57% of Americans are doubtful about their knowledge of the tax code.
These Americans argue that the IRS keeps changing the taxation regulations, and it's hard to keep up. Others believe in tax preparation misinformation and end up making serious errors. The problem is that some tax preparation mistakes lead to hefty penalties or even jail terms.
So, what should you do to mitigate these risks? Read on to uncover seven common tax preparation mistakes and how to avoid them.
1. Exaggerating Tax Deductions
To reduce the tax obligation, some people exaggerate tax deductions. These people often deduct 100% of expenses that they're supposed to make partial deductions. Problems arise when the IRS conducts an audit, and you are found guilty of these offenses.
Even more worrying is that the IRS will penalize you even though it was an honest mistake. Maybe you deducted a non-deductible expense without knowing, and now the IRS is charging you a hefty penalty. So, to avoid this tax filing mistake, take time to learn more about tax deductions.
If you’re already facing this problem reach out to a licensed tax attorney for legal help.
2. Inputting the Wrong Names
Many Americans often struggle with high anxiety during the tax filing season. And that's why they have a hard time filling in the most basic things, such as names. Some of them send tax documents to the IRS with misspelled names.
Others add their names in the wrong places. Learn to control your anxiety when filing your taxes to avoid this mistake. Besides, double-check your tax returns documents before submitting them.
You want to make sure that the names you add to these tax preparation documents match the ones on your social security card.
3. Adding Incorrect Bank Details
Some Americans make transposition errors when adding bank details to their tax preparation documents. So, they end up adding a bank account of another person. Others with multiple bank accounts add the wrong account.
You need to double-check the tax returns documents before submitting them to avoid these mistakes. The idea is to ensure you have added the right bank account to these documents if you've multiple accounts. Besides, read the number carefully to make sure it's correct.
4. Math Error
Many US taxpayers often make simple math errors when filing their tax returns. Some make transposition mistakes and end up inputting the wrong figures. Others make errors when adding up or subtracting figures.
The problem is that some of the most common math errors are so basic that even when you double-check, you still miss them. So, the best way to avoid math errors is to avoid manual arithmetic computation. That's why you should consider using reliable tax preparation software to overcome this struggle.
Also, know when to seek professional tax preparation service, especially if you're dealing with huge numbers. The idea is to hire an experienced tax expert, thereby lowering the risk of a math error in your tax returns documents.
5. Mixing Business and Personal Finances
If you're running a flow-through entity, your business is not subject to corporate taxes. So the income you generate from this business you file as your personal income. That means that you file the personal and business taxes together.
However, due to having this option, some Americans mix personal and business accounts. They argue that it's okay to have a single bank account for both business and personal finances. After all, they'll combine these entities' tax returns.
The problem with mixing personal and business accounts is challenges in calculating the business income. So, if you're not careful, you may end up over or underestimating your business tax liability. To avoid this tax preparation mistake, set up a separate bank account and personal account.
6. Failing to Provide the Right Documents When Claiming Tax Deductions
Some taxpayers often fail to provide the right documentation when claiming tax deductions. And that's why the IRS declines their claims. To avoid this error, you need to know the right documents to provide when claiming deductions.
If you're uncertain about these documents, seek the help of a tax expert. The idea is to know what you can use as proof when claiming tax deductions. Besides, the tax specialist will guide you on total deductions to claim.
The objective is to take advantage of these deductions to reduce your tax liability.
7. Submitting Unsigned Forms
Due to the last-minute rush, some people forget to sign their tax returns forms before submitting them. Others filing joint tax returns send back the forms with a signature from only one person. Both of these mistakes lead to an invalid tax return.
So, part of tax preparation involves properly signing tax returns forms. That's why you need to double-check your signature on the tax forms before submitting them. Besides, if it's a joint tax return, ensure both of you sign the required forms.
Adhere to the IRS Regulations by Avoiding Common Tax Preparation Mistakes
To avoid trouble with the IRS, you need to file your taxes on time and prepare them properly. That's why you need to learn how to avoid the above common tax preparation mistakes. So, develop the practice of double-checking your tax returns forms you've added the right details.
Besides, know when it's best to use tax preparation software to avoid math errors. The goal is to minimize the risk of hefty fines and jail terms due to making tax preparation mistakes.
Are you facing problems with the IRS? Call us today for reliable tax resolution and remediation services.