Preparing for tax season is a great thing to do, but it’s only effective if you know what you’re doing.
Most people tend to make a lot of mistakes when they file their taxes every year and most of them could be prevented by better preparation. If you make mistakes with tax preparation, the whole process could be thrown into disarray, which could end with you being audited one day.
In this post, we’re going to go over the 4 most common mistakes with tax preparation and how you can avoid them. Keep reading and you’ll get your taxes done quicker and more effectively.
1. Not Preparing for Taxes
The biggest problem that most people make when tax season rolls around is not preparing at all throughout the rest of the year. Tax planning and optimization, which you can learn more about at https://bogartwealth.com/tax-planning-vs-tax-optimization-key-differences/, lightens the burden of doing taxes and prepares you financially for the year to come.
If you don’t take tax preparation seriously, then it’s going to make the process a potential nightmare. Starting early, keeping good records and receipts, gathering other tax documents, and planning for any refunds or payments will help you cope in the weeks leading up to tax day.
2. Inputting Incorrect Taxable IncomeÂ
Taxable income is your most important calculation on your tax form, as it plays a massive role in your tax return’s due or refund amount. If you fail to do this correctly, it will undoubtedly have big implications on you financially. The problem is, income tax forms are brutal for including different types of income that aren’t necessarily taxable.
The best thing you can do to avoid any mishaps is to familiarize yourself with the tax code as best you can. This should give you the ability to decipher which income is taxable and which isn’t. These codes change frequently, so you’ll need to spend some time checking in on this every year.
3. Not Getting the Proper Documentation
Claiming tax deductions can be tricky because if you don’t have the proper documentation to back them up, you could end up in serious hot water. That being said, there are loads of tax deductions that people neglect to fill in simply because they’re not properly prepared with the right paperwork.
If you can back up your tax deductions, you can significantly increase your refund. It’s worth taking the time to keep your documentation in order all year long and educating yourself on what you can deduct and what you can’t. For this, it’s really helpful to work with a tax professional who has deep knowledge of deductibles.
4. Neglecting EITC
If you’re a lower income individual, there are things in place to help you during tax season and the EITC is one of these. It stands for the Earned Income Tax Credit and it benefits eligible tax payers that work, but whose income is under a certain amount.Â
As a tax credit, it’s built to lower the amount of tax you owe and may create a refund even if no income tax has been withheld. It’s easy to miss, but if you’re eligible, it’s something you should account for.
Don’t Make These Mistakes With Tax Preparation
These are just a few of the biggest mistakes with tax preparation that people tend to make, but there are many more. If you aren’t confident in your ability to do your own taxes, it might be better to hire a tax professional to help you. A good tax pro will find you money and help you avoid any stick situations with the IRS, so it’s something to consider.
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