Don't make these tax mistakes
At the beginning of each year, the IRS issues a statement on when your taxes will be due. Make it easier on yourself by staying on top of filing your individual or joint tax return, as waiting until the last moment can be harmful in case you forget to file some deductions.
Ultimately, procrastination could cost a chance for a sizeable tax return. Some of these deductions are well known, such as credit for claiming children as a dependent's, college costs, mortgage interest, and buying a home.
To get the most out of your tax refund, it's important to find every possible way to lower your tax bill. Remember, it helps to start finding these methods sooner, rather than later. Additionally, the longer you wait to file your taxes, the greater your chances of making a mistake are.
When you start to file, be sure to avoid some of the following tax mistakes.
Forgetting to report all income
Every full-time employee typically receives a W-2 form from their employer. This information shows your yearly income, how much was held in federal and state taxes, Medicare, and Social Security. This is one of the most important pieces of information you'll need when filing taxes.
However, it's possible you work in an industry that doesn't rely on W-2s, or you earned income sporadically throughout the year, and this includes if you've earned income through dividends. As such, you'll typically receive Form 1099.
Form 1099 is important to remember because if you forget to report this income, there is a chance the IRS will look more closely at your returns, although how close is up for determination. You will want to talk with your employer or investment firm to ensure you receive a 1099 before the April deadline.
An instance may arise where you file your tax return and receive a 1099 afterwards. If this happens, you'll have to file a Form 1040X. When this happens, you may end up having to owe significantly more than originally stated on your return. Additionally, you may have to pay any penalties and interest.
Forgetting to take deductions
Nothing is worse than when it comes to filing taxes than paying more than you owe. Look at it this way: If you can claim deductions, do so.
The longer you wait, the more likely you'll skip over an important deduction. According to the IRS, deductions can be for work, education, health care, investments or itemized. For instance, while you can claim any charitable donations, you can also deduct 14 cents for every mile you drive while volunteering, according to Acorns.
Can't forget the stocks
If you hold stocks, you need to report these transactions. All sales, including those made in a retirement account, must be accounted for. The IRS receives reports of stock false, so be sure to report income earned from stocks
You can't claim deductions you don't qualify for
Claiming deductions when you don't qualify will increase your chances of an IRS audit. Similar to not recording income from investments, you may be on the hook for paying interest and additional penalties because in the end, claiming a false deduction is a form of fraud.
Luckily, you can amend your return and correct the errors. Don't wait until the week or day before to file your tax returns. The longer you wait, the greater the chance you will make a mistake that may end up costing you more in fines and interest payments.
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