Tax season is one of the most stressful times of the year. No one enjoys it, but If you’re doing everything right, then you shouldn’t have anything to worry about.
Here are the five most common tax mistakes that you should avoid when using Taxfyle.
- Know important dates
It isn’t just about filing taxes, but also knowing deadlines for requesting extensions and paying quarterly taxes.
If not done on time, it can result in you being surprised by tax penalties and interest, says the blog at Taxfyle.
Taxfyle is a software that connects you to a professional so you can file your taxes on time, efficiently and with no stress.
- Incorrectly reporting income
The IRS audits your personal finance and finds that you under-reported income, you could face some hefty charges. But the IRS understands that mathematical errors can happen when it comes to reporting your business payments and invoices.
There are instances when payments are not reported by your payers. The IRS will then compare your income to any payments that were made to you during that year. If the records don’t match up, an agent will ask to see your financial records.
You can prevent this stressful situation by having accurate records of your income.
Keep track of your income all year long. Update your personal financial records as soon as possible. Keep accurate records of all the payments you received.
- Not Separating Your Expenses
Small business owners run into the problem of not keeping track of their expenses. There should be a clear distinction between your business expenses and your personal expenses.
The IRS doesn’t believe in blurred lines. They take this very seriously.
One small deduction can put your small business taxes into a tailspin. The IRS will ask to see records of all of your business expenses. To avoid this problem, keep copies of all your receipts. Separate your personal from business, and you shouldn’t get penalized.
- Filing the Wrong Tax Forms
Since there are so many tax forms, it can get confusing. The most common tax forms are 1040, 1040A, and 1040EZ. What’s the difference? Well, the 1040A and 10EZ are easier versions of the Form 1040. These forms are best for those with simple tax returns.
The 1040A requires additional personal finance information. If you want to itemize deductions, you need to use a 1040A since you need a Schedule A. This goes the same for reporting your profits and losses. In this case, you’ll need to use a Schedule C.
- Filing Under the Wrong Status
The IRS has varying tax rates and deductions that depend on your filing status. The most common filing statuses are head of household, single, married filing jointly, married filing separately, or qualifying widow(er). Married couples receive twice the standard deduction than single tax filers. They also have different rules when it comes to other joint filers.
If you choose to file separately, each spouse should claim the itemized or standard deductions. You can use a tax bracket calculator to determine which tax bracket you fall in and estimate your 2018 tax rate.
Now, if you do get a letter from the IRS, first–and most importantly–don’t panic! In most cases, it’s a simple administrative matter or a request for more information. Read the letter carefully and reply if you need to, says Taxfyle