If you’re one of those who gets worked up over filing your tax return, there are steps you can take to ease the struggle and avoid common tax issues reported each year.
Here are the top 12 tax issues, broken down into categories for business owners and individual taxpayers, and how everyone can minimize their impact this year.
1️⃣ Avoid penalties and fines by understanding the rules about deductions.
Tax deductions are a great way to minimize taxes when used correctly, but they are frequently abused and overused. Deductions should cover business-related expenses, including capital expenditures, client gifts, and business travel. Vacation expenses don’t count just because you discussed business. The IRS has rules on what and how much can be deducted. Include only legitimate expenses to avoid penalties.
2️⃣ Failing to keep track of business expenses that can be deducted.
Many business owners miss out on deductions because they don’t track their expenses properly. This often happens when personal and business expenses mix or when cash is used without proper documentation. Deducting legitimate expenses can save significant money, so keep all receipts and consult a tax professional to understand allowable deductions.
3️⃣ Failing to choose a reputable professional tax preparer.
It’s nice of your cousin or neighbor to help, and you might save money with a storefront tax preparer, but many taxpayers end up in trouble due to incompetence or fraud. Unreliable preparers can cause penalties, fines, or even steal your refund. Choose a professional with a solid reputation. Beware of those promising specific refunds without reviewing your documents or charging fees based on refund amounts.
4️⃣ Filing after the deadline.
Filing late can result in fines and penalties and increases the risk of errors, audits, and delays. If you’re perpetually late, it can affect the accuracy of your current return and delay any refund or credits due. Always aim to file on time.
5️⃣ Failure to file a return at all.
Ignoring tax laws and not filing a return is a big mistake. Even if you can’t pay the owed amount, you can request an installment agreement to spread out payments. Failing to file results in harsher penalties than filing and paying in installments or requesting an extension.
6️⃣ Simple mathematical errors.
Double-check your math before submitting your return. Small mistakes can lead to big headaches. Better yet, consider using a professional tax preparer to avoid these errors entirely.
7️⃣ Administrative errors.
Ensure all forms are filled out correctly. Common mistakes include incorrect Social Security numbers, bank account details, and missing signatures. These errors can delay your return processing and lead to additional scrutiny. Double-check:
- ✅ Social Security Number
- ✅ Bank Account Numbers and Routing Numbers
- ✅ Signature and Date Lines
8️⃣ Not staying current with updates to tax laws.
Every year, there are new updates to the tax code that can make a big difference, and every year there are taxpayers who fail to take advantage of them because they simply weren’t aware that they existed. If you’re going to do your taxes yourself, take the time to stay up-to-date. Alternatively, you can work with a tax professional: part of their job is to know all the new laws and apply them to your best advantage.
9️⃣ Don’t use the wrong filing status.
Single. Head of Household. Married filing jointly. Married filing single. It can be very confusing to know which benefits you most, and choosing wrong can make an enormous difference. There are a lot of things that married couples are entitled to if they file jointly, and a lot of disadvantages to filing single. Take the time and do the math so that you know you’re doing the right thing.
1️⃣0️⃣ Clutter may be bad, but you should hold on to your old tax returns.
No matter how much you try to keep it simple and purge old paperwork, your past tax return is one thing you really need to hold on to in case the IRS comes back and asks questions or you realize that you’re entitled to a refund if you file an amended return. Having the paperwork handy means you can give it to attorneys, mortgage brokers, accountants, and the IRS itself in case they ask for it or if providing it would help your situation.
1️⃣1️⃣ Learn about and take advantage of every potential deduction.
Of all the painful mistakes that taxpayers make, overpaying is at the top of everybody’s list. What could be worse than giving the government more of your hard-earned money than you needed to? The best way to avoid this mistake is to go through the lists of possible deductions and write down everyone you might be able to take, then see if you can use it.
1️⃣2️⃣ Not using the right tax forms for your needs or status.
Though most people are familiar with the 1040 form, it’s not necessarily the right one for everyone. While 1040 works for those who itemize or who own their own business, people who are W-2 employees without a lot of complicating factors may be better off using the 1040EZ form. Likewise, you need to make sure that there aren’t mistakes on any of the paperwork that you’re handing in, whether it’s your W-2 or information from any of your banks. Finally, many people are taking advantage of electronic filing to get their returns in on time and get their refunds more quickly, and if you’re doing that too, make sure that you’ve input the correct.
If there are errors on your W-2 Forms or other financial forms, make sure you address them sooner rather than later, or else the IRS will become involved. If you’re filing electronically, double-check every digit of your information to avoid delays.
What if you can’t avoid a common tax issue?
No matter how hard you try, at some point, you may find yourself facing one or more of the issues cited above (or something entirely different that we haven’t included). If that happens to you, contact us immediately for expert professional help.
Need a hand with your taxes? Our friendly, CPA team is here to help you navigate any tax challenge with ease. Reach out today and let’s tackle those tax issues together!