During its fiscal 2020, the IRS completed 452,515 individual audits, or about 0.29 percent of the roughly 157 million individual income tax forms submitted.
Using a tax preparer is an excellent way to file your taxes, but taxpayers may lose out by not reviewing their taxes. Looking over your taxes allows you to understand how to improve your tax planning. You may find mistakes or areas where you are missing out on credits or benefits.
By reviewing your taxes each year, you can ensure you are avoiding common tax planning mistakes. Here are some of the most common mistakes to avoid.
One of the most common tax planning mistakes is failing to file your tax return on time. Every year, taxpayers rush to meet the April 15th deadline, only to find out that they owe money to the IRS. This is because they have not planned ahead and failed to take advantage of all the deductions and credits available.
If you want to avoid this mistake, start planning your taxes early with WealthAbility. Begin by gathering your tax documents, such as your W-2 and 1099 forms.
Not Paying the Estimated Tax
Not paying the estimated tax can result in a penalty of up to 25% of the tax due. Estimated tax is the tax you expect to owe for the year and is typically paid in four installments throughout the year.
Calculate your estimated tax liability and make payments accordingly to avoid this mistake. For more information on estimated taxes, visit the IRS website.
Not Tracking Personal and Business Expenses Separately
There are a variety of things that a small business owner can do to avoid common tax mistakes, one of the most important is to track personal and business expenses separately. This will help to ensure that all business expenses are properly documented and can be deducted come tax time. Additionally, keeping good records of all income and expenses is essential, as this will make it easier to prepare tax returns and ensure accuracy.
No Tax Planning Documents
If you don’t have any tax planning documents, the most common mistake is not having any records to support your deductions. The best way to avoid this is to keep excellent records of all your expenses throughout the year. This includes receipts, bills, and invoices.
Failing to Report All Your Income
Be sure to track every penny you earn throughout the year. This includes income from jobs, investments, side hustles if you are a small business owner, and anything else.
Once you have this information, be sure to report it all on your tax return. If you don’t, you could face severe penalties from the IRS.
Avoid Penalties by Avoiding Common Tax Planning Mistakes
The tax filing process is not easy, especially if you have a huge business and there are so many documents and records that you will have to take care of. It will help a lot if you get a tax preparer. Tying to file your tax all on your own may make you overlook deductions and credits that you may be eligible for.
If you want to avoid making other common tax planning mistakes, stay organized, keep good records, and know the deadlines. By being proactive and taking these simple steps, you can save money and headaches.
Make sure to check out the rest of our blog for more insightful content!