As tax season quickly approaches, many households across the country are beginning to gather up their relevant documents and plan their deductions. Filing taxes each year can be stressful. Errors can result in hefty penalties from the IRS and failing to properly document all deductions can cause people to have a much higher tax bill than they should. Here are the top ten tips to help people avoid making errors this year on their tax returns.
1. Consider Delaying or Accelerating Income to Achieve Desirable Tax Brackets
Those who know that they are going to be in the same or a lower tax bracket next year should consider delaying income, such as bonuses, until January to avoid extra taxes at least for this year.
2. Double and Triple check the Direct Deposit Account Numbers
Entering the wrong direct deposit number is depressingly common. Make sure that all numbers are entered correctly to avoid accidentally donating a refund or having it get completely lost.
3. Get the Most out of Deduction Benefits
While most people know that charitable donations are tax deductible, many do not realize that the type of donation makes a difference. For example, a donation of land can help people get the standard donation based upon the value of the land and help them avoid taxes on the profit.
4. Enter all 1099s
Those who do work as a contractor need to be sure that they accurately tally all 1099 forms that they have received. The IRS also has a copy of these forms, and failure to properly declare income can result in a higher tax bill or even interest on the owed tax if the error is not discovered right away.
5. Analyze Benefits to Selling Loser Investments to Offset Gains
Those who have invested a considerable amount of money should consider speaking with a financial adviser or tax professional about selling the loser investments to offset investment gains. This can help lower the tax bill.
6. Maximize the use of Retirement Accounts
Everyone should be contributing the maximum amount to their retirement accounts, such as the 401(k) and Roth IRA.
7. Don’t Forget to put the Correct Social Security Number
This is another surprisingly common error. A social security number is vital for connecting all the records the IRS has on a person, so accidentally writing in the wrong number, or forgetting to write it all together, can drastically slow down a refund or even cause problems with the IRS.
8. Watch Child Investments
Some people try to save money on their taxes while saving for a child’s education by placing investments in a child’s name, since these are not taxed at the same rate. Be careful, though, because once the child’s investments earn more than $2000, they are taxed the same as adults.
9. Always Recheck the Math
It might sound basic, but it is the most common mistake on a tax return. The problems it can cause range from not getting a full refund to having the IRS charge interest on unpaid taxes because of an incorrect income declaration.
10. Do Not Forget any ‘Green’ Home Investments
The federal government offers a range of deductions for various ‘green’ investments, such as a new washer or windows. These appliances and fixtures not only upgrade the home, they also can count towards tax deductions.
Filing a tax return involves avoiding errors while also finding ways to maximize the potential refund. Taking the time to review these ten tips should help anyone avoid potential mistakes from years past and keep any difficulties with the IRS at bay.