12 Tax Mistakes That Will Cost You

Below are some of the most common mistakes people make when tax filing came. Read on to learn and avoid such mistakes.

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1. Not Knowing The Rules

The first step to avoiding costly tax mistakes is understanding the rules. The tax code is constantly changing, so it’s important to stay up-to-date on the latest changes. You can find information on the IRS website or by speaking with a tax professional.

2. Not Knowing The Difference Between A Taxable And A Non-Taxable Event

One of the most common mistakes people make is not understanding the difference between a taxable and a non-taxable event. This can cost you dearly come tax time. Make sure you understand the implications of each type of event before taking any action.

3. Failing To Keep Good Records

Another mistake that taxpayers often make is failing to keep good records. This includes receipts, bank statements, and other financial documents. Without good records, it will be difficult to prove your deductions and credits come tax time.

4. Claiming Deductions You’re Not Eligible For

It’s important to know what deductions you’re eligible for before claiming them on your tax return. Taking deductions you’re not eligible for can result in penalties and interest charges.

5. Failing to Report All of Your Income

You’re required to report all of your income, regardless of the source. This includes money from investments, gifts, and even gambling winnings. Failure to report all of your income can result in significant penalties and interest charges.

6. Taking the Standard Deduction When You Should Itemize

It’s important to know whether you should take the standard deduction or itemize your deductions when filing your taxes. In most cases, it’s beneficial to itemize if you have significant deductible expenses. However, there are some cases where taking the standard deduction makes more sense.

7. Claiming Personal Expenses as Business Deductions

You can’t deduct personal expenses on your taxes, even if they’re related to your business. Make sure you understand what qualifies as a business deduction before claiming any expenses on your tax return.

8. Failing to Pay Estimated Taxes

If you’re self-employed or have significant investment income, you’re required to pay estimated taxes throughout the year. Failure to do so can result in interest and penalties come tax time.

9. Taking Early Withdrawals From Your Retirement Accounts

Taking money out of your retirement accounts before you’re supposed to can cost you in taxes and penalties. Make sure you understand the rules surrounding early withdrawals before taking any money out of your retirement accounts.

10. Filing Your Taxes Late

Filing your taxes late is one of the worst things you can do come tax time. Not only will you owe interest and penalties, but you may also be subject to an audit. Make sure you file your taxes on time to avoid any costly mistakes.

If you don’t file your taxes on time, you’ll be charged a late filing penalty. The penalty is usually 5% of the unpaid taxes for each month or part of a month that the return is late, up to a maximum of 25%. If you’re more than 60 days late, you’ll also be charged a failure-to-pay penalty. This penalty is usually ½ of 1% of the unpaid taxes for each month or part of a month that the return is late.

11. Not Paying Your Taxes

If you don’t pay your taxes, you’ll be charged a failure-to-pay penalty. The penalty is usually ½ of 1% of the unpaid taxes for each month or part of a month that the return is late, up to a maximum of 25%. You’ll also be charged interest on the unpaid tax amount. The interest rate is determined quarterly and is equal to the federal short-term rate plus 3%.

12. Filing Incorrect Information

If you file your taxes with incorrect information, you may be subject to penalties and interest charges. To avoid this, make sure to double-check all of the information on your tax return before you file it

These are just a few of the most common mistakes people make come tax time. By avoiding these mistakes, you can save yourself a lot of money and hassle come April 15th. If you wanted someone to take care of your taxes, check accountants at St Kilda

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