Finances FYI Presented by JPMorgan Chase
Filing your taxes is a dreaded task for most people, but it’s a necessary one. Making errors on your tax return can lead to financial headaches, potential legal issues, and unnecessary stress. To navigate the tax-filing process smoothly and avoid the most common mistakes, follow these tips:
File on Time
One of the most common mistakes taxpayers make is missing the filing deadline. The annual tax deadline in the United States is typically April 15. Filing late can result in penalties and interest charges. To avoid this, mark your calendar, set reminders, or consider filing an extension if you can’t make the deadline. Remember that an extension only gives you more time to file, not more time to pay any taxes owed.
Correct and Complete Information
Accuracy is crucial when it comes to filing your taxes. Common errors include typos, miscalculations, and missing information. Double-check your Social Security Number, income and deduction information, and math calculations. A simple mistake can trigger an audit or delay your refund.
Remember to Sign and Date
It may seem like a minor detail, but forgetting to sign and date your tax return is a mistake that can result in the rejection of your filing. Be sure to sign your return where required and include the date. If you’re filing jointly with your spouse, you both must sign.
Report All Income
Some taxpayers neglect to report all their income. This includes income from freelance work and side gigs, rental properties, and investment gains. The IRS receives copies of your income documents, such as W-2s and 1099s, so make sure your reported income matches what the IRS has on file.
Claim All Your Deductions and Credits
One of the most significant benefits of the tax system is the ability to claim deductions and credits. Many taxpayers miss valuable deductions or fail to claim credits they are eligible for. Calculate the standard deduction and itemized deductions to determine which option provides the most significant tax benefit. Consult with a tax professional to ensure you are taking full advantage of opportunities to lower your tax liability.
Some common itemized deductions and credits include:
Deductions:
- Mortgage Interest
- State and Local Taxes (SALT)
- Charitable Contributions
- Medical Expenses
- Student Loan Interest
- Educator Expenses
Credits:
- Child Tax
- Earned Income Tax Credit (EITC)
- Lifetime Learning
- American Opportunity
- Savers Credit
- Child and Dependent Care
- Adoption
- Foreign Tax
Correctly Select Your Filling Status
Choosing the wrong filing status can lead to paying more taxes than you owe. There are five filing statuses:
- Single
- Married Filing Jointly
- Married Filing Separately
- Head of Household and
- Qualifying Widow(er) with Dependent Child.
Selecting the appropriate status can significantly impact your tax liability. If your status has recently changed or you are unsure which fits your circumstances, visit the IRS website’s interactive tool for assistance.
Keep Good Records
Good record-keeping is essential for tax preparation. You may find it challenging to file an accurate return without documentation to support your income and deductions. Maintain organized records of receipts, financial statements, charitable contributions, and any tax-related documents throughout the year.
Utilize E-Filing Services
E-filing is more convenient and can also help reduce the chances of errors in your return. The software typically includes error-checking mechanisms that catch common mistakes before submitting your return. Additionally, e-filing usually results in faster processing and quicker refunds.
File Correctly as a Small Business
For small business owners, there are additional requirements and potential credits and deductions. Some common mistakes when filing taxes as a small business include:
- Inadequate record-keeping
- Failing to separate personal and business expenses
- Neglecting to take advantage of available deductions and credits and
- Underestimating quarterly tax payments or missing filing deadlines
- Misclassifying workers as independent contractors
Seek Professional Support
Tax laws are intricate and challenging to navigate, especially if you have investments, own a business, or face unique circumstances. If your financial situation is complex, it’s wise to seek the help of a tax professional. The costs of hiring a professional are often offset by the additional deductions and credits they help you claim.
Filing your taxes doesn’t have to be a stressful or error-prone process. By avoiding common mistakes and taking a methodical approach to tax preparation, you can ensure that you file an accurate return, minimize your tax liability, and enjoy peace of mind during tax season. For a tax-time triumph, remember to stay organized, file on or ahead of the deadline, consult professionals when needed, and always double-check your work before submitting your return.
Finances FYI is presented by JPMorgan Chase. JPMorgan Chase is making a $30 billion commitment over the next five years to address some of the largest drivers of the racial wealth divide.
