Top 9 Most Common Income Tax Errors
Tax time can be one of the most stressful times of the year. Ideally the taxes you pay out in your paycheck would be enough, but that is not always the case and sometimes there are credits or additional deductions you can take. That’s why it’s important that you don’t make any mistakes that could cost you more money. Here are 9 common mistakes taxpayers make:
- Not keeping receipts. If you plan to itemize your deduction, instead of taking the standard deduction, make sure you have receipts to back up your claims. Even if you don’t itemize, some other credits and deductions require receipts to prove your claim, so make sure you keep them. If you’re audited by the IRS, you will need to provide them.
- Missing the deadline. There really is no excuse for missing the tax filing deadline anymore, unless you’re otherwise incapacitated. If you know you can’t make the April 15th deadline, you can file for an extension. But since the advent of electronic filing, it is simple to file your taxes well in advance of the deadline. Failing to file a return will results in fines, so it’s best to file as soon as you have all of the necessary documentation.
- Improperly claiming a home office deduction. There are very specific IRS guidelines as to what qualifies as a home office and how much of that home office is deductible, including the costs associated with it. The home office deduction is also a trigger for an IRS audit, since so many taxpayers apply it improperly.
- Making miscalculations. If you’re filing your own taxes, make sure you get quality tax preparation software. Not only will they walk you through the entire process, but they’ll also ensure your calculations are correct. There is nothing worse than a simple math error on your return to result in a required payment instead of a deserved refund.
- Not filing a change of address. If you move after you file your taxes, you will need to inform the IRS using Form 8822. Otherwise you could get notifications from the IRS at your old address, which could include an audit notification. Not getting the notice do to an old address is not an excuse when it comes to the IRS.
- Paying by credit card. If you owe money when you file your return, paying by credit card will end up costing you more. Merchants typically pay a percentage fee of each credit card transaction to the processing company, plus a per transaction charge. The IRS, however, does not pay this. Instead, the taxpayer has to cover the charge. So you’ll end up paying about 2.5 percent more if you pay your taxes via credit card.
- Not paying payroll taxes for employees. If you have a housekeeper, nanny, gardener or someone else that you employ, make sure their payroll taxes are paid. Failing to do so will land you in the hot seat with the IRS.
- Forgetting your charitable donations. If you itemize your tax return you can claim your charitable contributions. Just make sure you have receipts to back up the donation.
- Not hiring a CPA. You’re biggest mistake of all could be not hiring a CPA to do your taxes. CPAs are skilled in taxation, are highly qualified and have to take CPE to ensure they know the latest tax rules. They’ll easily catch common mistakes you might make and may even be able to find some deductions and credits you missed on your own.