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In 2018 alone, about 80% of people made tax errors that could affect their refund. Now, almost everyone makes mistakes when preparing their taxes, even tax professionals. However, some will cost you a lot more than just your refund.
By being aware of the most common tax preparation errors, you can avoid them and ensure that your return is filed correctly. Here are six of the most common tax preparation mistakes and how to avoid them.
1. Filing Your Taxes Late
This is probably one of the most common tax preparation errors people make. If you file your taxes late, you could end up with a penalty from the IRS. The penalty for filing your taxes late can be as high as 5% of your total tax bill for each month that your return is late.
The penalty could be as high as 25% of your total tax bill in some cases. This means filing taxes on time is one of the best things you can do to avoid trouble.
2. Not Checking Your Tax Return for Mistakes
It’s important to double-check your tax return for mistakes. A simple mistake can cost you a lot of money. If you find a mistake, make sure you correct it before filing your return.
One of the most common tax preparation errors is filing taxes incorrectly. This can lead to delays in getting your refund or even having to pay back the money you’ve already received. Make sure you file your taxes correctly every time.
3. Not Keeping Track of Your Expenses
If you’re self-employed or own a small business, it’s important to keep track of your expenses. This will help you figure out how much tax you owe at the end of the year.
You can deduct certain business expenses from your income, which will reduce your tax bill. Ensure you calculate taxable income and have proper tax deduction documents.
4. Filing a Fake Return
This is one of the worst mistakes you could make on your taxes. It’s considered tax fraud, and if you’re caught, it can lead to some serious consequences. In addition to having to deal with the consequences from the IRS, filing a fake return could also land you in prison for up to three years.
You could face fines as high as $250,000 and imprisonment as long as 15 years if convicted of tax fraud or tax evasion. This is one of those tax preparation errors you should never make.
5. Not Filing Your Taxes At All
This is by far the worst mistake you could make when it comes to your taxes. If you don’t file a tax return, you could end up owing the IRS a lot of money. In some cases, you could even be charged with tax evasion. The best thing you can do is ensure you file all your taxes on time to avoid trouble.
6. Not Using Tax Software or Hiring a Professional
Many people prepare their own taxes, but this can often result in incorrect calculations. If your math is off when filing your return, this could cause an audit from the IRS.
Hiring a professional tax preparation service or using tax software will ensure that everything is done correctly. Here is a guide on how to choose a tax advisor.
Tax Preparation Errors to Avoid: A Guide
Tax preparation is challenging for most people, and they eventually end up making tax preparation errors. Avoid penalties and an IRS audit by avoiding these mistakes. Hire a professional tax preparation service if you can’t do it on your own.
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