Taxes: Financial Mistakes to Avoid This Season
- Mar. 25, 2014
- Ashley Bailey
- Personal Finance
April 15th is upon us. If you're not an early bird who files your taxes super early, you might be dragging your feet getting your taxes prepared. If you haven't sprinted to file yet in fear of what you might owe, take a look at these tips of things you should avoid, and hopefully, your tax season won't be as bad as you had imagined.
Failure to Organize
Preparing for your taxes is one aspect of life that you should always have under complete control. Once one tax season ends a new file should always be started. My filing cabinet has a manila folder with each tax year written on it. It is important to save files for every tax season because legally the IRS has three years to audit your tax return or to assess any additional tax. There are also exceptions to the three year statute of limitations that allow the IRS six plus years, so it's always a good practice to save your files as long as possible.
Reporting Incorrect Income
It is extremely important you accurately report how much income you receive throughout the year. When you receive your W-2, your employer has sent an exact copy of this document to the IRS as well. In order to avoid a red flag at the IRS, you want to make sure the income you are reporting on your tax return matches up with what you actually received. Your income level minus all deductions you have in the year is used to figure out what tax bracket you fall into. This will determine your taxable income, and with that information your adjusted gross income is calculated.
Bonus tip: Hold on to your W-2 when you are looking at buying a home. These are important documents required to establish employment history as well as qualify you for a loan!
Filing the Wrong Status
Make sure you are filing the correct status. This can have a direct impact on getting a refund or owing additional money to the IRS. If you are an adult and do not have children or a spouse to claim, file as single. However, make sure if you are a single parent to file as "head of household" instead of "single". For more information on how to determine your filling status, take the filling status assessment.
Not Considering Itemizing Over a Standard Deduction
Itemizing deductions is generally more beneficial for a person who has a higher income or several major assets. However, you should look at both options before deciding which works best for you. Many factors including: medical expenses, real estate taxes, and charitable donations can all add up and might make it significantly more beneficial for you to file itemized instead of taking the standard deduction. It is important to note that the standard deduction is different for all filling statuses (single, MFJ, MFS, HOH) and every year the amount is different, so make sure to ask your tax preparer!
Not Taking Full Advantage of Tax Breaks
Make sure to educate yourself on the new tax laws and deductions for the current tax season. Your tax preparer should already be familiar with any new changes for the New Year but you can also do your own research, by checking out publication 17 which the IRS creates every year with all new tax laws.
For any questions regarding how you should file, please visit IRS.com.