Spring is finally here! That means longer days, nicer weather…and tax time. Here are seven common tax mistakes to avoid this fiscal year that will help you prevent everything from paperwork overload to the dreaded tax audit.
BLUNDER #1: FILING LATE So the idea of sitting down and getting your taxes in order is inducing one shudder after another, whether you’re doing them yourself or getting ready to hand them over to a professional. Feeling trepidation about taxes is natural, but it’s no reason to put it off. “If a taxpayer files late, he/she faces late filing and payment penalties, as well as interest charges, if he owes taxes,” warns Christa Skoupy, CPA and founder of Auxilia Accounting, Inc., in Park Slope, Brooklyn.
BLUNDER #2: FAILING TO FILE AN EXTENSION Filing an extension will legitimately buy you the time you need to file your taxes if you’re running late. But remember, it’s still better to file on time. Obtaining an extension means extra paperwork. “To get the extra time a taxpayer must properly estimate the tax liability for the year and file form 4868 by the due date,” says Skoupy.
BLUNDER #3: NOT BEING YOUR OWN BEST BOSS If you’re your own boss, treat yourself well by filing your return. You may face some daunting paperwork come tax time, but it’s worth surmounting. If you don’t file, you risk losing out on important benefits. “Self-employed persons who do not file a return will not receive credits toward Social Security retirement or disability benefits,” explains Skoupy.
BLUNDER #4: DOING IT ALL BY YOURSELF If you feel like a financial pro and are comfortable doing your taxes all by yourself, then by all means do so. But this may not be an area where you want to pinch pennies. Talking to a professional will take away the mystery that often seems to shroud your tax return, and you could end up with lower taxes or walking away with a bigger refund. Ask friends and colleagues for a referral—just make sure you end up dealing with a Certified Public Accountant (CPA).
Read Related: Getting the Most Bang From Your Tax Refund Buck
BLUNDER #5: NOT KNOWING WHAT YOU CAN DEDUCT Whether you’re a mami or a student, a freelance writer or an office worker, or even unemployed, there could be a deduction out there for you—and maybe even a few, so familiarize yourself with what your deductions might be. Feeling confused and uncertain? “Have a professional advise you on it,” says Skoupy.
BLUNDER #6: THROWING AWAY RECEIPTS If saving receipts throughout the year for deductions sounds like an organizational nightmare (imagine crumpled paper stuffed into every coat pocket and every file folder you own), well, don’t let it become one. Knowing what is a valid deduction and what isn’t is a good place to start, so you don’t end up saving every receipt for every purchase. But throwing everything away in the name of decluttering is big no-no. “[Receipts are necessary] to substantiate the deduction in the case of an audit,” warns Skoupy.
BLUNDER #7: THINKING THE IRS IS YOUR ENEMY It’s easy to imagine the IRS as a shadowy enemy force, hell-bent on making the month of April miserable for you. But tax time is nothing personal. Familiarizing yourself with the IRS website can go a long way towards helping you understand what they need from you and why. They have a page organized by topic as well as a FAQ page, downloadable forms, an online payments page…the list goes on. It may be a big organization, but it’s not so shadowy, after all.