Are You Making Any of These Common Tax Mistakes?
NEW YORK ( MainStreet) The problem with tax mistakes is that you just don't know you are making them. The income tax code has grown from just four pages in 1913 to more than 70,000 pages today and influences virtually every decision we make, according to The Tax Foundation, a non-partisan research think tank, based in Washington, D.C.
The IRS says the tax payer is responsible for everything on the tax return (and not on the return) and the tax preparer is responsible for anything he had knowledge of. So, if you don't tell your tax preparer all the details about how you earn money and how you save and spend money, he is not responsible for whether you could have paid less in taxes or gotten a bigger refund.
That got me wondering about some of the worst tax mistakes taxpayers make. So, I called up Steve Kunkel, Managing Director of CBIZ MHM, a Top 10 accounting and professional services provider.
Kunkel has more than 34 years of accounting and financial planning experience and told MainStreet that any one of these mistakes could cost you anywhere from hundreds to thousands of dollars.
Think about how you are preparing for taxes right now and ask yourself, "Am I making any of these tax mistakes?"
1. Not keeping good records: People have a tendency to forget to tell their tax preparer things that have happened during the year and they don't really know what's important either, says Kunkel. Did you pay for a new professional subscription, have out-of-pocket medical expenses, fix the truck, incur any education expenses, get married or divorced, have a baby, sign a pre-nup? You need to tell your tax preparer all of these things so he can maximize your return. If you keep a folder of records of anything new in your life or that you spend money on throughout the year, you will have those important records handy, at tax time.
2. Not reporting all of your income: People mistakenly think if they didn't get a W-2 or 1099-MISC, they don't need to report the income. All income is taxable unless specifically exempt. Don't forget the person or company who paid you the money is also required to report that expense. If you don't report a significant amount of money, it can flag the IRS to look more closely at your return as it appears you may not have appropriate means of support for your lifestyle. If you are self-employed and receive 1099s, keep a separate bank account for those earnings and expenses, so you can easily track and access those records, says Kunkel.
3. Not contributing to retirement plans that provide a tax benefit: Kunkel says a big way to reduce your taxable earnings is to contribute the maximum to your retirement plans allowed. For 2013 and 2014, the maximum contribution to all of your traditional and Roth IRAs is $5,500 ($6,500 if you're age 50 or older) and $17,500 to an employer 401(K) (with exceptions). Plus, you reap the tax-free rewards of the compounding interest effect over many years, especially if your company 401(K_ matches contributions, advises Kunkel.