It can be a stressful experience preparing your taxes and filing them. It can be even more stressful however, if you make these mistakes that land you into tax trouble. It's important to remember that if you make mistakes that are serious enough, you might end up triggering an audit of your tax return or owe more in back taxes.
It’s early to be talking about tax season, but if you're planning on filing your own taxes this year, here are four mistakes that you should avoid.
Whatever your sources of income may be, whether it's your regular paycheck, a side gig, gains that you've made on the stock market, or interest that you've earned from deposits in the bank, it's important to remember that you should account for all of it in your tax return. If you don't, the IRS may come looking for it.
Every time you make at least $600 in income working as an employee of any description, you get a 1099 form stating what you've made. The IRS gets a copy of the form, as well. This means that it makes no sense to try to hide your income from the IRS.
When you make any kind of income, you should report it on your tax return. Technically, you should even record smaller chunks of income, the kind for which you don't get 1099 forms.
There are many possible tax deductions that you could take advantage of. It's important to remember, however, that you do need to back up every attempt at a deduction with documentary proof like receipts or logs. If you attempt a rough estimate at what your deductions should be, you could trigger suspicion, especially if the sum that you claim is high for your income level, or if it is a convenient round figure.
Most tax filers choose to take the standard deduction, rather than itemize. This doesn't mean that you shouldn't itemize. It depends on your specific circumstances. If you have many legitimate deductions to make, say, because, you pay a great deal of mortgage interest, you might be better off itemizing, even if it takes more work to do it.
Preparing your taxes is a complex process. If you're self-employed, or if you need to itemize, it can only get worse. It's important to not rush through the process. Any mistakes that you make may prove costly. Take out the time to file your taxes well ahead of the tax deadline. If you need extra time, you can always file for an extension. This way, you can avoid the late filing penalty, which can add up to a whopping 25% of the original tax amount.
Making a mistake on your tax return is the last thing you want to do. Mistakes can be complicated to correct and recover from. It's important to give yourself enough time.
Whatever you do, don’t skip filing. Many clients come to Jim Liang with not only years of unfiled tax returns but owing large sums of money to the IRS too. Many times, Jim can help you obtain a “fresh start” settlement for up to 85% off the original amount owed, including penalties and interest, if you qualify.
If you do run into tax trouble, reach out to Jim Liang to schedule a free, no-obligation confidential consultation to explain your options in full to permanently resolve your tax problem.