Most of us send our tax forms off in mid-March, watch our refunds get deposited into our bank accounts and then breathe a sigh of relief that we don’t have to worry about the hot mess that is taxes until the following winter. Believe it or not, though, waiting until the eleventh hour, trying to claim everything that even remotely applies to you and hoping for the best really isn’t the best strategy. In fact it is one of the biggest tax mistakes you can make (and one that is really easy to fix).The simple fact is that a lot of us make mistakes on our taxes. Those mistakes are, for the most part, really easy to avoid. Here are some of the other major tax mistakes that can lend you in hot water and what you can do to avoid them.
1. Not Keeping Up With Tax Laws
Tax filing season is January-April 15. Tax deciding season is year round. The tax code is constantly being argued over and refined. Keeping tabs on tax laws is important, especially for making sure that those deductions and credits you were counting on are still applicable. A lot of people got caught this past year after buying a bunch of energy efficient appliances and then finding out that they wouldn’t be able to claim those things on their taxes after all.
Keeping tabs on tax rules and codes doesn’t have to be complicated. A simple Google alert will do it. Or you could follow the news on social media via tax professionals’ Twitter feeds (like the Authority Tax Services Twitter feed) or setting up a feed for tax-related trending topics.
2. Avoiding Tax Debts
One of the worst feelings in the world is finding out that you owe money to the IRS—especially if you were counting on a refund. Even if the amount is substantial, the IRS will work with you to come up with a plan to pay off that debt. Remember: the IRS’s primary goal is to get paid. They’d rather take small monthly payments over a couple of years than not get anything from you at all.
Whatever you do, don’t try to hide from your tax debt, says Authority Tax Services expert Vikas Singh. If you can’t afford to pay or paying would result in a financial hardship there are experts out there who can help you navigate the system and maybe even negotiate down the amount that you owe. Running will only increase what you owe and it might even land you in jail.
3. Failing to Pay Estimated Taxes
If you are self employed or run your own business, you have to pay estimated taxes throughout the current year. Then you claim that amount on your annual tax forms. If you over paid, you should get a refund. Most likely you’ll still wind up owing some money to the IRS but trust me when I tell you that it will be far less than you would owe if you tried to just pay off your taxes every year. The penalties for failing to pay your Estimated Taxes are steep.
Even if you are currently paying on a past year’s tax debt, you need to pay your Estimated Taxes. If you can’t afford to pay both, call the IRS and talk to a case worker. They might be able to reduce your debt payments or put your debt payments on hold for a couple of months.
These are just three of the biggest and most easily avoided tax mistakes that people make. Did we leave anything out? Let us know!
Photo credit: Tax Day Image