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Filing taxes is a necessary but often daunting task for many individuals and businesses. Even with the best intentions, common tax mistakes can lead to audits, penalties, and undue stress. Understanding these mistakes and how to avoid them can save you time, money, and peace of mind. In this article, we’ll explore some of the most frequent tax filing errors and provide tips on how to avoid them. For those needing professional assistance, it’s beneficial to review Tax Law Advocates’ comprehensive tax services.
Misreporting Income
Some of the usual mistakes in taxes include income failure to report the correct income. This can happen for various reasons, including omitting some income, low-reporting of earnings, or even wrong income categorization. The IRS expects you to declare in your return any sources of income you may have received, be it wages from your employer, income from freelance, or through investments. Mistakes in this area can lead to an audit or even a fine.
To ensure that this is not a mistake made, all sources of income should be recorded from that year. Using good accounting software to avoid such issues or seek advice from a qualified tax consultant is advisable. It can be helpful to double-check your W-2s, 1099s, and other necessary paperwork before filing to ensure everything runs smoothly.
Overlooking Deductions and Credits
Deductions and credits are two of the most effective ways of getting a refund on your taxes, yet they are commonly misunderstood. Some usual expenses people can claim include medical bills, loan interest, and donations. Tax credits, including EITC, child tax credit, etc., reduce the tax you should pay.
Be fully aware of the tax credits and deductions that are possible to ensure that one gets to claim as much as possible. Ensure that you record any other admissible expenses and get receipts for them. It might also be beneficial to seek the help of a local tax preparer who can help you find out more deductions and credits you are entitled to. However, it is crucial to remember that deductions only lower your taxable income, and credits decrease the tax you must pay, making them great.
Filing Status Errors
Filing status is another area where people often need to catch up; they pick the wrong status. The Filing Status is a significant aspect of an individual’s financial status because it determines the tax rate, standard deduction, and entitlement to specific credits and deductions. The current tax filing status includes single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child.
Deciding how to file your taxes is simple for some people, but it can be confusing, significantly if the client has recently changed their marital status. If the explanation above needs clarification, the IRS website has a breakdown of identifying the correct status. However, it is always advisable to consult a tax-practicing attorney to provide solutions considering your unique situation.
Incorrect Social Security Numbers
One of the most common and important yet unnoticed aspects of filing taxes is entering the correct SSNs of the individual, spouse, and dependents. Inaccurate SSNs can lead to the decline of tax returns or a delayed refund.
To avoid such a mistake, always ensure that all the SSNs enclosed in your tax return are accurate. Ensure the numbers are consistent with those assigned to you on the Social Security cards. This small check can prevent any complications and additional processing time incurred by your team or organization.
Failing to Report Foreign Accounts
If you do not live in the United States and continue to have other financial accounts, you must notify the IRS about them. FATCA imposes rules for reporting foreign financial accounts and assets that must be disclosed to the U.S. Internal Revenue Service. Noncompliance has serious consequences that can lead to severe punishments.
It is wise to understand the FATCA rules for specific information about reporting foreign accounts. If the total value of the filer’s specified foreign financial assets is $50,000 or more for the reporting period, use IRS Form 8938 to report the assets. If you cannot determine whether to report foreign income, seeking advice from an international tax attorney or any other qualified tax professional is wise.
Missing the Filing Deadline
The most crucial mistake one can make in the tax filing process is failing to meet the filing deadline, as this attracts penalties as well as interest on any amount due. Federal income tax returns are generally due on April 15th, although in some special cases, one can apply for an extension of the filing period.
To help you remember the correct date, put key tax filing dates on your calendar and create reminder alerts. If you need extra working days to prepare a proper return, you can file for an extension using IRS Form 4868. However, you must know that an extension only provides additional time to submit your return but does not delay your deadline to pay the taxes you owe. If you owe any taxes, you should estimate and pay for the amount due before the original filing period to avoid additional charges.
Conclusion
To prevent these errors, it is advisable to be organized, spend time researching, and sometimes seek help from a professional. If you know the most common mistakes that people make while filing taxes, including misrepresentation of income, missing deductions and credits, choosing the wrong filing status, getting the wrong Social Security number, not declaring foreign accounts, and not filing on time, then you are likely to avoid these problems.
To ensure you stay aware of the laws governing tax filing, it is essential to stay up-to-date with the information we get from the IRS, keep records as up-to-date and accurate as possible, and seek professional help where necessary.
