9 TAX MISTAKES TO AVOID
Failing to declare incomeThe IRS has a long list of things it considers income: wages and salary, but also cancelled debt, prize winnings, alimony and bartered items are considered taxable income. The IRS does not consider ignorance of tax law an excuse for non-payment of taxes, so if you aren’t sure if something is income, be sure to consult a tax pro.
Disorganized Records Keeping good records is essential for staying out of tax trouble. Since most audits are by correspondence, you need to be ready with documents to back up your claims. If you don’t have the necessary evidence, the IRS may disallow you expenses, resulting in a tax debt.
Mixing Business and PersonalMixing your business expenses and your personal expenses, called “co-mingling,” is a BIG No-No as far as the IRS is concerned. To avoid tax complications down the road, be sure to keep business and personal as separate as possible.
Missing Forms 1099Be sure to keep track of every 1099 you receive. Neglecting to report one on your tax return, will cause issues with the IRS. Remember, when a 1099 is sent to you it is also sent to the IRS. The IRS’ information return matching system will catch the 1099 missing from your return.
Ignoring TimingEverything in taxes is about timing. Timing can affect income and deductions. Consider the tax consequences before postponing the payment of wages or the sale of major assets.
Claiming Wacky DeductionsWhile it is important to take advantage of the tax deductions available to you, don’t get overly creative. The IRS will audit you if they think something is up with your return. Be sure to consult with a tax professional if you are unsure about your deductions.
Forgetting Foreign IncomeThis is major. No one get Forms 1099 from foreign banks. If you have income from abroad, report it. While income earned abroad may or may not be taxed in the United States, you still must report it.
Overlooking EntitiesWhether foreign or domestic, if you own stock in a company or interests in a partnership, don’t forget about it at tax time. Those entities file forms and returns that may impact your return as well.
Disregarding Filing StatusAlthough 95% of married people file jointly, it is not always in their best interest. Before filing jointly, consider immigration statuses and past financial issues.
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Wood, Robert. “Top 10 Tax Mistakes To Avoid At All Costs.” Forbes. Forbes.com LLC, 1 April 2014. Web. 26 May 2015. <http://www.forbes.com/sites/robertwood/2014/04/01/top-10-tax-mistakes-to-avoid-at-all-costs/>.
