The deadline is less than a month away to file your personal taxes. While Brigade Bookkeeping’s focus is on keeping a company’s books in order, we know that when that doesn’t happen, your tax return can be compromised.
Recently, we’ve had a number of clients who have hired us after firing their accountants for messing up their tax return. When we reviewed their books and past tax returns, we noticed a number of mistakes made by the person who filed or tried to file their taxes. In fact, we noticed these same mistakes are made by a lot of people. So we’ve decided to share the top 6 tax filing mistakes to avoid on your tax return:
1. BAD RECORD KEEPING– At Brigade Bookkeeping, we love the start of a new year. That’s because our clients start fresh. We reconcile their credit cards and bank accounts, pay their invoices and collect payments. Every month you should keep track of your expenses, including saving receipts, recording your charitable donations, tracking the improvements to your business and saving your medical and dental bills. If you’re not doing this every month, then your bad record keeping could result in the A word, “audit.” This is one of the biggest mistakes we’ve encountered that tax payers need to avoid.
2. DEPENDENTS DILEMMA– Claiming dependents is one of the biggest mistakes I’ve see on tax returns every year. That’s because it’s a confusing category. A dependent is officially considered a child who has lived with you for more than half the year and who you’ve paid more than 50 percent of his/her financial support. But, a dependent can also be a relative who you’re supporting financially, who doesn’t earn more than $3,800 in income.
3. TIMELY TAXES– April 15th is right around the corner. If you or your accountant cannot file your taxes on time, make sure to file for an extension. However, even if you’re granted an extension, you still have to pay the taxes you owe. Ask your accountant to work up an estimated tax amount, then set up a payment plan. Many people fail to do so, which can result in hefty penalties.
4. TAX PREPARATION PRO– I often have panicked business owners or individuals that call me to ask for help less than a month before their taxes are due. These callers all have one thing in common: trust in a CPA or tax preparer, who then turns out to just be collecting on improperly completed work. If you have a tax preparer or accountant, make sure your professional is going above and beyond. Make sure you choose a pro, who is looking out for you and your business. He or she should be looking ahead at your business goals and even working on future tax planning strategies.
5. FORGET THE RAPID REFUND– It’s such a great feeling to receive a tax refund. Everyone wants money back. But, if your tax preparer asks you if you want a rapid refund or refund anticipation loan, which gets your refund back the same day, say no.You may be required to pay a finance fee of $50 or more; it’s your refund, so be patient and don’t give your money away.
6. TO DEDUCT OR NOT TO DEDUCT– The biggest mistake I see on tax returns are taxpayers taking outrageous deductions or being too aggressive with their deductions. Company trips and dinners are acceptable, but writing off your family’s entire vacation is a red flag for IRS auditors. There are so many crazy tax deductions a person can take, but I will share the best ones with you next week in my newsletter.
For now, remember to avoid these 6 simple tax filing mistakes that could cost you in the long run. If you have questions about what could be a red flag on your tax return, email me or give anyone on my Brigade Bookkeeping team a call. We love being accountable, but not audited.