Did you find yourself struggling to pay last year’s taxes? Have you never tried to do your taxes before and aren’t sure where to start?
Tax planning is an important step to take if you want to start avoiding tax debt, but many people don’t know how to start and end up with common tax planning errors and consequences.
Do you want to learn more about preventing tax planning mistakes? Keep reading to learn more about avoiding these mistakes.
1. Inadequate Record-Keeping
By not keeping records of your income, expenses, and deductions, you could be leaving yourself open to costly errors. To avoid making this mistake, be sure to keep detailed records of all assets, investments, and income sources. Additionally, make sure to save statements, receipts, and other documents that will help provide evidence to support your records.
2. Missed Deadlines
A missed deadline can result in hefty penalties. Make sure to use a calendar or reminder system to mark when important tax-related dates like the filing and payment due dates are approaching. Keeping tabs on the filing and payment due dates will help prevent costly mistakes and unwanted surprises.
3. Ignoring Available Deductions and Credits
It is a mistake to rely only on the standard deductions or credits. Instead, taxpayers should thoroughly investigate all tax deductions and credits they qualify for. There are many credits available such as the following:
- earned income credit
- child tax credit
- retirement savings contributions credit
- education credits
By taking advantage of all credits, a taxpayer can lower their taxable income and save on taxes. In addition, do not assume you are not eligible. Other deductions such as medical expenses, student loan interest, and charitable contributions may also be available to reduce taxable income. To avoid overpaying taxes, it is important to do proper research and take advantage of every deduction and credit that is available.
4. Incorrect Classification of Workers
This is the case if you are running a business. When a business incorrectly classifies employees as independent contractors rather than as employees, it can lead to costly penalties and tax liability for the employer. To avoid this scenario, employers should classify workers correctly using the IRS criteria and understand the rules and regulations of their particular state or jurisdiction concerning worker classification.
5. Inadequate Estimated Tax Payments
When taxpayers make errors in calculating their estimated taxes, they may find themselves owing more taxes than anticipated at the end of the year. To avoid this situation, taxpayers should adjust their estimated payments quarterly if their income increases or decreases significantly.
6. Neglecting to Seek Professional Guidance
One common tax planning error is neglecting to seek professional guidance, which can be costly and time-consuming to fix. Professional guidance can help individuals take advantage of deductions and credits they may have otherwise overlooked to minimize taxes, as tax laws change each year.
In addition, a professional is trained to spot any errors or identify any areas where changes can be made. To get a better overview of how these experts can help you with the tax planning process, here are some strategies.
Know What Common Tax Planning Errors to Avoid
Common tax planning is key to avoiding costly mistakes and ensuring your returns are accurate and fair. Keep detailed records and ensure you are taking advantage of available deductions, credits, and tax strategies available to you to lessen your tax burden.
Furthermore, contact a reputable accountant to help navigate the complexities of the tax system to avoid costly errors from these common tax planning errors. Take control of your taxes today!
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