The tax season is an important time of year for many Americans. The tax return is a document that shows the total income and tax liability and any tax credits they are eligible to claim. It can also be used to figure out which types of taxes are due or when there may be a refund coming in the mail.
Tax preparation mistakes can cause one to miss out on these benefits, so it’s important to know what pitfalls await them during this process. In this article, we will explore some common tax preparation mistakes and how you can avoid them.
1. Not Understanding the Form
Many tax forms can be mind-boggling to read for tax preparation experts, so it’s no wonder that many taxpayers make mistakes when they don’t understand what the tax form is asking of them.
There are a few tax forms like Form 1040 and its schedules that tax preparers should learn by heart as it is one of the most popular tax returns filed every year. If you aren’t familiar with the tax forms and how to fill them out, consider seeking business tax prep services.
2. Forgetting About IRS Penalties and Interest Charges
IRS penalties and interest charges can be a tax return’s worst enemy. Not only do tax preparers have to pay more tax, but they also have to pay penalties and interest charges for late tax returns.
Late tax filing usually means that you owe the IRS an additional 5% of the tax due every month that your tax return is late. This applies up to 25%. If this is something you will not be able to keep track of, consider using tax preparation software or seeking help from someone who specializes in taxes, like a tax lawyer.
3. Incorrectly Calculating Taxable Income
Taxable income is one of the most important tax preparation calculations. This tax computation typically results in a tax return’s tax due or refund amount. Income tax forms, returns, and schedules are notorious for including many different types of income that may not be included in taxable income.
To avoid tax preparation mistakes, tax preparers should familiarize themselves with the tax code to easily identify which income sources are taxable and which ones are not. They should also keep in mind that these tax codes change every year, and it’s important to know how tax laws have changed since the previous tax year.
4. Claiming Tax Deductions Without Proper Documentation
Some tax deductions can be tricky to figure out, especially if you don’t have proper documentation to back them up. For tax preparers who are unsure about tax deductions or getting the information they need for tax credits, it may help to work with a tax preparation professional when paying business taxes.
5. Forgetting To Sign Your Return
This tax preparation mistake is very easy to commit. If tax preparers don’t sign their tax return, the form will not be processed by the IRS. Tax preparers should never forget to sign their tax return documents before sending them in.
Avoid Tax Preparation Mistakes
Tax preparation mistakes are avoidable, and tax preparers can learn from others’ tax preparation mistakes. One of the best ways to avoid tax preparation mistakes is to make sure you understand what the tax form is asking of you, and that proper documentation is provided.
If you need help with your tax filing, reach out to experts to develop a tax preparation strategy for you. Also, check out our other blogs for more interesting information.