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The availability of easy-to-use tax and accounting software has made it commonplace for many young adults to file their own taxes each year. In addition to the savings gained by not utilizing an accountant, tax software helps many millennials save time as well — an important commodity in today’s busy world.
Yet, not using a professional and knowledgeable accountant also means there is an increased possibility for many mistakes to be made. How confident are you when you’re doing your taxes? Here are three common mistakes you may have already made; be sure to avoid them in the future.
Millennials today often receive income from a multitude of sources. In addition to the standard W-2 form, you may receive a 1099-MISC for miscellaneous income garnered through freelance or contract work, and income that isn’t reported at all, such as PayPal payments. You might also have income through investments or the sale of property.
Tax software may ask you about some or all of these situations, but it can be easy to miss one when doing your taxes, especially if you don’t have a hard copy of the payments for your records. It’s important to make sure you account for everything, especially if you plan on claiming expenses, which brings us to our next common mistake.
There’s nothing wrong with claiming a business lunch or two as an expense, but deducting too much can negatively affect your taxes. Almost any expense you claim is subtracted from your total income. If you input too many expenses in an effort to earn a larger tax deduction, it may appear as if you didn’t earn much income at all. You may even wind up with negative income, which can draw the attention of the IRS.
If you do receive income from multiple sources, make sure expenses and deductions are applied to the right source of income as well.
Doing your own taxes means doing a lot of math. You’ll need to calculate a number of different things and input financial figures into the software. Always be sure to check and double-check your math and that all numbers were input correctly. Putting a decimal point in the wrong spot or messing up a calculation completely can greatly affect your taxes.
Overall, there are plenty of advantages to doing your own taxes, but with something this important, you may want to consult a tax professional as an alternative.