Making errors in your tax filings can have serious repercussions for individuals and businesses. One notable downside is the financial strain resulting from inaccuracies in reporting income, deductions, or credits. Such mistakes can lead to penalties and interest charges, adding to the immediate financial burden. Moreover, these errors may prompt audits by tax authorities, inviting further scrutiny and potential legal consequences.
Apart from the financial implications, the process of rectifying mistakes is time-consuming and emotionally taxing. Additionally, repeated tax errors can harm your reputation with financial institutions and regulatory bodies. In essence, the negative impact of tax mistakes extends beyond the initial oversight, affecting both financial stability and peace of mind. This highlights the importance of maintaining diligence and accuracy when navigating the complexities of the tax system.
7 Tax Mistakes To Avoid
There are a few tax mistakes you can make that will cost you time and money. The implications can also be a little harsh and cause anxiety about money. So, from ensuring you declare all accounts to not missing deadlines, here are a few ways you can make it all go smoother.
Dissolving a Business Partnership
You have tax responsibilities as a business owner, and businesses are often partnerships. As a part business owner, you will, of course, have an EIN number or something similar outside the US. However, not all businesses last, and you may need a new EIN number for a new venture. Knowing how to cancel an EIN number is something that can help. But be aware that you are still responsible for filing right up until the end of the tax year, and you can’t change it until then.
Tax Mistakes Includes Not Declaring All Accounts
It isn’t uncommon for someone to have more than one bank account. In fact, most people have three. There are many reasons for this, such as savings accounts, accounts for bills, and separate tax accounts. While around 16% of people make mistakes on their tax returns, one of the worst you can make is not including interest from all your accounts. This includes interest from business bank accounts, joint accounts with someone else, and your personal accounts.
Failing to Record Everything
Your country’s tax office doesn’t take kindly to leaving things off your tax return. They may take it in good faith if you report transactions to them. But they are excellent at spotting mistakes and even better at checking for signs of deception. However unintentional a mistake is on your tax return, it can be a nightmare. So record everything you can. Record all incoming money and all outgoing money. Highlight business and personal income against genuine business expenses.
Making It Harder on Yourself
Some people have no problem filing their tax returns, and some even enjoy it. Yet even with a small home business, you may struggle with all the numbers and filling out the forms:
- Take the time to use online resources provided by your government.
- Call a tax advisor or accountant for expert help if you need it.
- Keep spreadsheet records of everything to reduce the paperwork.
- Learn when your tax deadlines are for filing and paying money owed.
- Use online apps and services to do the complex work for you.
Visit your country’s tax site to find out about what you need to do. Keeping a simple spreadsheet helps keep track and provides evidence. And online tools can keep track of transactions.
Leaving Out Deductible Expenses
You don’t often get a tax rebate and some extra cash from the tax office. But what you do get is a discount for genuine business expenses. The list of these is long, but it includes anything that you use for your business only. Of course, it gets a little gray with some things. But some good examples are a Grammarly subscription as a freelance writer. Or replacing a computer monitor for your work-from-home job. These will be deducted from your tax bill, saving some money.
Missing Deadlines is One of the Worst Tax Mistakes
If individuals miss the tax filing deadline, they may be subject to penalties and interest on any taxes owed. The specific penalties and consequences can vary depending on the country and its tax regulations.
Typically, the penalties may include:
- Late Filing Penalties: This is a penalty for filing a tax return after the deadline.
- Late Payment Penalties: If taxes are owed and not paid by the deadline, there may be additional penalties and interest on the unpaid amount.
- Interest on Unpaid Taxes: Interest may accrue on any unpaid taxes from the due date until the date of payment.
Not Using Online Tools
Filing taxes can be challenging and is often a source of stress for some people. But the issues only arise when you don’t take a proactive approach. For example, it’s a lot of work when you have to fill in a tax return for a year. Tools like Quickbooks allow you to record transactions as they occur, and you can even export them as an attachment for an online tax return. Or you can print them out if you prefer to file a paper tax return. The small fee is worth the reduced stress.
Applying for a new EIN number after leaving a business partnership is one of the many tax mistakes you can make. You may also make it harder on yourself by not learning how taxes work and leaving to the last minute. Tools like Quickbooks make it easier to record transactions.