Good people make mistakes with their taxes all the time. Unfortunately, they don’t always realize it and may find themselves in trouble with the IRS. Perhaps you find yourself in this position today and feel unsure of what to do next. Now that it’s officially 2019 and time to work on your 2018 return, you may feel concerned about making tax errors. Below we address best practices for avoiding some of the most common tax planning mistakes and reporting errors.
Lack of Organization
You should expect to receive a significant amount of mail in January and February pertaining to your taxes for the previous year. This includes such things as W2 and 1099 statements that report your income, mortgage interest statements, and information about retirement savings accounts. Some companies may also send you important tax information via email. Regardless of how you receive these forms, it’s essential that you place them in a secure location until you’re ready to start your tax return.
You will also need to collect some information on your own, such as receipts for charitable donations. Once you have gathered all paperwork you will need to file your return, spend some time organizing it by topic and place it in a safe or a secure file folder. If you plan to have your tax return prepared by a professional, he or she will greatly appreciate this level of organization.
Missing Quarterly Estimated Tax Payments
If you are self-employed, even if it’s only part-time or a side gig in addition to your regular full-time job, the IRS requires you to make estimate quarterly tax payments. These payments are due each year on January 15, April 15, June 15, and September 15. You will also need to make quarterly payments to the Pennsylvania state government if you operate your business here. All but seven states require the payment of quarterly taxes from self-employed individuals.
Not Understanding the Various Forms You Need to File
You’re not alone if you don’t understand which tax forms you should receive to file your return. Many people share in this confusion and then end up having problems with the IRS later. It’s always a good idea to assess your tax situation at the end of the year so you know which forms to expect. That way you can follow-up with companies that didn’t send them during the time you would have expected.
The 1095 is a typical form that people don’t look for in the mail. You should receive this form if you acquired health insurance through a state marketplace. The 1095 makes it possible for you to claim certain credits related to healthcare on your return. If you own your home or other real estate, you should receive a 1098 form to show how much mortgage interest you paid. Form 2441 is often overlooked as well, which shows how much you paid for childcare so you could work.
Typical tax forms include W-2 forms from all employers in the past tax year and 1099 forms for contract work or additional income.
Submitting Tax Returns or Estimated Payments Past the Filing Deadline
The deadline for filing your annual federal tax return is always April 15. The one exception to this is if April 15 falls on a weekend or holiday. In that case, the IRS will extend the deadline to the Monday closest to the 15th or the next weekday that is not a holiday. The due date for annual state returns in Pennsylvania is also April 15.
Math Errors
Of all tax mistakes, this one is the easiest and most common to commit. We recommend that you check your numbers several times before feeling satisfied with the sum. If you use a software program to complete your taxes, it should calculate the figures automatically. A professional preparer is responsible for ensuring accuracy before submitting a federal or state return on your behalf.
Not Checking Withholding Status from Your Paycheck
When you start a new job, you complete a form stating how many dependents you have and whether you want any additional amount withheld from your paycheck. This allows your company’s human resources representative to deduct the appropriate amount of federal, state, and social security taxes.
Sometimes family situations change or the numbers don’t come out right at the end of the year. Checking your withholding information annually is the best way to ensure accuracy. Starting a new job is the ideal time to get your withholdings right so you come out close to even with the IRS at the end of the year.
Failing to Maximize 401(k) or Individual Retirement Account (IRA) Contributions
It’s common for employers to match employee contributions to their 401(k) account to encourage them to save for retirement. For example, assume that you contribute six percent of your pre-tax income to your 401(k) account each paycheck. If your employer offered a 50 percent match, you would receive an additional three percent on top of what you already contributed.
However, many employees don’t understand how this works and fail to take advantage of it. If you’re not maximizing your 401(k) contributions, you’re also paying more taxes than you should. That is because any amount set aside for retirement is on a pre-tax basis. This means you don’t pay tax on the money until you withdraw it in retirement. If you’re self-employed, look into starting an IRA if you don’t have one already as these contributions also lower your tax burden.
TaxLane is Here for You
We hope that these tips will make it easier for you to prepare your federal and state tax returns this year. Because mistakes still happen, we want you to know that we’re here to help you figure out and resolve past issues with the IRS. We know how stressful it can be to live with a tax problem hanging over your head and we want to give you the gift of peace in the new year.
