Approximately 90% of taxpayers pay a professional or use specialized software when filing tax returns. One of the major reasons is that it’s easier, but it’s also more accurate.
Tax planning mistakes are easy to make but can have major consequences. You may get a smaller refund or could even get audited.
Professional help prevents these issues. Read on to learn about 5 common tax planning mistakes and how to avoid them.
1. Filing or Planning Late
Tax planning should always begin before the 4th quarter. You can begin as early as January 24 but must meet the deadline of April 18.
The earlier you begin, the more time you’ll have to gather information about what you’ve earned and what you’ll need to pay. You can also avoid late fees that build up and gather interest every month.
2. Not Having the Right Tax Planning Documents
A proper tax planning strategy requires the right documentation. A simple spreadsheet may be enough at first, but it won’t be able to hold everything as your business grows.
Make sure you always have the right documentation. Use it to keep your finances accurate and up-to-date and keep them all in one place that’s easy for you to access.
3. Improperly Filing Your Income
The IRS uses computers to compare your income with what they have on record.Changes in these numbers can make them suspicious.
A 1099-MISC can be used for payments made for rent, royalties, prizes and awards, and substitute payments in lieu of dividends. A 1099-NE is used if the payment represents non employee compensation. Look them over to ensure you use the proper form and know which numbers to put where.
4. Not Separating Business and Personal Expenses
Taxes for businesses and individuals should be kept apart and filed separately in different accounts.
Keep all receipts, including office expenditures, inventory purchases, and operational expenses, as backup to the transactions going through your accounts. This documentation is vital in the event your business is audited. There are many benefits to keeping these accounts separate, including making it much easier to track business expenses if they are kept separate.
5. Doing It Yourself
Getting professional help is one of the easiest ways to avoid tax planning mistakes. It also has a range of other benefits that make tax season easier. You’ll have more time, money, and peace of mind.
America will spend a combined 6.5 billion hours every year on income taxes alone. A professional can give you this time back.
They may be an investment, but they know how to get you all the money back that you deserve. They can spot income tax deductions or credits you may have missed.
They’ll also help you avoid an audit’s long and stressful struggle. They understand tax law and will make sure you’re compliant.
Where to Find Professional Help to Avoid Tax Planning Mistakes
Tax planning mistakes get more and more common as tax law gets more complicated. A few simple strategies can help you avoid the most common ones.
Make sure to begin early in the year and meet the deadlines. Gather all the necessary documents and fill them in properly, separating your business and personal income. Find a professional to help you get it right.
Parker Business Accounting and Consulting has decades of experience managing business finances.Contact us today for help with tax planning.
Parker Business Consulting & Accounting, P.C. is a unique firm with more than a combined 75 years of experience in private industry, coupled with a strong background in public accounting. This combination enables us to provide valuable assistance based on direct experience with many of our clients’ same issues.