The new year is full of new possibilities and new paperwork to fill out for the IRS. While you’re watching your mailbox for W2s and 1099s, it is a great time to get prepared for the somewhat harrowing journey into tax season.
Many of the most common mistakes made during tax season are simple ones. By being aware, you can keep an eye out for them.
Hiring a professional accountant to help prepare you for your taxes is always a great idea. They are always ahead of what’s happening. As the deadline to file your taxes fast approaches, here are 10 tax filing mistakes to avoid.
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1. Using the Wrong Forms
Tax time is full of various forms with unclear names. Many are named based on a number and then sometimes have letters attached. Sometimes it feels like the paperwork will never end.
The main form for submitting income information to the IRS is Form 1040, however, depending on your situation, there are various additional documents that are required. Be sure to verify that all supplemental forms have been filled out before sending anything in. This will save you a lot of back and forth and get your taxes over with sooner.
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2. Missing Important Tax Updates
The tax code is large and difficult to understand. On top of that, it changes every year, sometimes in small ways and sometimes in major overhauls. It is important to keep abreast of new information in regards to the tax code so that you are prepared for any change in liability.
Many people are more comfortable spending extra money when they believe there will be a tax deduction or credit coming for their purchase. The changes to which items qualify you for a tax break, and how much that allowance will be, are things tweaked from year to year. Don’t purchase something big without checking that it still qualifies in the current year.
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3. Filing Under the Wrong Status
There are several different filing statuses to choose from, and though it may seem easy enough to pick the right one, there are considerations that should be made before choosing. Specifically choosing between single or head of household and between married filing jointly or married filing separately is an important decision.
For each option, there are different standard deductions, tax rates, credits, and rules. To make sure and minimize your tax liability, look over each option pertaining to you before selecting your status. The differences can make a big difference.
4. Deciding Not to Itemize
Standard deductions are an easy way to go. They are a flat amount, no proof is needed; just check and go. They are not always the most cost-efficient route, however.
It is important to look into the savings of itemizing rather than just taking the standard deduction. Itemizing is a long process and requires receipts or other proofs, but if you have a lot of eligible expenses, you can save a lot of money on your taxes. Either deduction process reduces your adjusted gross income thus reducing your tax liability, only the amount of that deduction changes.
5. Calculation Errors
Tax documents require a lot of percentages, subtractions, additions, and other calculations. Though the forms usually clearly outline what needs to happen, getting the calculations right is sometimes difficult. It is always best to go back and double-check any numbers that have been figured out rather than entered directly from another form.
Calculation errors can cost you a lot of money by improperly assessing your tax liability. They can also require you to spend the additional time needed to file amendments to the original filing. Take the time to verify everything is correct before sending it off.
6. Reporting Incorrect Income
One of the top reasons that determine whether or not the IRS will perform an audit is the failure to report taxable income. The whole purpose of tax filing is to capture your correct income data for the previous year and assess proper taxes on it, so they take it pretty seriously. Make sure you are reporting all income sources, even if you do not receive documents from the payor.
All income is reportable, even if the employer is not required to provide documentation to you or the IRS. This is seen a lot with 1099s for freelancers or self-employed servicers. Even though you don’t have this official documentation, it is still important to report the income.
The easiest part of the tax process is filling out your personal information. However, people frequently get in a hurry on this everyday stuff and misspell their name, transpose numbers in their social security number, or incorrectly write out their address. It is worth the extra effort of looking over this information a second time after the panic of filling out the forms has passed.
8. Missing the Deadline
Waiting until the last minute not only adds stress but significantly increases the likelihood of missing the IRS deadline of April 15th. Though you can file for an extension on the paperwork portion of your taxes, any payments due to the IRS are still due on the original date. By missing these payments, you will have interest charges accrued and billed to you by the IRS.
9. Not Getting a Copy
There is always a chance that the IRS will decide to do an audit on your tax filings. They usually go back three years but can add additional history as they find issues warranting a further dive. Being prepared for a potential audit is the best way to minimize any negative impact.
10. Not Asking a Professional
Many software solutions, websites, and friends of a friend’s cousin will offer free tax services, but it is important to remember that you frequently get what you pay for. In the ever-changing world of tax regulation, a professional is the best option for making sure there are no mistakes.
An accountant will know which deductions you can take if itemizing is right for you, and what the most advantageous filing status for your situation is. Take advantage of their years in the field.
Most of the common tax mistakes are simple errors that can be eliminated by double-checking your work before submitting it.
Don’t wait until the deadline is upon you to get started, and you’ll have plenty of time to gather all the necessary information and get all of the deductions, credits, and awards the IRS is willing to give you. It’ll all be over soon, grab a professional and put your game face on – it’s tax time!