Common Tax Mistakes That Can Cost You a Lot
As much as we dislike doing our taxes, we need to do them correctly and within the deadline. Not filing your taxes has severe consequences that can lead to owing money or missing out on tax breaks you didn’t know you were eligible to receive.
Before you begin rushing to total your paperwork at the last minute, take heed on what could go wrong.
Avoid these mistakes so that you can keep your return error-free, and save money in the process.
Not Claiming All of Your Income
Failing to disclose your complete income for the year may not seem like a big deal. However, the IRS is quick to catch onto it, and once they find out you owe them, it can cost you penalties and interests. Anticipate filing taxes in advance by bookkeeping and tracking your odd jobs or side hustles. No amount is too big nor too small for it to not be taxed.
Also Read: 5 Best Tax Saving and Investment Tips For All
Getting the Numbers Wrong
Typos and miscalculations are one of the most common mistakes in existence. Even if you are great at math, it is no guarantee that you know what you are doing. Another mistake that is easy to avoid but is commonly made is entering your information incorrectly, or not signing it by accident.
Fortunately, these mistakes are widely recognized, and there is help available to avoid or fix these errors. For instance, if you reside in Canada, see website for the Voluntary Disclosure Program, which gives Canadian taxpayers a chance to correct what they have previously filed. Some filers offer free services for those who are eligible.
You should also consider using an online e-file software; they are free for taxpayers within a set income bracket, and it catches any errors that you would have entered. If you prefer doing it the old fashioned way, we still recommend that you submit your numbers through the program when you are done to double-check your work.
Not Filing at All
If you are not able to meet the deadline, you have the option of requesting an extension. However, if you forgo completing your taxes altogether, you will be paying a failure-to-file penalty, on top of what you already owe.
Even if you feel that it is too late, request an extension anyways and find someone to assist you. Filing late is much better than not filing at all. Depending on the state of your tax return, they could be considered delinquent, and you can face legal action depending on your case.
Not Considering Big Life Changes
Life events such as your marital status, having a child, getting a promotion, or losing a job has a substantial impact on your taxes. Changes like these can move you to a different tax bracket, change your filing status, and can affect what credit and deductions are available to you.
For instance, having a child makes you eligible for childcare benefits – expenses such as daycare can count as credit. Another example is if you or your spouse gets a better paying job or a promotion. Depending on how much you earn as a couple, you may have to claim a different amount than before.
Also Read: 7 Important Tips for a Successful Investment Portfolio
Missing Out on Deductions and Credits
One of the most costly mistakes you can make from rushing through your filing is missing out on details that could potentially save you hundreds in your tax return. For instance, one of the most overlooked credits is education.
Many times, people don’t get into it because they assume going after credits is too complicated. The amount that you are eligible for makes the hard work well worth it. On the other hand, there is also the mistake of entering deductions incorrectly, causing the taxpayer to owe money instead.
Avoid either scenario by getting a professional. You’ll avoid the headache, and you’ll get something out of it once all is said and done.
To Sum Up
All of the tax mistakes are easy to make, but luckily they are also easy to avoid. Start early, use your available resources, and be thorough. It is better to file once correctly than have to do it over again and pay the price for it. Not only will this help you save time and money, but you will also discourage scammers from targeting you for tax fraud.