With tax season rolling up around the corner, it is important that you are prepared and ready to organize and file your taxes. Make sure you don’t find yourself making these common tax mistakes:
1. Not updating accountants on personal changes – Many individuals have accountants and those accountants have the individuals’ information as was given to them previously. This information includes home addresses and occupation. Tax payers should make sure their accountant has the information updated each year.
2. Differentiating between reportable income – For those who have retirement accounts or certain work functions, your gross for work may be different in Box 1 of your W-2 versus Box 3. Be very cognizant when entering the correct gross income for tax purposes.
3. Not recording gambling winnings – Gambling winnings are taxable income and should be reported. Of course, gambling losses are also reportable up to the amount of winnings on Schedule A for itemization purposes.
4. Forgetting to take sales tax deductions in state with sales tax and Big ticket items. For states with state income tax, tax payers should compare and see which deduction is higher for itemize deduction purposes. For states with no state income tax, tax payers should make sure they elect to take the sales tax deduction. Additionally, large purchase items such as cars and boats should also be included when electing to take the sales tax deduction.
5. Auto expense deductions – For businesses, there are two forms of auto expense deductions, one is using the mileage and the other is using the actual expenses paid (or incurred). A tax payer can only choose one, not both. And in the first year of the deduction for the automobile, if they choose auto expenses they can use this method of deduction for the life of that automobile.
6. Deductions for parents – Many tax payers are now providing the majority of the support for the elderly parents. If the dependency test is met, the parents should be claimed on the tax payer’s tax return as dependents.