Tax season. That dreaded time of year when we have to pull all of our paperwork together, crossing our fingers that we won’t receive the bad news—you owe money to the Internal Revenue Service (IRS) or to the state where you live and work. But here’s the thing. Tax season doesn’t have to be stressful. And it doesn’t always mean you have to pay in.
With a bit of preparation and avoiding some common mistakes, getting your taxes done can simply just feel like another day. In this article, the team at Credit Central will talk about the risks of procrastination, how to make the most of your deductions and credits, how to organize your financial records, and more.
So without further ado, let’s get to it.
Mistake # 1: Procrastinating until the last minute
We’ve all put things off before, especially when the task at hand feels overwhelming. However, delaying your tax preparation can lead to more stress than it’s worth. When you rush to file at the last minute, there’s a higher chance of making mistakes—like incorrect calculations, missing signatures, or omitting important details. Additionally, procrastination often means you could overlook deductions or credits that might save you money. Taking the time to get everything in order well ahead of the deadline helps you avoid these costly missteps.
Instead of scrambling, focus on being proactive. Here are some practical steps to help you stay ahead of tax season:
Start organizing documents early: Collect your W-2s, 1099s, and receipts for deductible expenses as soon as they become available. Designate a folder or digital space specifically for tax-related documents.
Set a timeline for gathering necessary paperwork and filing: Break the process into manageable tasks with deadlines, such as compiling income statements one week and tackling deductions the next. This approach helps you maintain steady progress.
Use reminders or digital tools to stay on track: Calendar apps or simple phone alarms can prompt you to work on your taxes incrementally, making the overall process feel less overwhelming.
Mistake # 2: Overlooking tax deductions and credits
There are a lot of ways that you can reduce your taxable income or reduce the amount of money you pay in taxes. These things are referred to as tax deductions and credits. Missing out on these opportunities can leave you shelling out more money than you need to.
Here are some of the most commonly missed opportunities.
Student loan interest: You may be eligible to deduct a portion of the interest you paid on qualifying student loans, which can reduce your taxable income.
Child tax credits: If you have dependents, the child tax credit can provide valuable savings based on your income and family size.
Home office expenses: If you work from home, a percentage of your household expenses, such as utilities or rent, might qualify for a deduction if you have a dedicated office space.
Charitable donations: Contributions to qualifying organizations, whether monetary or in-kind, can be deducted if you keep proper records and receipts.
Energy-efficient home upgrades: Installing solar panels or making other approved energy-efficient improvements to your home may qualify for tax credits.
Making the most of these deductions and credits requires preparation and attention to detail.
Tips to avoid missing out on tax savings
Keep detailed records: Save receipts, invoices, and confirmation letters for any qualifying expenses or donations.
Stay informed about eligibility requirements: Research the criteria for deductions and credits you think might apply to your situation.
Review past tax returns: Look at previous filings to identify deductions or credits you might have overlooked in the past.
Consult a professional or use tax preparation software: These resources can help identify opportunities you might miss when filing on your own.
Mistake # 3: Failing to organize financial records
While tossing all of your receipts and tax-related items into a drawer throughout the year is better than nothing, it is best to be a bit more organized. Disorganized records can make it difficult to locate important documents, delaying your filing process and increasing the chance of inaccuracies. Errors on your tax return could lead to additional headaches, such as amendments or even audits. By staying organized, you’ll save time and reduce the potential for mistakes.
Here’s what you’ll need.
W-2s: For employment income.
1099s: For freelance work, dividends, or other miscellaneous income.
Receipts for deductions: Keep track of charitable donations, medical expenses, and other deductible items.
Investment documents: Include statements for stocks, mutual funds, and retirement accounts.
Prior year returns: Reference these to avoid missing recurring deductions or credits.
Taking the time to organize your records throughout the year can simplify your tax preparation process.
Suggestions for keeping your tax documents organized
Use a dedicated folder or digital system: Whether physical or digital, designate a specific space for all tax-related documents.
Double-check for missing forms before filing: Review your checklist to confirm you have everything you need before starting your return.
Mistake # 4: Misreporting income
If there is one big no-no that we can alert you to—aside from failing to file your taxes altogether— it’s that misreporting income is a bad idea. Providing inaccurate information on your return can result in IRS audits, penalties, or even legal consequences. The IRS cross-checks reported income against the information they receive from employers and other sources. Any discrepancies can raise red flags, potentially leading to delays or additional scrutiny.
Here are some of the things you could easily forget.
Forgetting about freelance income or side gigs: Even small amounts earned through freelancing, gig platforms, or contract work must be reported.
Misreporting investment gains or rental income: Income from stocks, bonds, or rental properties must be accurately calculated and declared.
Overlooking other taxable income sources: This includes lottery winnings, gambling income, or any other non-traditional earnings.
To avoid these pitfalls, take the time to thoroughly review your income sources and compare them with received forms like W-2s or 1099s.
Here’s how to make sure your income is reported accurately.
Review all income sources and cross-check with received forms: Verify that you’ve accounted for all income streams listed on your tax documents.
Mistake # 5: Not planning for your tax bill or refund
Failing to plan for your tax bill or refund can create unnecessary financial stress or result in missed opportunities. If you owe money and don’t have a strategy in place, it can strain your budget or lead to penalties for late payments. On the other hand, receiving a refund without a clear plan might tempt you to spend it impulsively rather than using it to improve your financial situation.
Here are some suggestions to keep you on top of things.
For balances owed: Set aside funds throughout the year to cover potential tax payments or explore payment plan options to spread out the cost.
For refunds: Decide in advance how to use the refund wisely, such as paying down debt, contributing to an investment account, or boosting your savings.
Prepare for Tax Season with Confidence
Tax season doesn’t have to be overwhelming. By avoiding common mistakes like procrastination, overlooking deductions, or misreporting income, you can make the process quite a bit more manageable.
