Tax season for 2021 is officially over, but you may already be thinking about taxes for next year and how to handle them. You might be thinking about how you can make the most of your deductions and what documentation you need to be gathering up now. Dealing with taxes can be confusing, to say the least, but there are some ways you can make it a little easier.
There are several common tax mistakes people tend to make that make things even more of a hassle. Read on to discover these common pitfalls and how you can avoid them and make your tax season go smoother next year.
Waiting to File
When the new year rolls over, you’ll likely have all your tax documents in hand by the end of January. But many of us may wait for that April 15 deadline to roll around before we start filing our taxes. The last two years may have been even worse, as those deadlines were pushed back in light of the COVID-19 pandemic.
However, waiting until the last minute to file your taxes is one of the biggest mistakes you can make, especially if you’ll get a refund. Every day you wait to file is another day the government gets to use your money interest-free. And if you’re expecting a check in the mail, why delay that when you could file early and get paid faster?
Tax forms can be confusing, to say the least, and there’s a reason we pay professionals to help us prepare our taxes. But if you’re trying to save a little money this year, you may have opted to prepare your taxes yourself. This is certainly a doable thing, but it does require that you pay close attention to where you’re putting all your information.
Read each line of your tax form carefully and make sure you understand what piece of information needs to go in that slot. Many of these lines have similar names, so google any names you may be confused about. If you’re leaving something blank, triple-check to make sure that that box doesn’t apply to you before you submit your tax form.
Not Reporting Your Entire Income
Watching that “amount owed” number tick up while you’re preparing your tax return can sting. No one wants to be stuck with a bill for thousands of dollars at the beginning of the year. But it’s important that you report all of your income accurately when you’re filing your taxes.
If you work a standard salary job, you’ll likely have an easy time reporting all your income. But if you have a side hustle or work a freelance gig, you need to make sure to carefully track your income throughout the year. Make sure you include all your different sources of billing and payment, and keep your records in case you get audited in the future.
Missing Deductions and Credits
When you’re going through the hassle and stress of preparing your taxes, the last thing you may want to do is go through and itemize all your little deductions and credits. Yes, you could get a deduction for that load you took to Goodwill after the yard sale last spring, but is it really worth it? But that sort of frustration is exactly what the IRS is counting on when they offer the standard deduction.
Most of the time, if you take the time to itemize all your tax deductions and credits, you’ll save a lot more money than you would with the standard deduction. This is especially true if you own your own business and have business expenses that come out of your own pocket. It may be a little more hassle, but it’s worth the extra effort to save every dollar you can.
Ignoring Your Healthcare Mandate
One of the things most of us forget to look out for on our taxes is healthcare mandates in our area. The Affordable Care Act briefly required individuals to pay a penalty fee if they didn’t have some sort of health insurance. While that rule ended in 2019, some states have carried it on, which means you may need to pay this fee when you file your taxes.
California, Rhode Island, Massachusetts, New Jersey, Vermont, and the District of Columbia all require you to pay this healthcare penalty if you don’t have insurance. If you live in these states, take a look at whether it would be cheaper to buy health insurance or pay the penalty fee.
Keep in mind that thanks to recent expansions, you may be able to get discounted health insurance through the Health Insurance Marketplace.
Not Checking Your Work
When you get done filling out all your tax forms, you may be tempted to throw your return in the mail and forget about it until next year. But even small mistakes on your tax return could cause you a big headache. You may be held delinquent for taxes, get audited, or have to submit an amendment if you get even one number of your social security number wrong.
When you finish your tax forms, put them down for a day or two and don’t look at them. Then go back and carefully read over every line, double-checking all your entries. Make sure all names and addresses are spelled right, your Social Security numbers are correct, and your income is consistent across all forms.
Avoid Common Tax Mistakes
Filing taxes can be a headache, but there are some common mistakes you can avoid that will make your life easier. File earlier, rather than waiting until the last minute, and make sure everything goes in the right box. Don’t take the standard deduction, check out your health insurance options, and always check your work before you submit your return.
If you’d like to discover more common tax mistakes to avoid, check out the rest of our site at Tax Relief Professional. We can tell you everything you wanted to know about state and IRS taxes. Check out our personal tax resources today and start getting the help you need with your tax burden.