Top 5 Common Mistakes That Cause You To Lose IRS Credits
- Alejandro
- Mar 27
- 3 min read
1. Claiming Credits for Incorrect or Unqualified Dependents
Mistake: Many taxpayers claim credits such as the Child Tax Credit (CTC) or Earned Income Tax Credit (EITC) for dependents who do not meet IRS requirements. This happens when:
The dependent does not live with the taxpayer for more than half the year.
A dependent is claimed who is also claimed by someone else (e.g., the other parent).
The dependent does not meet the age limit or relationship requirements.
Solution:
Check the criteria in the IRS tool: Can I claim my dependent?
Consult IRS Publication 501 to confirm eligibility.
2. Income Incorrectly Reported or Income Omission
Mistake: Failure to report income from employment, self-employment or rental income may disqualify the taxpayer from receiving credits such as the Earned Income Tax Credit (EITC) or reduce the amount of the refund.
Impact: The IRS may detect discrepancies by comparing W-2 and 1099 forms submitted by third parties.
Solution:
Use the IRS tool to verify income: Get Transcript.
Ensure all income is accurately reported prior to filing the return.
3️. Claiming Education Credits Without Adequate Documentation
Mistake: Some taxpayers attempt to claim the American Opportunity Credit (AOC) or Lifetime Learning Credit (LLC) without meeting the requirements.
Common Problems:
Failure to file Form 1098-T from the educational institution.
Failure to meet the condition of at least half-time at the eligible institution.
Solution:
Verify credit eligibility in IRS Publication 970: Tax Benefits for Education.
Maintain copies of Form 1098-T and other related documents.
4️. Errors on the filing status return
Mistake: Choosing an incorrect filing status (e.g., “head of household” when it does not apply) may invalidate associated credits or deductions.
Impact: The IRS may reclassify the taxpayer's filing status, affecting credits claimed.
Solution:
Use the IRS tool to determine the proper filing status: What is My Filing Status?
Check the rules in Publication 501 before filing the return.
5️. Errors in Claiming the Earned Income Tax Credit (EITC)
Mistake: Claiming the EITC without meeting the income, qualifying dependent or residency criteria.
Common Problems:
Reporting self-employment income without proper documents.
Failing to meet the U.S. residency requirement for more than half the year.
Solution:
Use the IRS tool to verify eligibility: Do I Qualify for EITC?
Refer to IRS Publication 596: Earned Income Credit.
What to Do if There is a Discrepancy Between Client Expectations and IRS Guidelines
1. Verify the Status of the Refund
If the client expected a larger refund, the first thing to do is to check the status using the IRS tool:
Where's My Refund?
Information needed:
Social Security Number (SSN).
Marital status for filing purposes.
Exact amount of the expected refund.
2. Contacting the IRS to Resolve Discrepancies
If questions persist or if the client would like more information about possible adjustments, he or she may contact the IRS directly:
Phone: 1-800-829-1040 (individual taxpayer line).
Hours: Monday through Friday, 7:00 a.m. to 7:00 p.m. local time.
3. File an Amendment if Necessary
If errors are detected after the return has been filed:
File Form 1040-X to correct discrepancies.
Instructions: Amend Your Return.
4. Request a Review or Appeal
If the IRS disallows a credit or makes adjustments that you believe are incorrect:
File a formal appeal through the IRS Office of Appeals.
Information: Appeals - Resolving Tax Disputes.
Sources of Information:
IRS: https://www.irs.gov/
Publication 501.
Publication 596 (EITC).
Publication 970 (Educational Benefits).
IRS Helpline: 1-800-829-1040.
Staying informed about changes in tax laws is essential to avoid mistakes and optimize your tax return. To ensure regulatory compliance and maximize your tax benefits, consult with a tax professional. At Professional Taxes LLC, we help you file efficiently and hassle-free.
PROFESSIONAL TAXES LLC.
480-3430299
3162 E Roeser Rd. Phoenix, AZ. 85040
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