It’s easy to make mistakes when you’re filing your taxes, particularly if you’re in a hurry or if you’ve got a complex business. Some mistakes will cost you more than others, and these top 10 serious mistakes identified by Forbes are items you won’t want to mess up on.
- Not declaring income. With very few exceptions, all the money you receive is considered income by the IRS and is subject to tax. If you’re audited, the IRS has ways of finding income you’ve received but failed to report.
- Bad record-keeping. Many mistakes are the result of sloppy record-keeping—you forgot to record a big payment, you didn’t keep receipts for important expenses, etc. If you take the time to keep good records, you’ll save yourself a lot of time and money if you’re audited.
- Missing or incorrect 1099s. The IRS matches the 1099 information that your clients send them with the income you report. If your clients make errors or if you’ve lost a form and aren’t sure what to report, you could encounter problems. Take the initiative to store all 1099s in a designated location and examine each for accuracy.
- Mixing business with personal. Real life doesn’t always fit into separate boxes. You may be friends with a client and go to dinner or spend a vacation together with your families. Your divorce might affect your business. But the IRS doesn’t view things the way you might. If it looks like an expense you’ve claimed may have a personal aspect, they’ll likely not allow the deduction.
- Ignoring timing. Depending on how you’ve set up your bookkeeping, income may be considered income when you complete work, no matter if the client has actually paid you yet or not. Income from the sale of a home may be considered income before the buyer has completed the purchase as well. Be sure to set payment terms in writing and make timing clear.
- Claiming ridiculous deductions. The IRS doesn’t take invalid claims lightly. You’re risking penalties of perjury when you claim deductions you know are a stretch.
- Forgetting foreign income. Foreign banks don’t issue 1099s, so it’s easy to forget to include foreign income. Interest, rent, and dividends are all taxable in the U.S. even if you are paying tax in another country.
- Forgetting foreign accounts. If the total of your offshore accounts is over $10,000 (at any time during the year), you need to file an FBAR. Keep in mind that these are due by June 30 each year, and the deadline is not extendable.
- Ignoring stock or interest in companies. The stock you own or interest in a company you have are both taxable. The entities must file, and you are required to file as well.
- Not planning filing status. It’s not required that married couples file jointly, and sometimes it’s to your advantage to file separately. Do the math to make sure you’re filing strategically.
Although it takes a little time and effort to be conscientious and plan ahead, it’s worth it in the long run. You can save yourself headaches, money, time, and (potentially) prosecution. If you have questions or want to talk about your particular situation, give me a call at (864) 836-3136, and we’ll set up an appointment to talk.