Imagine toiling hard for days at a stretch to get your taxes done digging all the financial data possible and on a fine day you receive a mail from IRS about the mistake in your tax filing. While the mistake can be rectified, it can invite penalties, delay your tax refund or even invite IRS for an audit until you straighten it out.
But why let a simple mistake be it a slip in the information or any other minor mistake cost you money and bring you knew headaches? The best possible way to avoid any potential problems with tax filing is to avoid the common mistakes and this blog here is going to help you in this regard. Following are the most common mistakes that you must avoid while filing your federal taxes:
Choosing the wrong tax filing status:
- Single 2.Head of household 3.Married filing jointly 4.Married filing separately, and 5.Qualifying widow with the dependent child are the tax filing statuses under which a taxpayer files and they have a lot of impact on the tax bracket, tax credits deductions and other tax benefits.
As the status is chosen at the beginning of the entire process, taxpayers usually select less than ideal choice for them and this can mean loss of opportunity to claim more tax benefits. For example, if one partner earns way more than the other and both have their own out-of-pocket medical expenses, they are better off filing separately to enable the lower-income partner to claim the medical expenses on their tax returns. Similarly, a single parent who contributes more than half for running a household can claim under the head of household status where standard deductions are higher.
Missing deadlines & forgetting important paperwork:
While e-filing has made it easier to file the taxes, the same convenience is giving taxpayers a reason to wait until the last minute of the deadline to submit their tax returns which more often than not end up in late submissions due to last-minute issues.
With less time at hand, rushing through the process can lead to the mistake of forgetting important paperwork related to recent endeavours like charitable donations, investment accounts, student loan payments or more. It is always better to account for these issues which crop up in the last minute and give yourself sufficient time. If you are not seeking help from tax professionals for your tax preparation and returns, you need to keep a close eye on the tax deadlines and make sure you do not miss any mandatory paperwork.
While tax calculation is complex, the most common mistakes committed by the taxpayers are simple pertaining addition, subtraction, multiplication or even selection of the wrong number from the wrong table. In the year 2017 along IRS has reportedly caught 2.5 million mistakes in the calculations and the number increased progressively in the next few years. The IRS system catches the mistakes in the calculations and sends the notice to the tax payer regarding the changes in the tax refund but the changes can further delay the processing of the refund. You can avoid these mistakes by taking help form tax software and tools which verifies the calculations before filing the forms
Missing out on valuable tax credits and tax deductions:
The most important mistake that the majority of tax payers make is missing out on tax-saving opportunities. This can arise both from lack of updated information on tax rules and also lack of help from tax professionals who are experts in unearthing tax-saving opportunities for both business and individuals.
Owing to a slew of tax provisions of CARES Act and updated tax rules and regulations, tax payers are more inclined to make this mistake of not claiming their fair share of tax benefits due to lack of awareness on the recent developments. Employee retention credit for businesses, Net operating loss Carrybacks, Social Security Tax deferral, Changes to business interest deduction, Bonus depreciation for QIPs, Write-offs for charitable contributions, Refundable tax credits from EITC (EITC), Tax returns on business travel expenses and there are plenty in store for both business and individuals to make huge tax-savings and leaving them on the table is a big mistake.
Every year thousands of taxpayers commit simple mistakes that are too common and can be easily avoided and this has become a problem to a point that even IRS has been releasing a list of common mistakes paid by tax payers. And by making sure you do not commit above mistakes you can comfortably steer clear of tax problems. However, the above list is only a limited one and to completely avoid potential tax issues and losses you are advised to seek help from tax experts like us folks at Back Office Accountants. In addition to providing Remote Accounting Services like Accounts Payable, Accounts Receivable, Bank & Credit Card Reconciliation Services we also offer tax preparation services for businesses and individuals. You can contact us here: https://www.backofficeaccountants.com/