Avoiding Common Mistakes When Filing in Your Tax Bracket
1. Forgetting to declare all income sources
One of the common mistakes taxpayers make when filing taxes is forgetting to declare all income sources. For instance, if you had some casual work outside your regular job, earned interest on a savings account, or participated in a side hustle, those income sources must be reported as they can impact your tax obligation. Not declaring all your income sources can trigger the IRS to audit your tax returns, which can be frustrating.
To avoid this mistake, make sure you keep a record of all your income sources at the end of the year, including those on the side. Keep them in a safe place and get them ready when filing your taxes.
2. Filing under the wrong status
When filing taxes, it is essential to ensure you file under the correct tax status. Choosing the wrong status can lead to overpaying or underpaying taxes. There are five tax statuses, including Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er) with Dependent Child. Each status has its unique tax obligation, so it is crucial to select the appropriate status that matches your specific situation.
3. Improperly claiming deductions
Deductions can help lower your tax bill, but you must ensure you claim them correctly. Forgetting to claim deductions that you're eligible for can mean missing out on money saved on taxes. However, inaccurately claiming deductions can attract the attention of the IRS and, in some cases, result in an audit.
To claim deductions appropriately, you must keep an accurate record of your expenses and ensure they qualify as tax-deductible expenses. The IRS has a list of expenses that are tax-deductible; therefore, it's essential to run through the list to ensure you don't miss out on any eligible deductions.
4. Not keeping accurate records
When filing taxes, it is essential to keep accurate records of all expenditures. Not maintaining correct records can result in inaccurate tax returns or missed deductions. It's advisable to keep a separate file for all receipts, invoices, and other tax-related documents so you can retrieve them quickly when filing taxes. Accurate record keeping not only ensures you don't miss any deductions, but it can also aid in the event of an audit.
5. Forgetting to report capital gains and losses
Capital gains and losses are amounts you make or lose through selling a capital asset, like stocks or bonds. Many people forget to report them on their tax return, leading to significantly different income figures on your tax bill. To avoid this, always keep accurate records of your capital gains or losses throughout the year. That way, you can easily determine if you need to file any additional tax forms.
6. Filing late or failing to file
Filing taxes late can result in penalties and interest, which can add up significantly. In some cases, it can lead to legal problems, like wage garnishment or bank account levying. Failing to file at all can also lead to penalties and interest and, in extreme cases, legal problems.
To avoid late filing or failing to report, create a tax-filing checklist with all the necessary forms and deadlines. Set reminders to ensure you complete and submit your taxes before the deadline to avoid any potential issues.
In conclusion, filing taxes can be a daunting task, but with attention to detail, you can avoid some of the most common mistakes. Remember to report all your income sources, choose the correct tax status, claim deductions appropriately, keep accurate records, report capital gains and losses, and file your taxes on time. By applying these tips, you can remain compliant with tax laws, avoid penalties and interest, and reduce your tax bill.