Are You Familiar with the 12 Common Tax Problems to Avoid?
There are 12 common tax problems to avoid in order to succeed in your business. These issues also overlap to individual taxpayers as well. This article is for those people who get worked up over filing a tax return. Here are specific steps you should take to help ease the struggle. Below are 12 of the most common tax issues that people report each year. We will show you how everybody can minimize their impact this year.
If you own your own business:
1. Avoid penalties and fines by understanding the rules about deductions.
Tax deductions are a great way to minimize taxes when they’re used the right way. However, tax deductions are also frequently abused and overused. The whole point of deductions is to provide businesses the ability to eliminate taxes. That being for items they bought to grow their business. Even though this includes capital expenditures, client gifts, and business travel, it does not mean that you can include expenses under every event. For example, deducting an expense just for talking about your business while you’re on vacation with your family. The IRS has published rules about how much of each expense can be deducted. The IRS is clear as to what type of expense can be deducted and under what circumstance. If you include something that is questionable, you will have to justify it, and if you can’t, you’re going to end up worse off than if you hadn’t made an attempt in the first place.
2. Failing to keep track of business expenses that can be deducted.
The flip side is when people try to game the system. They do this by taking expenses to which they’re not entitled. And example is people failing to deduct expenses that they could have because they’re not careful about keeping track. This frequently happens when people don’t dedicate a credit card or account specifically to their business expenses. Or, when they use cash when traveling or attending business meetings. When you don’t deduct legitimate expenses, you’re cheating yourself out of tax savings. So, start keeping all receipts, and talk to a tax professional so that you understand exactly what you can write off, and what you can’t.
Individual and Business taxpayer problems:
Below are more common tax problems that can apply to an individual taxpayer or business.
3. Failing to choose a reputable professional tax preparer.
It’s nice of your cousin or next-door neighbor to offer to help. And, you might save money by going to a storefront tax preparer that claims they will do the whole job quickly and at a low cost. However, an awful lot of taxpayers end up in big trouble as a result of these types of offers. Whether the issue is incompetence or fraud, plenty of people are finding themselves facing penalties and fines or having their refund money stolen as a result of choosing the wrong tax preparer. Do your homework and be willing to spend the money to have your return prepared by a legitimate professional. The things to watch out for include promises of specific refund amounts prior to reviewing your documentation, fees that are based on the amount of your refund, and fly-by-night operations that appear right before tax season and then are gone on April 16th. If you do find a fraudulent tax preparer has victimized you, contact the IRS and attorney right away who will pursue justice and act as your advocate.
4. Filing after the deadline.
If you were late in filing last year, you had plenty of company – the IRS reported that almost 45 million taxpayers waited until April. But filing late is a mistake. You are likely to end up paying extra money in fines and penalties, and the later you are, the more likely you are to make errors that will make the entire process take longer and may lead to audits and delays. More importantly, if your lateness is a recurring theme and you still haven’t gotten in paperwork from previous years, it affects the accuracy of your current return and may impact your ability to get any refund or credit that you’re owed.
5. Failure to file a return at all.
Plenty of people disregard the tax laws and don’t submit a return. Many of them may not actually owe any taxes, while others reason that since they can’t afford to pay what they owe, they’re better off not submitting anything. This is absolutely wrong. If you are anticipating a problem with submitting the tax that you owe, you can file an installment agreement request that will help you set up a schedule of periodic payments instead of submitting the amount in full at tax time. This is a much better option than not filing, as even though you may have to pay some interest or penalties, they won’t be as punishing as the fees you’ll pay for failure to file a return. You can also choose to file an application for an automatic extension, which gives you more time to get the documentation together, if not the payments. Again, penalties and interest rates are much lower when you avail yourself of this option rather than failing to file.
6. Simple mathematical errors
Remember when you were a kid in math class and you’d get a quiz back with mistakes that you’d have spotted if you’d just double checked? Same is true with your taxes. Take the time to go back over your math before you sign on the dotted line or send your return in. It just takes a few extra minutes, and it can save a lot of time and aggravation. Alternatively, use a professional tax preparer and then you don’t have to worry about it at all.
7. Administrative errors
Just as you need to check that you’ve done your math computations correctly, you also need to take the time to take a second look at the forms that you’re filling out to make sure that you’ve filled in every box, used all the appropriate forms, and filled in your information correctly. You’d be amazed at how many people transpose the numbers of their social security number or whose handwriting is so bad that it can’t be read by the IRS and gets sent back. Take your time, be careful and do it right to save yourself a headache in the future. A few areas worth double-checking include:
- Social Security Number
- Bank Account Numbers and Routing Numbers
- Signature and Date Lines
8. Not staying current with updates to tax laws.
Every year there are taxpayers who fail to take advantage of them because they simply weren’t aware that they existed. If you’re going to do your taxes yourself, take the time to stay up-to-date. Alternatively, you can work with a tax professional: part of their job is to know all the new laws and apply them to your best advantage.
9. Don’t use the wrong filing status.
Single. Head of Household. Married filing jointly. Married filing single. It can be very confusing to know which benefits you most, and choosing wrong can make an enormous difference. There are a lot of things that married couples are entitled to if they file jointly, and a lot of disadvantages to filing single. Take the time, do the math so that you know you’re doing the right thing.
10. Clutter may be bad, but you should hold on to your old tax returns.
No matter how much you try to keep it simple and purge old paperwork, your past tax return is one thing you really need to hold on to in case the IRS comes back and asks questions or you realize that you’re entitled to a refund if you file an amended return. Having the paperwork handy means you can give it to attorneys, mortgage brokers, accountants and the IRS itself in case they ask for it or if providing it would help your situation.
11. Learn about and take advantage of every potential deduction
Of all the painful mistakes that taxpayers make, overpaying is at the top of everybody’s list. What could be worse than giving the government more of your hard-earned money than you needed to? The best way to avoid this mistake is to go through the lists of possible deductions. Write down every one you might be able to take, then see if you can use it.
12. Not using the right tax forms for your needs or status.
This can be anything from the wrong year on the form to the wrong type of form. Though most people are familiar with the 1040 form, it’s not necessarily the right one for everyone. While the 1040 works for those who itemize or who own their own business, but is it the best for W-2 employees? W-2 employees without a lot of complicating factors may be better off using the 1040EZ form. Likewise, you need to make sure that there aren’t mistakes on any of the paperwork that you’re handing in, whether it’s your W-2 or information from any of your banks. Finally, many people are taking advantage of electronic filing to get their returns in on time and get their refunds more quickly, and if you’re doing that too, make sure that you’ve input the correct.
If there are errors on your W-2 Forms or other financial forms, make sure you address them sooner rather than later, or else the IRS will become involved. If you’re filing electronically, double check every digit of your information to avoid delays.
What if you can’t avoid a tax issue?
These are just a small list common tax problems to avoid. Believe it or not, there are more. No matter how hard you try, at some point, you may find yourself facing one or more of the these issues. Or, you may encounter something entirely different that we haven’t put on the list, it happens. And, when that happens to you, contact us immediately for expert professional help. Call me, Alex Franch, BS EA a call at 781.849.7200 or email us at email@example.com.
Alex Franch, BS EA
Mr. Franch is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Mr. Franch is an Enrolled Agent and has eight years of tax preparation experience. He has been serving individuals, families, and businesses for several years with tax and financial planning strategies and is a junior partner with the firm.
Mr. Franch is licensed by the Financial Industry Regulatory Authority (FINRA) with a Series 6, 63, 65, and 7, and by the Commonwealth of Massachusetts Division of Insurance.
Alex Franch is a registered representative of and offers securities and investment advisory services through Commonwealth Financial Network, A registered broker-dealer, Member FINRA/SIPC.
Receive a Free Subscription to Our Newsletter
Sign Up for our FREE newsletter and get the latest in tax updates and issues that affect your tax well being. Your email is safe with us!
Sources and Resources
- Tax Reform is Confusing Part 2
- Tax Reform is Confusing! Here is a Side by Side Comparison Part 1
- Learn About This Year-End Tax Strategy
- Natural Disaster Relief
- We Have a New Tax Preparation Office
- Emergency Savings: 67% of People Don’t Even Have $500 Emergency Fund
- Did You Donate to Charity?
- Don’t Expect the IRS to Take Your Word on Charitable Deductions – Substantiate
- Charitable Contribution: Tax Plan for Potential IRA-to-Charity Provision
- Home Office Tax Deduction Good or Bad?
- 529 Plan: Higher Education, Learning the Hard Way
- Minimizing Tax on Social Security Benefits
- Employee Business Expenses: Tax Reform Suspends Tax Deduction
- Preparing Taxes for 2018 and Beyond