When it comes to taxes, most people get a little nervous, and rightly so. Taxes can be complicated for many Americans, and knowing the right strategies can save you tons of money. Unfortunately, most people make at least one of the following common mistakes. Learn what they are now, so that next tax season you’ll be prepared.
1. Are You Paying IRS Notices Without Questioning Them?
You might not believe it, but IRS employees are only human. They are not all-knowing and all-seeing, and on occasion, they do make mistakes. Never blindly pay any notice without rechecking your own calculations. If you believe an error has been made, send a written statement back to the IRS explaining your reasons and enclose a copy of your calculations.
2. Did You Forget to Grab a Receipt When You Made Clothing Donations?
When it comes to making tax-deductible clothing donations, you must be absolutely accurate. Having complete records that are accurate can help you defend yourself in an audit. If your clothing donation is less than $250, you should save the receipt and take a photo of the clothes to keep on hand. Also, if you donate an item or items worth more than $250, these donations have another list of rules.
3. Have You Been Contributing to Your 401(k) Retirement Plan?
If you’ve not been funding your 401(k) plan, this is a mistake for many reasons. For instance, if your company offers matching funds, you’re walking away from free money. Also, 401(k) contributions are assessed before taxes, which means that when you contribute to this type of money saving plan, you’re lowering how much taxes you’ll end up paying on your income.
4. Have You Made Early Withdrawals from Retirement Plans?
If you’re dipping into 401(k) and 403(b) funds to finance things outside of your retirement, you’re going to suffer some financial repercussions. It’s always better to have an emergency fund available to handle unexpected costs, and if your child or grandchild needs college funds, a student loan is the best option for them, because you won’t have similar options during your retirement.
5. Are You Overlooking the Marriage Penalty on Your Taxes?
If both parties in a marriage work and you earn higher than the 15% tax bracket, then the thresholds for higher tax rates are less than double of those for filers who are not married. Of course, if one person doesn’t work, this penalty can quickly turn into an asset.
Lots of people make these mistakes when it comes to taxes, but not knowing any better is no excuse. It’s imperative to avoid these mistakes because they can come with hefty penalties. If you’ve made these mistakes in the past, just make sure you do better going forward.