Common Mistakes People Make On Their Taxes
Managing your accounts and doing taxes is easy if you have a knack for it, but most people lack the required know-how. Their lack of knowledge leads them to gloss over the rules of taxes which change frequently and make costly mistakes that sometimes leads to an Internal Revenue Service (IRS) audit.
To make you aware of mistakes that you could be making and help you avoid them when tax season arrives, here’s a list of the most common mistakes people make on their taxes.
1. Failing to fill the W4 form.
Most people don’t give enough importance to the W4 form. It is a tax exemption form that can save a lot of money. Filling in the form accurately can prevent you from overpaying taxes when you shouldn’t and save you a significant amount of money during the year.
The W4 form must be updated regularly when there are changes in your life like getting married or having a baby. You also need to fill a new W4 form every time you start a new job. Your accounting firm can assist you in filling the correct forms if you keep them in the loop about your finances.
2. Not knowing how the IRS withholding calculator works.
Most people are unaware that free resources can be found online on www.irs.gov. It will not only help you check your withholding but also calculate your withholding if there are any changes in the tax during the year.
Tax accountants can play a significant role in guiding you in obtaining the correct withholding in your taxes.
3. Poor record keeping.
A majority of people do not know how to do their taxes correctly. Even if they seem to know how to, many mistakes can be made. Poor record keeping is one such problem that plagues most people who do their taxes themselves. You need to keep a record of all the taxes that have been paid in advance whether it is the 1040-ES, 1098 mortgage or the property tax. You may be eligible for tax deductions that you may not even be aware of. Accountants that specialize in tax are extremely helpful in such cases.
4. Not preparing for future tax planning.
Tax planning is essential because it can make you eligible for more tax exemptions during the year. Form 1040-ES which states the estimated tax for individuals can be submitted for advanced payments. If you have received any bonus or extra income during the year, you need to fill out the W2 form because your employer may have already covered the tax on that and you may just end up paying more tax. If you have additional income, you need to contact your accountant, and they will make sure that you receive the right exemptions and minimize your tax liability.
5. Lack of knowledge about tax rules.
Doing your own taxes is great but only if you are aware of all the tax laws. Often, trying to save money by using free tax calculating software does you more harm than good. Tax software may calculate your taxes, but it doesn’t implement tax deductions and offer alternative suggestions besides just the basics.
In most cases, the tax software will only implement standard deductions whereas an accountant can help you sort out your accounts and assist you in filing your returns accurately and obtain the maximum possible refund which is due to you.
6. Not reporting income and/or withdrawing 401K.
All income is taxable, and that includes winnings from gambling. You need to take this into consideration while filing your taxes or if you use an accountant you need to keep the accountant updated on any additions to your income even if it is winnings from gambling.
Withdrawing your 401K early has a 10% penalty. Do not make any hasty decisions when it comes to withdrawing your 401K and always consult your accountant. The taxes may be deducted, but you will still have to pay the penalty.
These mistakes can be easily avoided. All you need is a qualified tax consultant or tax accountant to take your taxes off your hands. As the best tax accountants in Baltimore, MD, Edrien Inc. provide accounting services across Frederick, Bethesda, Gettysburg, Rockville, and the surrounding areas. Our team of experienced accountants has been assisting clients with tax revenue filing, extensions, amendments, audits and small business tax services since 1998. For a complete list of our services, please click here. If you have any questions about taxes, we’d love to hear from you. Please contact us here.