Tax Season Alert: Six Common Mistakes to Avoid for Maximum Savings
As tax season approaches, experts are urging taxpayers to be vigilant in avoiding costly mistakes that could impact their returns. With the complexity of tax laws and the potential for oversights, consulting a qualified tax professional can be crucial in maximizing savings and ensuring compliance.
Here are six common tax mistakes to watch out for:
- Overlooking Last-Minute Tax Strategies
Many taxpayers miss out on valuable deductions by failing to review their returns for last-minute opportunities. Maximizing contributions to health savings accounts and traditional IRAs before the deadline can significantly reduce taxable income. Additionally, using flexible spending accounts and contributing to 529 plans can offer further tax advantages if done before the cutoff date.
- Not Evaluating Potential Tax Credits
Tax credits can substantially reduce tax bills, yet they are often overlooked. Common credits such as the child tax credit, earned income tax credit, and education credits can lead to significant savings. Understanding eligibility requirements for each credit is essential to take full advantage of these opportunities.
- Forgetting to Report 1099 Documents
A frequent oversight is failing to report income from 1099 forms. This can result in IRS notices and potential penalties. Taxpayers should be on the lookout for various 1099 forms, including 1099-INT for interest income, 1099-DIV for dividends, and 1099-NEC for non-employee compensation.
- Omitting Estimated Tax Payments
Self-employed individuals who make estimated tax payments throughout the year must report these on their returns. Failing to do so can lead to overpayment or refund delays. Keeping detailed records of these payments is crucial for accurate reporting.
- Not Double-Checking Imported W-2s
While tax software import features are convenient, they are not infallible. Errors in imported W-2 information can lead to discrepancies in reported income. Taxpayers are advised to verify all imported data against their physical W-2 forms to ensure accuracy.
- Neglecting Side Hustle Tax Planning
Many individuals with side hustles overlook the tax implications of their additional income. This oversight can result in unexpected tax bills. Financial experts recommend setting aside a percentage of side-hustle earnings for taxes and making quarterly estimated payments to avoid surprises.
As the tax deadline approaches, taking the time to review these common pitfalls can help taxpayers avoid costly errors and maximize their returns. Consulting with a tax professional can provide personalized guidance and ensure all potential savings are realized.
