extended for the 2018 tax year are:
- Residential Mortgage Insurance Premium Deduction - this allows qualifying taxpayers with an adjusted gross income under $110,000 ($55,000 for those married but filing separate) to again deduct their private mortgage insurance payments.
- Reduction in Medical Expense Deduction Floor - despite the intention to increase this deduction in 2019, the floor for deducting qualifying medical expenses is now remaining unchanged at 7.5% for tax years 2019 and 2020.
- Deduction of Qualified Tuition and Related Expenses - this allows eligible tax filers to write off up to $4,000 of education-related expenses.
- Credit for Fuel Cell Vehicles - anyone purchasing a qualified passenger (light-duty) fuel cell car can benefit from a federal tax credit of up to $8,000.
What should tax-filers be doing
With just three weeks left until the tax-filing deadline, time is pushing on for those who are yet to dust down their tax software. Among the things you need to consider will be whether July 15 gives you enough time to get things in order or if you need a further extension, while there might also be differences from previous years over how you need to file. If you think you might be owed a refund from 2016, filing a prior year tax return by July 15 represents your final chance to secure this payment as well.
However, while speed will soon be of the essence, accuracy should also be a priority, particularly if - as the survey suggests - a full and correct tax refund is the ultimate aim. As the survey also reveals, those who go to the effort of completing their own tax return tend to make a better job of it than those who push the work elsewhere.
Against the backdrop of the coronavirus pandemic, the IRS has pushed the benefits of electronic filing, and will soon introduce the option to correct tax returns online too. Many might view this shift towards a more online world with some trepidation, but in reality there is little to fear, particularly given the money-saving accuracy and stress-busting support that the best tax software already has to offer.
"The tax game is constantly evolving," said Curtis Campbell, president of TaxAct. "Even under normal circumstances, filing a tax return is an emotional event for many people. As we all try to adapt to drastic changes in our lives and in tax regulations, it's even more important that our customers feel our support.”