Failing to plan will likely cause you to fail and just like in everything else in life, the same thing applies to taxes. Be sure to plan and watch out for these 8 tax planning mistakes if you want to avoid tax-time failure.
1. Unorganized Documents - If you’re one of the many taxpayers who find it easier to just pile up receipts in a shoebox or worse, don’t keep track of receipts and tax documents at all, then prepare yourself for a stressful tax-season.
If you want to avoid the possibility of missing out on deductions or incurring penalties for not having the documents that you need to file a correct return, you must keep your important tax documents and receipts filed throughout the year. File them by folders per month or enter the details in a sheet so you won't have a hard time looking for them.
2. Hiring the wrong tax preparer - The ‘wrong’ tax preparer are those who promise the highest refund without knowing their client’s tax situation. They typically will do steps to stretch the rules in order to meet their promise but end up leaving you on the hook for consequences. Sure the dollars signs can be attractive but researching your tax preparer wisely can save you a ton of money more.
3. Failing to adjust your withholding - Getting a significant tax bill along with penalties for a large underpayment will likely become your biggest problem if you didn’t withhold the proper amount of taxes from each of your paychecks. If you can’t do anything to help this year, make sure to adjust withholding for 2018 to prevent problem the following year.
4. Incorrect or missing quarterly payments - If you’re a self-employed individual, you’re supposed to make quarterly payments to the IRS 4 times a year instead of just April 15. Incorrect withholding is what self-employed taxpayers face for sending too little or not sending any payment at all.
5. Delayed filing - Don’t wait until April comes before filing. We understand it’s an unpleasant task to do but it’s happening and nothing can stop it. Avoid delaying your filing as it may give criminal a chance to steal your personal information and file for a fraudulent refund under your name.
6. Forgetting your IP PIN - It’s important that you include your IRS IP PIN your form to avoid delays with paper returns or immediate rejection for e-filing. Remember that IP PIN is different from an e-filing PIN since it can be used regardless of how you file your form.
7. Forgetting Form 1095 - According to the Affordable Care Act (ACA), you must have proof of coverage to avoid a tax penalty. The Obamacare still applies to your 2017 and 2018 taxes despite the many attempts to wipe it out. Depending on your situation, a 1095 form should come from your employer or from a health care exchange. Although the penalty for not having insurance has been removed by the Tax Cuts and Jobs Act of 2017 (TCJA), it does not take effect until the end of 2018.
8. Not being aware of other health care requirements - If you’re a subsidy recipient, under the ACA you’re required to notify the health care exchange of a change in your income or status in order to properly adjust the estimated subsidy. Despite the failure of Congress to pass a repeal in 2017, President Trump is still pushing to dismantle the ACA. An executive order signed by Trump in October reversed some aspects of Obamacare and announced his plan to subsidies meant for health insurance products for low-income consumers. For the tax year 2017, it’s advisable that you stay updated on Congressional actions and how they may affect your health care tax obligations.
9. Not taking advantage of deductions or credits - Are you one of those people who simply assume that you don’t qualify for tax credits or don’t have enough deductions to itemize? You just passed up some significant savings there especially with tax credits that directly subtracts from your tax bill. Remember that you can still take some deductions whether or not you itemize since of those deductions are “above-the-line”
You may not purposely plan to fail but not planning for your taxes means you’re planning to inadvertently fail. Consult a trusted professional and start planning now to make your tax year a success.
