The Common Tax Mistakes You Should Never Make

 

It’s easy to make mistakes on your tax return, and they can cost you dearly.

The tax code becomes more complicated every year in most countries, and the US tax code now extends past 72,000 pages. Given all of that complexity, mistakes can happen.

Use these tips to minimize tax mistakes on your tax return.

The Math

Math errors are a common mistake, and using tax software can help reduce the risk of making a calculation error. Even if you use tax software, you should always double-check your figures. The best thing to do is to go away and check them again later, as you may spot something wrong when you are looking at it afresh.

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Lots of numbers can be mind-boggling, but these errors are the main reason individuals pay the wrong amount of tax on a return

What About Dates?

Once you have set your business year-end for tax purposes, you cannot change it without approval from the IRS. You must be able to calculate your profits and taxable income based on the same tax year-end on each tax return. To keep things simple, most companies choose a 12/31 year end.

Using the incorrect accounting period can be a costly mistake, so keep your tax year the same.

Your Signature

An unsigned tax return is not a valid document and the IRS cannot accept it. You may be surprised by how many people forget this very important step, and if you are near the filing deadline this could cause you a problem. If you forget, you will have to resubmit your tax returns, and you may incur penalty and/or interest costs.

Business Expenses

Take steps to keep your business expenses separate from your personal expenses, and do that from the day you start your company. When you start your business, open a separate checking account, and don’t use personal credit cards to pay business expenses.

Are You Tax-Efficient?

There are several different structures your business may have, and using the wrong one could cost you a lot of money from a tax standpoint. It is worth getting expert advice as to whether you should operate as a sole proprietor, a partnership or an LLC, among other options.

Starting with one structure does not mean it cannot be changed at a later date if the circumstances of the business warrant it.

State Taxes

Don’t forget file all necessary state taxes returns. State taxes may include income taxes, state workers’ compensation insurance, or unemployment insurance taxes. You can find out what taxes apply to your state The U.S. Small Business Association website.

Tax Law- Changes?

When it comes to doing your own taxes the easy way, it’s important to know the rules. Unfortunately, the tax laws are constantly changing, and unless you’re an accountant or tax advisor, you won’t not need to know about them. Rather than trying to keep up with the changes, find a tax expert who can help you.

Starting Out

 

Not all start-up costs are immediately deductible in the year that you incur the expense.

Some startup costs, such as depreciation on computers and other equipment, can take up to 5-10 years to fully recognize on your business tax return. Make sure that you keep receipts for every start-up expense, and ask a tax expert to complete your tax return.

Filing Dates

Do not miss the filing date for your tax return, or you could have to face fines and penalties. There is an option to submit your tax liability estimate and pay your taxes quarterly, and many small businesses prefer this to having to face a larger bill once a year.

Talk To Them

Workers at the IRS are just like the rest of us, they are humans and have a job to do. If you find you are not going to be able to file your tax return on time, talk to them and ask for an extension- but have a CPA or a tax preparer on the call to work on your behalf.

In this scenario, you have to estimate how much tax you will owe and pay that amount to them or any extension becomes invalid. The same applies if you cannot pay your tax bill. Talk to the IRS and arrange a payment plan. They do charge a flat fee for allowing you to do this, but that is lower than the amount they would charge you for ignoring them and just not paying.

Get It Right First Time

Getting your tax return right first time could save you hassle and money. Not everyone feels competent enough to master the forms though, and if you are unsure you should approach the professionals in these matters to help you. A good accountant will save you more than they cost you, and it is an option many people choose.

If you are concerned because you’re already late on your returns, got things wrong the first time around, or you’re experiencing other issues, don’t worry too much. You can always look into the IRS Fresh Start Program.

This post is for educational purposes only.

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

Co-Founder: accountinged.com

(email) ken@stltest.net

(website and blog) https://www.accountingaccidentally.com/

(you tube channel) kenboydstl

 

Image: Bullseye, Jeff Turner CC by 2.0