It’s never too early to plan for your income taxes. Especially if you want to get a solid tax refund. Discover 8 costly tax problems to avoid in 2019 now.
People either love tax season or they hate it.
Those who hate it are the ones who end up paying more money to Uncle Sam, while those who love it are the ones who get money back.
But how do you ensure you have a good tax season?
Well, it’s all in how you prepare for it. And it’s never too early to start planning.
If you want a healthy tax refund, you need to avoid common tax problems.
We’ll show you how. Keep reading for 8 costly tax problems you need to avoid in 2019!
Tax problems can range from something as silly as forgetting to sign the bottom of the form to failing to report all of your income. Either way, these types of errors on your taxes can cost you time and money.
A simple clerical error can take months to reconcile, while other errors may come with hefty fines attached. The key is being prepared and avoiding these tax problems!
1. Not Understanding Your Deductions
Whether you’re a business owner filing for business or simply filing personal taxes, understanding your deductions can save you a ton of money. However, it can also save you a ton of hassle and possible penalties.
It’s vital to know what you can and can’t use as a tax deduction. Some people say business owners can deduct anything they want, as long as they tie it to the business.
However, people who get caught writing off inappropriate expenditures will be audited, which should be punishment in and of itself. However, they’ll likely receive penalties and fines as well.
On the other hand, failing to write off legitimate deductions means you’re literally leaving money on the table. Speak with a tax professional to understand all of your viable deductions.
Also, keep all of your receipts throughout the year in an organized folder. It may be tedious, but it could also save you hundreds of dollars.
2. Choosing the Wrong Tax Professional
Speaking of tax professionals, not all are created equal. If you want the best tax season possible, you need to get a qualified tax agent with solid references. This could mean the difference between owing taxes and getting a sizeable refund.
Tax professionals who know their trade well will be able to help you use everything possible to your advantage without risking an audit.
Additionally, tax professionals can help provide tax relief options for people who are already in over their heads. This includes senior citizens living on their social security who owe years of unpaid taxes or those who have simply fallen behind.
3. Not Filing or Filing Late
Filing a late tax return is like shooting yourself in the foot. Each month your tax return is late, it’s a 5% fee based on how much you owe, up to 25%. Therefore, if you owe $1,000, each month tacks on another $50.
Failing to file altogether isn’t as uncommon as you’d think. In fact, roughly seven million Americans don’t file their taxes. However, each year these people don’t file, their bill gets higher. Additionally, if the IRS chose to act on it, they could call for federal criminal charges.
Many people don’t file because they know they’ll owe money and they can’t or do want to afford it.
However, there are installment programs to make payments on taxes so people don’t have to pay it in one lump sum. Additionally, late payments only accrue a 0.5% penalty, which is much lower than the 5% penalty of filing late or not filing at all.
4. Using the Wrong Filing Status
When you file your taxes, you can choose one of five options. These options are: single, married filing jointly, married filing separately, head of household, and qualifying widow or widower.
You have to file using the correct status, but be aware that a simple choice of married filing separate rather than jointly could cost you thousands. Even if you and your spouse are on bad terms, it’s in your best interest to file jointly, even if a divorce is imminent.
5. Not Keeping Track of Your Expenses
For business owners especially, failing to keep track of your expenses could be a thousand-dollar mistake, if not more.
Everything you spend for your business should be written off as a deductible. Now, your tax professional will be able to guide you through what the legitimate deductions are, but it’s best if you keep track of everything.
Common business write-offs include uniforms, supplies, gas mileage and company vehicles, etc. However, you have to be careful here. If you were to be audited, you would have to prove each item was an actual business expenditure.
Many business owners make the mistake of writing off personal items and trying to pass them off as business expenditures.
6. Clerical Errors
We’re all human. We all make mistakes. However, your tax form is not the place for it.
Clerical errors on tax returns are incredibly common, costing people valuable time and even money. Common mistakes leading to tax problems include forgetting to sign, spelling a spouse’s name wrong, typing in wrong social security numbers, and filing wrong bank account numbers.
These innocent mistakes can delay your taxes for months and even prevent you from getting your tax refund!
7. Mathematical Errors
Most of us aren’t great at math. It’s okay, that’s what accountants are for.
However, many people who choose to do their own taxes forget about the math part. Mathematical errors represent a large portion of tax problems and can have a huge impact on your tax return.
From losing out on deductions to appearing as though you’re trying to commit tax fraud, the penalties can be costly.
8. Lying About Your Income
Obviously, lying is wrong. When you do it on your taxes, it’s also illegal. It’s called tax fraud.
People who are convicted of tax fraud can serve time in prison, pay hundreds of thousands of dollars in fines, or both. Uncle Sam does not take kindly to being ripped off.
Regardless of what your income status is and whether or not you’ll need to pay taxes, it’s simply not worth the risk to commit tax fraud. Set up a payment program or take out a loan if you must, but don’t try to cheat your taxes.
Ultimately, the best way to benefit from tax season is to plan for it!
Get your receipts and expenses filed away an organized. Create a portfolio for your accountant or tax agent. Make donations to charity.
Be smart about your taxes. Don’t wait all year to get started, begin preparing today.
I’m a single mother of 2 living in Utah writing about startups, business, marketing, entrepreneurship, and health. I also write for Inc, Score, Manta, and Newsblaze