Mistakes You Want to Avoid When Filing Your Taxes
Whether you’re self-employed or happily in a 9-5, working a side hustle, single or married, these are 10 major mistakes people make when filing your taxes.
1. Filing Before You’re Ready
Believe it or not there are so many people who try to file before they even receive all of their necessary forms (income information, interest and dividends, mortgage interest statement, retirement account information, etc.) and end up entering incorrect or incomplete information. Be sure to wait until all of your information has been received in order to ensure 100% accuracy and a smooth process from start to finish. You should expect to receive a W2 form from every employer (part-time or full-time) before filing, and a 1099 from any contract work that was billed for $600 or higher, unless it was done with an individual as opposed to a business.
2. Making Clerical Errors
Take your time when filling out your form, and be sure to double check all of the information that you’ve entered, as incorrect income amount or social security number can seriously set back the filing process.
3. Not Understanding the Difference Between Filing Joint or Separate as a Couple
Do your research! This varies depending on your specific situation.
4. Keeping Inaccurate or Incomplete Records for Your Side Hustle
If you have a side business in addition to your full-time job, it’s all too easy to not spend as much time and energy as necessary to keep accurate and complete records of your extra income and expenses. A huge mistake we find people make is not treating their freelance work as a business. Keeping track of all your invoices and business purchases along the way will drastically save your business both time and money come tax season.
5. Missing Out on Credits or Deductions
Whether in your business or personal life, it’s important to make sure you’re accounting for any applicable credits or deductions in order to give yourself the lowest tax bill or biggest refund possible. Make sure you’re considering your mortgage interest statement, student loan interest, etc. If your taxes are complicated, working with a tax specialist ensures that you don’t miss out on any opportunities that can save you money in the long run, so be sure to walk through every possibility thoroughly before finalizing your return.
6. Neglecting to Write-Off Business Expenses
Many of us are unsure of what really qualifies as a business expense, and therefore we end up leaving money on the table by not writing off items that we use for both work and play. “Whatever is ordinary and necessary for your business can be a write-off,” says Sydnie. For example, if I purchase a laptop, even if I only use it for work 50% of the time, I can write off 50% of the cost. If you have a room in your home that you use as an office AND as a playroom, however, you can’t write off the percentage of the space that you use for work purposes. In order to qualify for a home office deduction, the specific area of your home must be used exclusively for business purposes.
Here are a few more common examples of appropriate write-offs:
Printer
A percentage of your car payment if you use it for work outside of your daily commute
Office supplies (pens, notebooks, calendars, etc.)
Office furniture (desk or office chair)
Items that do NOT qualify as write-off:
Business attire that you can wear anywhere else aside from work (so only scrubs or a work uniform are eligible for a write-off)
7. Waiting to File Because You Can’t Pay Your Tax Bill
Many people hold off on filing when they owe money because they are under the impression that they don’t have another option, but the best thing to do in this situation is to pay as much of the cost upfront as you can, and then schedule a payment plan through the IRS for the remainder.
8. Incorrectly Filling Out Your W4
Heed my warning and take your time filling out your W4 to really understand all of the necessary information that needs to be completed before submitting it to your employer. If you don’t accurately complete this information and don’t have enough taxes being withdrawn from your paychecks, you’ll find yourself owing money back at the end of the year.
Common mistakes on your W4 that could result in a tax bill include:
Claiming too many allowances (the more you claim, the less will be withheld). If you claim “0” allowances (meaning you have no spouse or no dependents), you will likely receive a tax refund, but it will mean that more taxes than necessary may be taken out throughout the year, than if you had claimed “1.”
Not considering other sources of income
Be sure to review thoroughly with your HR staff to ensure complete accuracy!
9. Anticipating a 1099 From Every Client or Contract Position
If you are waiting for a 1099 to come in the mail from every contract job you took on this past year, you may want to first confirm that you should be receiving one. Only contract jobs totaling $600+ are required to submit a 1099; otherwise, you are responsible for reporting the income based on your own records and invoices. Another reason to stay on top of that accounting!