Don’t Make These Common Tax Mistakes!
Every spring the tax man cometh. You want to be ready so you don’t make common tax mistakes and make your life harder and your wallet lighter!
With so many demands on our time its all too easy to put off filing our taxes until the last minute. Here are reasons that this could be a costly mistake for you.
Waiting to file
There are several reasons why taxes aren’t something to procrastinate until the last minute. First, you never know when your tax return may end up being more complicated than you thought. You might need additional paperwork or other information or even need to switch from using software to hiring a professional tax preparer. In that case, you’ll want time to find the right person rather than whoever happens to be available during the busiest time of tax season.
Second, the only thing worse than owing a large sum to the IRS is finding out just before the payment deadline that you aren’t able to make the payment. You’ll then be subject to interest and penalties as well. By filing early, you’ll have more time to save up or otherwise get cash to pay your tax bill.
If you get a refund, filing earlier lets you get your money back sooner and put it to work for you. You also often need a tax return if you apply for a mortgage or have a child applying for financial aid. Getting it done early gives you a head start on filing those forms too.
Finally, one of the most common forms of identity theft is for someone to file an income tax return in your name and run off with the refund, leaving you stuck explaining to the IRS why everything on your return is wrong. Unlike other forms of identity theft, this can’t be prevented by a credit freeze and it won’t show up in credit monitoring because no credit is involved. Your best bet is to file your return before someone else can file it for you. – Forbes
Is It Possible To Save Too Much?
It is if you are contributing your savings to a Roth IRA. Take a look at how this can happen so you can avoid it before it costs you!
You are allowed to contribute up to $5,500 in total to all of your traditional and Roth IRAs, plus $1,000 if you’re age 50 and over.
There is a catch, however.
How much you can save in a Roth IRA is based on your filing status and your modified adjusted gross income — that is, your adjusted gross income on your Form 1040, plus certain deductions that you take. This restriction applies only to Roth IRAs, not traditional IRAs.
Taxpayers may find that they inadvertently contributed too much to their Roth IRAs during the year if they end up with more income than they expected…
…”You thought your income would be low enough that you’d qualify for the Roth contribution and now you have to undo it,” said Tim Steffen, director of financial planning at Robert W. Baird. “This is when the skeletons come out of the closet.”
If you leave the excess contribution and earnings in the account, you’ll begin racking up excise taxes to the tune of 6 percent per year until you rectify the issue. You’ll also have to file Form 5329 to report the outsized contribution or else face penalties.
“Form 5329 is considered its own tax return, so the IRS can hit you with a failure to file penalty, plus accuracy-related penalties,” said Levine.
Ideally, you’ll want to address the excess contributions, plus earnings, before the due date of your tax return — April 18 this year. – CNBC
Have you started getting ready to file your taxes?