Business & Financial Solutions is a professional firm and our goal is to simplify your life. To assist in our goals we have comprised a list of common assumptions that lead too costly tax mistakes when filing income taxes. Tax mistakes can mean much more than just a computation error. The tax code is long and complex, so it’s not surprising that wrong assumptions about preparing and filing taxes made. Correcting these assumptions or erroneous thoughts could save you money. Here are a few commonly misconstrued facts that can lead to tax mistakes, and the real story.
I CAN PAY WHAT I OWE, WAIT TO FILE MY TAX RETURN
This is not true. Whether or not you can send a payment, tax returns need to be filed by the tax deadline each year to avoid the penalty for failure to file, which is greater than the failure-to-pay penalty.
The IRS offers arrangements for installment agreements and short-term extensions if you can’t pay everything on time. The agency may waive penalties in some cases, but not interest charges on unpaid taxes. If you’re concerned that you can’t pay at all, call the IRS at 800-829-1040, or check out IRS Tax Topic 202, for more information.
IT’S ALWAYS BETTER FOR MARRIED COUPLES TO FILE JOINTLY
This is not necessarily true. Each case is different. Couples who recently lost tax breaks when they bid their dependent children goodbye may now benefit from filing separately. So might a married couple whose income is much higher or lower than last year. In some cases, the savings may be in state, not federal, taxes. So to avoid this tax mistake, ask your tax professional about the cost of comparing the options of filing your return separately and jointly.
I CAN’T CLAIM MY PARENTS AS DEPENDENTS UNLESS THEY LIVE WITH ME
No, this is a common mistake. Your parents can live anywhere. What matters is that you and your siblings pay for more than 50 percent of their living expenses. Adult children can share equally or unequally in that support, but only one child can claim the dependent-care exemption each year. Often the children give the exemption to the sibling who deals most with day-to-day issues, even if she or he doesn’t provide the most financial support. (That child must provide at least 10 percent of total support.) For more guidelines, consult IRS Publication 501.
CPAS CHARGE THE MOST TO PREPARE TAXES
Not necessarily. Certified public accountants, with their extensive training, may be considered the most costly tax professionals. But a national survey of members by the National Society of Accountants, including CPAs, tax experts known as enrolled agents, and other credentialed tax professionals, found that tax-prep fees may have less to do with the preparer’s professional designation than with the size of the firm.
A CANCELLED CHECK IS THE ONLY PROOF NEEDED FOR A CHARITABLE DEDUCTION
This is another mistake. To be eligible for a deduction, any donation of $250 or more requires a donor acknowledgement letter that specifies the amount of cash given and describes any property that was donated. The letter should also state whether the donor received any goods or services from the organization in exchange for the gift. If the letter doesn’t mention the date of the donation, a bank record or receipt will suffice.