Money Management

Math errors can be a pretty common occurrence on tax returns. Read on to see what to do if you make one. 

So you gathered up your tax forms, copied a bunch of numbers onto your tax return, and sent it off to the IRS. Finishing your taxes is the sort of thing you can celebrate — unless you happen to realize after the fact that you wound up making a math error.

Math errors on tax returns aren’t so uncommon. After all, there’s a lot of number-crunching to do, and you’re only human. Mistakes are bound to happen.

You might assume that if your tax return contains a math error, you’ll need to file an amendment correcting it. But generally, that won’t be necessary.

The IRS will step in and help

There are certain scenarios that might warrant an amended tax return on your part. Let’s say you worked a side hustle and reported the wrong amount of income. It may be that you looked through your bank account statements too quickly and failed to report some of the money you earned.

In that situation, you should prepare to file an amended tax return. Similarly, let’s say you failed to claim a dependent you actually have the right to claim. That, too, is a good reason to file an amended tax return.

But you don’t need to rush to file an amended return due to a problem with your math. As the IRS says on its website, “You don’t have to amend a return because of math errors you made; the IRS will correct those.”

Now that said, it might take the IRS longer to process your tax return if it has a math error. And that could delay your tax refund. So it’s best to avoid math errors to the best of your ability.

A good way to reduce your chances of a math error

As a human being, it’s conceivable that you might make a math error when filing your taxes even if you give yourself plenty of time to get the job done. But one way to lower your chances of such an error is to file your return electronically.

Because you’ll be using software, a lot of the addition and subtraction you might otherwise need to do in your head or with a calculator is done for you. The result? Fewer mistakes and headaches.

One thing tax software won’t do is prevent you from copying the wrong numbers onto your screen. If you’re supposed to be reporting $1,492 of income from a 1099 form and you enter $1,429, your return might get questioned if the IRS sees a different number on file.

But for the most part, filing electronically is a good bet if you’re worried about making a mistake. And as an added bonus, you’ll generally get your tax refund much faster when you file electronically instead of on paper.

In fact, the IRS says it issues most refunds in under 21 days for filers who submit an electronic return. But if you file on paper, you might easily be waiting twice as long for the money you’re entitled to.

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The government wants to crack down on junk fees that cost Americans tens of billions of dollars. Find out what they are and how you can avoid them. 

Most of us have been there. You shop around to find the best deal on, let’s say, a flight. Then you get hit with a bunch of extra charges for things that used to be baked into the price. These include choosing a seat, checking in online, or carrying a bag. A while back there were even rumors that European airline Ryanair planned to charge customers to use the bathroom.

Those fees add up, and suddenly something that seemed like a great deal turns out to be more expensive than the original options. That’s one reason lawmakers want to crack down on so-called “junk fees” — hidden charges that push up costs and make it almost impossible to compare prices.

Watch out for these junk fees

Junk fees are common in a number of industries, from internet providers that charge you to switch services or hotels that tack on an extra resort fee to bump up the price of your room. Here are some common junk fees to watch out for.

1. Banking fees

There are a number of banking fees to watch out for. For example, your checking account might have a monthly maintenance fee. It might charge you for using an ATM that’s not part of its network. Plus, overdraft fees — the cost of spending more than you have in your account — can quickly snowball. According to the Consumer Financial Protection Bureau (CFPB), banks made over $15 billion from overdraft fees, with the average cost of $30 to $35 each time.

2. Credit card late fees

The CFPB also has credit card late fees in its sights. Right now, card issuers are allowed to charge up to $30 for the first missed payment and $41 for each subsequent missed payment. The CFPB wants to reduce this to $8, a figure it believes is more in line with the amount late payments cost card issuers. It says card issuers charged $14 billion in late fees in 2019, more than half the total fees of $23.6 billion.

3. Airline fees

Airlines have long been known for their extra fees, in part because of the business models of budget airlines that split out the costs of flying. The argument is that by unbundling the costs, a passenger can choose if they want to pay for things like extra baggage, food on the flight, or choosing your seat. But there’s a fine line between unbundling and charging for necessities.

After President Biden called out airlines for charging families extra so they can sit together, some airlines scrapped this fee. The Department of Transportation even has a dashboard where it names and shames airlines who continue to charge family seating fees.

4. Event ticketing fees

Ticketing fees have attracted the wrath of fans, particularly after several high profile complaints over markups and extra fees. Ticketmaster, a dominant force in the industry, says it regularly charges service fees, order processing fees, and delivery fees.

According to Time, fees can be as high as 78% of the ticket price. And that’s before you enter the world of dynamic pricing and resale costs. Some news outlets say the markups on resale can reach as much as 7,000%, but it’s hard to verify that figure. Suffice to say, fan frustration over exorbitant ticket fees is understandable.

5. Loan and mortgage fees

It’s standard to pay closing costs on mortgages and other loans, and lenders are legally required to be transparent about their fees. You may pay a loan origination fee and documentation fees. Mortgage companies can charge fees for home inspections and title searches, all of which add to the cost of buying a home.

The CFPB says mortgage lenders sometimes charge excessive late fees as well as incorrect fees for property inspections. It also highlighted several unnecessary fees associated with payday lenders, including rollover fees and vehicle repossession fees.

How you can avoid junk fees

There are moves afoot to tackle junk fees at a federal level, and several states already have protections in place. However, passing legislation can be a slow process. In the meantime, there are several moves you can make to avoid wasting money on unnecessary fees.

In terms of banking and credit card fees, look for a checking account that doesn’t charge a monthly maintenance fee, ideally one that also reimburses out-of-network ATM fees and fits with your banking habits. Check out our article on avoiding checking account fees for more information.

One way to avoid credit card late fees is to set up automatic payments. If you’re worried about losing control of your finances, opt to only pay the minimum automatically. That way you can avoid both the fees and knock to your credit score that come with a late payment and still keep on top of your money.

If you’re considering a mortgage or other loan, always get quotes from several lenders. Look at the fees you’ll be charged as well as the rate you’ll pay — and don’t be afraid to question any fees that don’t make sense or don’t seem fair.

You could also back out of the deal. It’s super frustrating to spend hours hunting for the right flight or product, only to get to the checkout and find you’re being charged an extra chunk of money for no obvious reason. Rather than start the process again, it’s tempting to swallow the extra cost. But, that’s what these companies are banking on. If you’re willing to put in some more legwork you might find a company that’s more transparent and charges less in total.

Finally, if you do feel you’ve been hit for an unfair or unnecessary fee, report it to the CFPB or your local state attorney. It may not change the fee you’ve paid, but it might mean the company changes its practices in the future.

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Don’t think a bank failure wipes your debt clean. Read on to learn what would happen instead. 

In the past month or so, we’ve seen a few high-profile bank failures and several others that experts have expressed concerns about. For everyday consumers, FDIC insurance will make sure your deposits of up to $250,000 per institution are safe, but what if you owe the bank money on a credit card?

The short answer is that you still owe the money. But there’s a lot more to the story than that, and there is some degree of uncertainty as to whether your credit card account will continue to exist. So, in the unlikely event the bank that issued your credit card fails, here’s an idea of what you can expect.

You still owe your credit card balance

When a bank fails, it is taken into receivership by the Federal Deposit Insurance Corporation, or FDIC. The FDIC’s preference is that the bank’s assets and deposits will be bought by a healthy bank immediately, but if there is no buyer, a temporary FDIC-controlled bank can be established to ensure the continuity of operations.

In either case, there are a few important points to know.

First and foremost, you still owe the money. If your bank fails, your credit card balance doesn’t go away. The same is true for any other loans you may have at a failed bank.Second, you should receive a communication within a few weeks regarding who you should send future payments to. If you haven’t heard within a reasonable timeframe, reach out to whatever bank acquired your failed bank. Or, check the FDIC’s press release announcing the bank’s closure for information. For example, when Silicon Valley Bank failed, the FDIC’s press release said that “loan customers should continue to make their payments as usual.”Third, your account will continue to exist and its terms will remain the same unless you hear otherwise. As we’ll see in a real-world example in a bit, acquiring banks can certainly choose to close credit card accounts.

What has happened in the past?

The largest bank failure in U.S. history was Washington Mutual at the height of the financial crisis in September 2008. At the time, Washington Mutual was a top-10 credit card issuer with about 15 million open credit card accounts and a total of $25 billion in outstanding balances.

JPMorgan Chase acquired Washington Mutual upon its failure, including its credit card portfolio. So, Washington Mutual’s customers were now Chase credit card customers and started making their payments accordingly.

However, JPMorgan Chase’s management felt that Washington Mutual’s credit card portfolio was of less-than-stellar credit quality and started making some changes. Some accounts were abruptly closed soon after the bank was acquired, and other cardholders reported having their account terms (such as their minimum payment requirements) modified. And yes, if a bank closes your credit account, you still owe the money and must make payments as agreed. You just can’t make any new purchases.

The bottom line

I’ve said it a few times, but it’s worth repeating: If your bank fails, you still owe any outstanding balances on credit cards or other loans. The only immediate change is what bank you owe the money to.

Having said that, it’s entirely possible that your credit card account could end up being closed, or your account terms could be modified by the acquiring bank. You’ll typically get a fair amount of notice before your account terms change, but account closures can take effect immediately if the new bank decides to do it. So, if your bank fails, make sure you pay attention to any payment instructions from the FDIC or the acquiring bank, and keep an eye out for any account changes that may be coming.

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Worried about an audit? Read on to see how likely you are to have your return get a second look based on your income. 

Each year, millions of Americans submit a tax return and call it a day. But among them, a very small percentage end up having their tax returns audited.

Now before we go any further, it’s important to realize that in most cases, all a tax audit really means is that the IRS needs more information about your return. Maybe the agency has to verify a deduction you claimed on your tax return, and so it wants to see a copy of a receipt. Providing one could bring the matter to a quick close.

Meanwhile, if you’re a higher earner, you may be worried that your income will render you more likely to end up having your taxes audited. But you can rest assured that unless your earnings are really high, you probably don’t have to worry about increased odds.

Which tax-filers are most likely to get audited?

The U.S. Government Accountability Office did an analysis of audit rates for the 2019 tax year, and it found that the audit rate among filers earning $200,000 to $499,999 was the same as that for filers earning between $25,000 and just under $200,000. It was only when earnings jumped to $500,000 or more that the likelihood of an audit increased.

Based on this data, if you earn between $500,000 and just under $1 million, your chances of getting audited are about three times as high as they’d be if your income were to fall in the $25,000 to just under $500,000 range. But even so, the audit rate among filers earning between $500,000 and just under $1 million was only 0.53% in 2019.

Even if your income jumps to $1 million, as long as it stays under $5 million, your audit odds are pretty low. In 2019, only 1.02% of tax returns within that income range were subject to audits.

Now if your income is ultra-high — meaning, above $5 million — then your chances of being audited go up even more. But even so, in 2019, only 2.35% of tax returns with reported incomes of over $5 million got audited.

How to reduce your chances of getting audited

If the idea of a tax audit is scary to you, you should know that the best way to avoid one is to be honest when filing your taxes. If you earned $12,000 in capital gains in your brokerage account, report it. If you earned $50,000 from a side business, let the IRS know.

It’s also helpful to claim deductions that are proportionate to your income. If you earned $200,000 last year but are claiming $80,000 in tax deductions, that looks a little suspect, since that’s 40% of your income. But if you earned $800,000 and are claiming $80,000 in deductions, that’s more feasible, since it’s only 10%.

To some degree, there may not be much you can do to reduce your audit risk. If you have a very high income, the odds of the IRS taking a second look at your tax return are higher.

But if you’re honest about what you put on your tax return and you maintain good documentation to back up any deductions you claim, a tax audit isn’t something to worry about. You might have to answer some questions and go back and forth with the IRS for a bit of time, but if you have nothing to hide, then you shouldn’t worry about getting in trouble.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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