The 8 Biggest Mistakes In Planning For Your Taxes

Avoid Tax Preparation Mistakes Now or Pay more later

The 8 Biggest Mistakes In Planning For Your Taxes
March 9, 2016

Planning pays off in most endeavors, and planning can pay off very well with respect to taxes — or more accurately, failure to plan can cost you a lot of money. How, you ask? Consider these eight examples of planning failures that can lead to unpleasant tax surprises.

1. Poor Organization – Do you organize your necessary tax documents throughout the year so you can easily find them at tax time? Do you just leave them in a big stack until April 14th? Do you not even bother to put them in a stack? Without necessary tax documents or receipts to back up your itemized deductions, you run the risk of being unable to claim valuable deductions or even incurring penalties for failing to file on time.

2. Procrastination – It is human nature to put off unpleasant tasks like doing your taxes. Unfortunately, the longer you wait to get started, the more likely you are to make mistakes on your return or have trouble finding necessary information (see Poor Organization).

3. Failure to Adjust Withholding – Be sure to adjust your withholding to account for life changes like marriage, birth of a child, job changes, or raises (remember those?). Failure to adapt may result in the wrong amount of tax being withheld, potentially resulting in a large tax bill and/or underpayment penalties. Over-withholding is not good either, because you are just allowing the government to make interest on your money instead of claiming it for yourself.

4. Not Claiming Deductions or Credits – Do not just assume that you are not eligible for a particular deduction or tax credit, or that you do not have enough tax deductions to itemize. Look over your potential tax deductions at the beginning of the year so you can keep all the necessary receipts and paperwork to make your claims.

5. Failing to Report Health Care Subsidy Adjustments – If you received subsidies to help you pay for health insurance purchased on the federal exchange, remember that your subsidy is an estimate based on your information at the beginning of the year (projected income, family size, etc.). Should something change during the year to alter your estimated income or your qualification standing, you must notify the health exchange as soon as possible so that they can make the necessary adjustments. Otherwise, you could be stuck with an extra tax burden at the end of the year.

6. Failing to Track Carryover Items – Some tax benefits carry over into the next year if you cannot claim the entire credit this year. Examples include capital losses beyond the deduction limit of $3,000 and excess charitable contributions. However, you won't claim them if you forget about them, or have not tracked the carryover amount correctly.

7. Missing Quarterly Tax Payments – Independent contractors must pay their taxes quarterly once they achieve sufficient revenue. Making those payments late, or forgetting to make them at all, will cause you to incur penalties.

8. Vetting Preparers – It may be tempting to have your taxes done by those who promise you the largest refund, but do not trust anyone who can promise that without looking at your tax form. If you are seeking advisors to help you, check out their ratings and credentials well before your taxes are due.

Do not fall prey to these pitfalls. Take care in planning your taxes, and the only surprise you will have at tax time is how much money you have saved on your tax bill.

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Tina | 03.09.16 @ 00:01
The carryover items are the ones that get me. I need to learn more about it and keep better records!
Meredith L | 03.09.16 @ 00:03
Procrastination is probably my biggest mistake. I've had a lot of changes in the last year so I'm actually considering talking to a professional instead of the usual online service. I've still got time!
connie | 03.09.16 @ 00:06
I used to file my own taxes until things got more complicated. This is great information and I always do my research online to make sure I'm not missing any new deductions.
Ron | 03.09.16 @ 00:12
Ditto, Meredith. I started two new business ventures, plus catastrophic natural disasters, and yet another major medical incident. I will be heading to the "professionals" this year. I am beyond a W-2 and mortgage insurance interest.
Leslie | 03.09.16 @ 00:19
These are really great tips, especially the ones about being organized and procrastinating. I'm guilty of both and it drives hubby crazy at tax time.
Bobbie | 03.09.16 @ 00:21
Procrastination and not being organized are my biggest hurdles. I get a little better each year.
Erin | 03.09.16 @ 00:23
I think poor organization is our biggest mistake. The others we take care of pretty well, but getting our act together in the first place is the biggest step. Great reminders, thanks!
Carla Truett | 03.09.16 @ 00:25
We recently had to adjust our withholding. It really helped us when tax time came around this year.
Amanda | 03.09.16 @ 00:26
Procrastination here, still haven't filed this years. I never go through the process of deductions either. Just took much work.
trish | 03.09.16 @ 00:29
We are in the procrastination mode right now. I have been gathering everything, but have yet to get it to the accountant. You have inspired me to get it in the mail tomorrow. Guilt works every time... :D
$commenter.renderDisplayableName() | 01.17.17 @ 21:49

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