Tax time is here, which means that everyone’s scrambling to file their taxes and to get it all over with, hoping that the bill isn’t going to sting them too badly in the end. There are plenty of things you can do to manage your taxes, but there are also plenty of mistakes you can make that could see you paying a lot more than you should.
Here, we’re going to look at some of the most common tax filing mistakes that will see you paying more than you should, and what you should do to avoid them.
Not taking advantage of tax breaks
Though you might not think that the IRS is about to let you get away with more money, the truth is that there are plenty of different tax breaks that are available and you are likely to be applicable for some if you’re part of a family or you’re a student. Take a look at some of the tax breaks you could apply for, including child tax credit, recovery rebate credit (if you’re missing a stimulus payment) or earned income tax credit.
You’re only taking the standard deduction
You could play it “safe” and take the easy option of taking the standard deduction on your tax bill. However, there could be some money to be saved if you’re willing to take the time to itemize your accurate deduction. You should at least take the time to see which of the two options is likely to help you get a larger write-off. If you’re using any tax software, then it will likely already let you know which is most likely to help you save more money.
Using the wrong status when you file
You want to make sure that you’re providing the IRS with accurate information as best as you can and this doesn’t just mean your earnings information, but also personal information. For instance, your status, such as whether you’re single, married filing jointly, a qualifying widow/widower or otherwise matters. For instance, married couples filing jointly can apply for twice the usual deduction of people who are filing singly, and there may be extra rules that apply to you, as well.
Make sure that you’re accounting for your extras as extras
If you’re getting paid any extras from your work beyond your regular ages, then you should make sure that you let the taxman know about that. Most importantly, this is about setting apart your supplemental wages versus regular wages. Supplemental wages, which include things like bonuses, back pay, awards, nonaccountable expense allowances, prizes, and commissions, as well as some forms of overtime and sick leave pay, are accounted for separately from your regular wages. However, if you don’t fail to separate your regular wages and your supplemental wages, then you’re going to be paying for them all at the same rate, which is almost always more than you should be paying on supplemental taxes.
Not setting up an account that can help you keep more money when taxes are involved
It might be too late to do this now, when you’re already looking at filing your taxes, but for next year, you should make sure that you’re being wise with your choice of savings and investment accounts. There are plenty that can come with large tax breaks. For instance, traditional IRAs and 401(k) accounts let you more than save for your retirement, you can use them to reduce your taxable income. Roth IRAs go even further, generating income that is entirely tax-free, potentially up to your entire lifetime. HSAs (health savings accounts) are tax-free as well, so long as you don’t withdraw from them for any non-healthcare expenditures.
Not filing a tax return
You might be uncertain of whether or not you have the funds to pay off your tax and, indeed, this can be a worrying thing to go through. However, you’re not going to be able to hide from the taxman forever. The penalties for failing to file can see you paying a hefty amount each month after you’re caught. It’s better to file your taxes and then look at setting up a payment plan than to not file.
With the tips above, hopefully, you can make sure that you’re not paying any more than you need to. Of course, you should make sure that you’re paying your fair share and that you’re not likely to be taking any red flags that could set off an audit from the IRS because, really, who needs that?