personal finance

Get Your Tax Refund Faster by Avoiding These 6 Commonly Overlooked Mistakes

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With the April 18 deadline coming up for most tax filers, there are a few ways to get your refund as soon possible, including filing electronically and avoiding errors in your return, such as typos or incorrectly reporting your income.

If you file electronically, most refunds will be delivered within 21 days. But if you mail a paper return to the IRS, it can take up to eight weeks to process. 

Aside from the way you file, you'll also want to make sure that what you file is done correctly. With that in mind, here are six common errors to avoid, from tax experts and the IRS itself.

1. Use the best filing status

Taxpayers choose between five filing statuses: single, married filing jointly, married filing separately, head of household and qualifying widow or widower with dependent children. 

Your filing status can affect how much you pay, and while multiple different statuses may be allowed for your situation, one could result in a higher tax burden. Use this tool to determine the filing status that results "in the lowest amount of tax," according to the IRS.

2. Correctly claim a dependent

A dependent can be either a qualifying child or a qualifying relative, and comes with tax breaks that can lower how much you owe. But it can be confusing to know whether you can claim certain people as dependents.

For example, divorced parents may both try to claim their child, even though two people cannot claim the same dependent. In that case, "there's going to be a problem," says Riley Adams, a certified public accountant who runs Young and the Invested, a website focused on financial literacy.

Before claiming a dependent, make sure that they actually qualify for that tax status and that no one else in the household is claiming them. If you're not sure if someone in your household qualifies as a dependent, this questionnaire-based IRS tool can help you figure it out.

3. Answer the virtual currency question accurately

Near the top of your Form 1040 or Form 1040-SR, you'll see this question about virtual currencies: "At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?"

The language of this question has confused taxpayers in the past, Adams says. But what it's asking is simple: You should check "yes" on the form if you sold cryptocurrencies, exchanged one cryptocurrency for another, used crypto to buy something or received it as payment, says Adams.

"If you didn't sell it or exchange it, or if you transfer it to your digital wallet, you don't have to click 'yes' on this," he adds.

4. Report all taxable income

Underreporting income may lead to penalties and interest, so it's best to get the amount right before you file. 

Don't forget to include income from freelance work, not just the amount on the W-2 form provided by your main employer. Employers will typically send freelancers a Form 1099 that includes the amount they were paid.

Keep in mind that employers aren't legally obligated to report your earnings to the IRS unless the amount paid exceeds $600, but they sometimes still do, says Adams. For that reason, you should report all your freelance income, no matter how small.

5. Remember that your unemployment benefits are taxed, too

Unfortunately, many people are surprised to learn that their unemployment benefits are taxed as ordinary income. A special law exempted some of this tax in 2020, but that was for a limited time and does not apply to 2021 tax returns. 

You should report any unemployment compensation that you received in 2021 on your tax return under "Additional Income." If you're using tax software, you'll be asked about your unemployment income and that information will be added for you.

6. Double-check the names and numbers in your tax return

This one is obvious, but a simple typo can hold up your tax return for weeks. Make sure you've correctly entered crucial identifying information like your Social Security number, date of birth and routing numbers if you're using direct deposit to receive your refund.

"The beauty of the electronic filing is if you've got a misspelling of your name or an incorrect Social Security number, the IRS will kick that back to you pretty quickly, letting you know there's an error," says Adams.

If your adjusted gross income is $73,000 or less, you can use IRS Free File, which gives you access to commercial tax prep software at no charge. It uses a question-and-answer format that's easy to follow, and can flag errors.

Once you file your return, you can check your refund status with the "Where's My Refund?" online tool or through the IRS2Go app.

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