1. Don't File Late or Last Minute
For many people, hearing the term "Tax Day" or "April 15th" can bring a sense of frustration. Because of this, many choose to wait until the last minute to file. Studies show that people who procrastinate typically make more mistakes on their tax return. With over 20 percent of Americans waiting until the week leading up to April 15th to file, a large number of mistakes are seen by the IRS. In addition, those who wait until after the April 15th deadline are charged interest that compounds daily, plus possible late fees.
2. Update Your Household Status
If 2012 brought about a change in your living arrangements, such as a baby, a divorce or older children moving back into your residence, your tax filing status can have a major impact on your return. Picking the incorrect household status can lead to overpayment or underpayment of taxes. For example, you must be single to file as HOH (Head of Household). One common tax mistake is filing only as a single and not HOH. HOH's are allowed larger standard deductions and generous tax brackets. In addition to those benefits, there are numerous tax rules that work in favor of HOH's versus those who are single.
3. Deduct Business Expenses Carefully
Whether you run a small, mid-sized or large business, each one comes with expenses. While the IRS allows you to deduct many business expenses from the revenue you generated, don't overdo it. Be careful when deducting a large number of entertainment or dining costs, large home office expenses, or expenses such as hobbies that are not business related. Visiting the IRS website can help you get a clear picture of which business deductions are allowable.
4. Monitor and File Charitable Contributions
Donations to charity that are worth less than $500 can easily be reported on your tax return. However, if your gift exceeds $500, you should file form 8283. This form allows you to claim a deduction for all property you donate, whether clothing, a used vehicle, artwork, etc., for the item's fair market value.
5. Keep Paperwork and Receipts Organized
Thanks to technology that improves every year, it is easier for the IRS to flag an abnormality in your return. Irregularities such as a large drop in income or major increase in office or home expenses may raise an eyebrow. Because of this, it is crucial to keep all of your receipts, home office bills (lights, Internet, phone, etc.), documents, contracts (if you are self-employed), and other paperwork.
6. Check Your Math
In addition to return irregularities, bad math can also flag your tax return for an audit. If using tax software, double check numbers and decimal points as you input them. If you are crunching your own numbers, always recheck final amounts. Tip: sometimes the IRS will run numbers and claim you owe more money. Be sure to check their math as well if you receive a request for additional funds.
7. Keep Track of Side Jobs
If you are an independent contractor, chances are you received a 1099 from each employer or client. Keep track of each job and amount earned, and don't forget to include all of this information on your return. The IRS already knows how much money you made thanks to copies of your 1099 sent to the IRS by the employer's accountant. If you forget to include a job, the IRS can charge you a penalty and interest depending on when the omission is discovered.
8. Review All Information
You kept all of your receipts, impeccable records, and filed your taxes before the deadline. So, what could be delaying your refund? According to the IRS, incorrect or missing information is one of the biggest factors in delayed tax returns. Common areas overlooked or input incorrectly (especially when using tax return software) are social security numbers, bank routing information (where your return would be direct deposited), and signatures.
With only a few weeks left leading up to the April 15th tax deadline, isn't now the perfect time to get your return started? Remember, keeping yourself organized, double-checking numbers, updating changes, and deducting the right amount of expenses will help you avoid some of the most common tax errors made each year.