Top Tax Mistakes
The following are errors that many taxpayers make. This tax season, take a quick look at the list before you prepare your own return or work with your tax preparer to make sure you’re not making these frequent mistakes.
10 Mistakes to Avoid This Tax Season
Not keeping good tax records and maintaining them as long as you may need them.
Individuals or companies can lose deductions if they are audited and cannot support the deduction with records proving their entitlement. (See Publication 583 – Recordkeeping).
Not reporting all taxable income.
Most income is taxable unless specifically exempted. Also, over-reporting income can easily occur. If you collect sales tax on goods you sell, your reportable income should not include the sales tax. Be sure to subtract the sales tax before reporting the income from the sales.
Not keeping business and personal expenses separate.
Top IRS-reviewed items (as reported by the IRS itself) are the home-office deduction, auto expenses (those claiming auto expenses must be able to show a contemporaneous, detailed log with purpose, date, mileage for all expenses claimed), and travel / entertainment expenses.
Not reviewing the tax return for accuracy and timeliness.
Whether taxpayers are handling their own filing or working with a preparer, it’s worthwhile to double-check each line before filing. Common mistakes are missing employer identification numbers (EINs), incorrect calculations, failing to properly apply limitations (meals) and listing tax payments on the wrong line. Those who file or pay late are subject to interest and penalties.
Not considering e-File options for direct deposit and electronic options.
Some electronic payment requirements are mandatory.
Not carefully choosing your tax return preparer.
According to the Internal Revenue Service, fewer than 60% of taxpayers seek professional help, yet taxpayers are legally responsible for any return they file or which is filed on their behalf. A paid preparer must have a preparer tax identification number, renewed every year, to help the IRS maintain the integrity of the tax system. A good advisor is familiar with a taxpayer’s industry, takes time to understand changes from prior years, and understands how to estimate taxes to minimize but not underpay them.
Not doing your homework.
Be aware of IRS publications, tools, resources, videos, and online learning related to your own tax situation. The IRS website, www.IRS.gov, is also a great source of information to help taxpayers keep their planning up to date.
Not recognizing when you don’t know what you don’t know.
Many times a small business owner may try to be a jack-of-all-trades, trying out his or her expertise in a broad range of laws that even experts struggle to report correctly. Filing taxes is a prime time to seek outside professionals who can help taxpayers properly and completely fulfill reporting requirements and remit amounts in a timely manner, classify workers properly, and take advantage of the proper deductions and credits. The IRS can hold the officers of a company liable for nonpayment of payroll taxes, so gaining the peace of mind in doing this correctly is worth sacrificing a bit of control.
Falling prey to tax scams.
Taxpayers should be aware that common tax scams occur every year. Watch out for being seduced by a scheme that sounds “too good to be true.” These offers are often scams involving claiming false deductions, improper use of trusts or other misrepresentation that can lead to a taxpayer becoming victim to fraud.
Certain types of unused deductions and credits may be carried over and used in a future year. Some examples are capital losses, net operating losses and general business credits.
Ultimately, the IRS wants to see the right amount of income reported, allows deductions according to the law in place for the filing year, and wants to see support for amounts shown on returns. Knowing these pitfalls can help taxpayers recognize when they may want to seek professional tax help as filing requirements become more complex and involved.
For more information about this topic, contact your AGH tax professional or AGH tax supervisor Raymond Hall using his information below.
Raymond joined the firm in 2014, bringing with him 14 years of public accounting experience in Federal and state taxation and financial accounting. He handles federal and multi-state tax compliance for partnerships and corporations, with a focus on tax research and special projects including tax accounting method changes.
Raymond works frequently with clients in the manufacturing, wholesale/retail distribution, real estate development and management, construction and banking industries.
He earned a bachelor’s degree in accounting from Bethel College and a master’s of professional accountancy from Wichita State University. He is a certified public accountant and a member of both the American Institute of CPAs and the Kansas Society of CPAs.
NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.