Common Mistakes Individuals And Business Owners Make With Their Taxes
Most people don’t enjoy doing their taxes. This is why they tend to leave it for the last moment and then get overwhelmed and make mistakes. Errors in your tax returns can cost you a lot of money. You could miss out on a larger refund than you claimed, wind up owing more taxes or invite an unnecessary IRS audit. The best way to avoid making these mistakes is to make yourself aware of them. To help you identify some basic errors that could prove costly, Your Choice Accountants, LLC has put together a list of the most common mistakes individuals and business owners make with their taxes.
1. Not filing your taxes on time
You should make sure you know your tax filing deadlines to file them promptly. This will help you eliminate getting penalties and fees from the taxing authorities. Be sure to ask your tax preparer to file an extension for your company if you cannot file your return by the deadline. Some tax preparers will keep track of the deadlines on your behalf, but it is your responsibility to keep track of your own deadlines as tax preparers tend to become overwhelmed with work during tax time and may not remember.
2. Not understanding what a tax-filing extension really means
An extension of time to file your taxes is not an extension of time to pay your tax liability. This means that when the IRS grants you an extension of time to prepare and file your taxes, you can still be assessed a “failure to pay” penalty if you have a tax liability due when you eventually file your return (if you did not pay that tax liability on the original due date of the return.) For example, if you are granted a six-month extension to file your taxes and when you file your taxes on October 15th, you owe the IRS $2,500. The IRS rule is that you pay the $2,500 on April 15th, the original tax filing deadline.
3. Understating income and overstating expenses
One of the main reasons this might happen is probably because you do not use a bookkeeping program to keep track of business income and expenses. This can result in either an understatement or an overstatement of business expenses and income. If this is the case, you will need to file an amended tax return. When there is a significant understatement of income or overstatement of expenses, the IRS can assess a 20% negligence penalty on the amount you underpaid.
4. Not doing necessary reconciliations
When using a bookkeeping program, make sure you reconcile cash monthly. A mistake may have been made in your accounting record, but monthly bank reconciliations are designed to catch these mistakes. If you do not reconcile your cash monthly by doing bank reconciliations, you may not see potential errors in the data you use to prepare your taxes.
5. Not keeping track of Carry Forwards and depreciation
Another area of mistake is not providing depreciation schedules and a schedule of unused deductions and credits from the prior-year tax return to a new tax preparer. It is incredibly important to give a copy of your prior-year tax return, depreciation, and other appropriate schedules to your new tax preparer. This will ensure that you receive all the tax savings that you qualify for.
6. Not giving all your tax documents to your tax preparer
Make sure you put all tax documents received in a secured folder and give that folder to your tax preparer. Give your tax preparer all tax forms received whether you believe it’s relevant or not. One of the reasons you hired a tax preparer to do your taxes is because they are more qualified in deciding what needs to be included in your tax return and what does not.
To avoid these and other mistakes, reach out to the experts at Your Choice Accountants, LLC.
Our philosophy is based on competence, dependability, integrity, and trust, so clients are confident that we will prepare financial statements responsibly to enhance their reputation. What sets us apart from the others is that we take pride in keeping our clients informed, especially during time-sensitive tasks. Similarly, we make sure that we understand our clients’ operating fields to give them accurate and reliable information.
We offer services such as taxation services, business startup consultation, audit, review, and compilation services to clients across Lawrenceville, Athens, Alpharetta, Marietta, Atlanta, McDonough, Riverdale, College Park, Decatur, DeKalb County, Stone Mountain, Gainesville, and other counties and states.