The majority of your necessary tax documentation for 2013 should have arrived to you by this point. By January 31st, W2s, 1099s, and other documents are intended to be mailed. It would be a good idea to get in touch with the organization right away to find out the status of your documents if you haven’t yet received everything you were anticipating.
For the 2013 tax year, a few new laws have taken effect. Avoid them as well as a few persistently frequent mistakes that more than a few taxpayers encounter each year.
No matter how innocently, making one of these common tax errors might lead to underpayment of taxes and cause the IRS to send you a barrage of computer-generated correspondence threatening penalties, liens, incarceration, and other unpleasant actions. And if the error benefits the government, you can unintentionally lose hundreds of dollars or more.
Here are seven typical tax errors you should avoid making this year.
1. Failing to maintain accurate records
If you’re ever audited, your documentation will serve as proof. Make it a practice to file statements and receipts (or, even better, scan them into financial software). Make a folder in your email for electronic receipts. You don’t need to print them unless you’re being audited, and they’ll always be arranged by date. Keep a copy of your tax return and all supporting documents until the deadline for an audit has passed after filing. Generally speaking, a federal return has a three-year deadline and a state return has a five-year deadline. Your federal return may occasionally be audited up to seven years after filing. There is absolutely no statute of limitations if you file fraudulently or fail to file at all.
2. Select the incorrect filing status.
File as “head of household,” not “single,” if you’re a single parent. Your standard deduction will be bigger as a result, which will lower your taxable income.
3. When you would be better off itemizing, take the standard deduction.
Generally, you will profit from itemizing more if your income is larger and you have more assets. However, before assuming that you should take the standard deduction since you don’t make six figures, take all relevant facts into account. Check for the most frequent large deductions right away. Consider adding up any mortgage interest, refinancing points, real estate taxes, sizable medical or dental costs, state and local taxes (including sales tax), or charitable contributions to see whether the total would be greater than the standard deduction you are eligible for. If you choose to itemize, make sure you are aware of what constitutes a valid deduction or seek advice from a tax expert.
4. Ignore techniques that could reduce your tax obligation.
Make sure you’re contributing in a way that lowers your taxable income to your retirement plan and FSA account, and that you’re taking full advantage of both. You have until April 15th to contribute toward your 2013 FSA contribution limit ($3,250) if you are entitled to do so. Don’t disregard medical bills because the 10% barrier (or 7.5% until 2016 for taxpayers over 65) intimidates you. You may deduct eligible expenses for acupuncture, smoking cessation programs, dental treatment, meals, and housing that you pay for medical care for you or a dependant.
On the other hand of the plan, avoid abusing particular tax advantages excessively. For instance, you cannot claim the entire dependent care tax credit if you engaged in a flexible spending account for dependent care. Taking two tax deductions for the same expense would be that.
5. Exaggerate philanthropic donations.
If something of value was obtained in exchange for a gift of $250 or more, it must be acknowledged in writing and noted in the charity’s letter. If so, the value of it must be subtracted from the total gift amount before you may claim the deduction. Property gifts costing more than $5,000 need to be properly valued.
6. Failing to disclose income.
Every time a source sends you a statement or tax form, the IRS receives proof of your income, and their computers compare those figures to the sums you provide on your return. It’s a dead giveaway if the math doesn’t add up.
7. Forget to sign your return or, if you owe money, leave out the payment.
Unexpectedly many taxpayers fail to sign their returns. If you’re filing near to or on the deadline, that missing signature might cost you a lot in penalties and fees because it’s the same as not filing a return at all. Utilizing electronic filing is one approach to prevent this error. Check the return and all enclosures thoroughly, even if a tax expert assisted you.