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Haven't Filed Your Taxes? Avoid These 3 Costly Mistakes

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In the rush to get your tax returns out the door, it's common to make costly mistakes. Let's look at three of the most common last-minute issues.

Getting An Extension? Don't Forget This Vital Step

If you can't get your taxes finished by the April 15 deadline, the Internal Revenue Service will freely grant you a six-month extension to file your taxes, giving you until Oct. 15 to get all your numbers and records together and put together a final return for filing.

But just because you can get a free extension to file doesn't mean that you get extra time to pay. Even if you request and receive a six-month tax filing extension, you're still liable for any tax you still owe. If you don't pay, then the clock will begin on interest and penalties for failing to pay.

At current rates, those charges will include 3 percent interest on the underpaid amount, plus an extra 1/2 of 1 percent in penalties for every month your unpaid tax is late. The penalty maxes out at 25 percent if you're 50 months or more late on your payments.

Still, extending is a smart move even if you can't pay, because if you don't request an extension and file 60 days late or more, then the minimum penalty becomes $135 or 100 percent of your unpaid tax, whichever is less -- regardless of what percentage of your total tax liability that ends up being.

In general, it makes sense to slightly overpay your expected taxes with your extension request so as to give yourself some breathing room in case your initial calculations prove to be incorrect.

Take All the Credits You're Entitled to Receive

Remembering to claim all the tax breaks that you deserve often gets lost in the shuffle.

The IRS estimates one out of every five federal tax filers don't claim the money they're entitled to with the Earned Income Tax Credit. The worst thing about missing it is that, unlike most credits, it is a refundable credit -- meaning that you can get money back from the federal government even if you don't owe any tax. Depending on how many eligible kids you have, we're talking about credits of as much as $3,250 to $6,044.

Other credits can also bring in big money. Whether it's the American Opportunity Tax Credit for education or the Child Tax Credit and Child and Dependent Care Credit for families, make sure not to miss out on any chance you have to cut your tax bill.

Make Sure Your Money Goes to the Right Place

For those of you expecting a refund, waiting can be the hardest part. Yet if you give the IRS the wrong information, it can be a lot harder for you to receive your hard-earned tax money back.

Direct-deposit options are a great way to get your refund, with turnaround times that are much faster than with mailed refunds, especially in combination with electronically filed tax returns. But it's essential that you get your bank account information correct, paying attention to your financial institution's routing number, your account number and your type of account. Make a mistake, and you could end up in IRS refund limbo -- especially if the incorrect information you use corresponds to someone else's existing bank account.

There are plenty of other mistakes that people make, but these three can be among the most costly and time-consuming to fix.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.

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barryhighland

Owe taxes less than $50,000. What form do I get.

Thank tou

April 09 2014 at 7:41 PM Report abuse rate up rate down Reply
cellar1930

I cannot locate the correct address for mailing "taxes due"....I have searched and searched without avail. Tks Do you also sent a copy of the 1040 along with your check? Tks

April 05 2014 at 4:50 PM Report abuse rate up rate down Reply