14 Tax Mistakes That Could Cost You Hundreds
A CPA shares a list of tax mistakes that he frequently sees people make—and they’re mistakes that could cost hundreds of dollars.
Failing to compare your current year’s return to the previous year
As a CPA, I always remind clients to compare their year-to-year returns. If they come across any unexplained, major discrepancies or changes, it’s a good indication that some piece of information is missing. This is one of the best sanity checks available, yet it’s the one I see used the least.
Check out these 13 secrets an IRS agent won’t tell you about tax planning.
Forgetting about your accounts that deliver statements electronically
As more and more companies to go e-statements, we get more clients coming to us missing information and not even realizing it. That’s understandable since you have to go retrieve the document rather than just getting a letter in the mail. Make a list of what information you expect to receive so nothing is missed.
This is the last year under the old system; the new tax legislation nearly doubles your standard deduction while it eliminates or limits many of the other standard deductions. If you are itemizing this year, don’t forget the following money-savers.
Mortgage interest and real estate taxes are seldom missed since you receive tax documents for them. One exception is when your mortgage was sold or you refinanced during the year. We will regularly find errors where statements are not delivered or do not contain all the real estate taxes paid during the year since so many different banks owned the mortgage.
Personal property taxes paid on vehicles
Even experienced tax accountants can overlook this deduction. You pay these taxes earlier in the year and most municipalities do not send any statements beyond the initial tax bill.
You can learn a lot from the 32 things tax accountants won’t tell you.
Don’t forget charitable deductions
People often leave out their charitable contributions (especially non-cash donations), miles they drove for charity, and smaller cash donations. Depending on the year, this can help immensely in reducing your bill.
Failing to maximize your retirement plan contributions
Whether you choose a traditional (pre-tax) or a Roth (post-tax) option, your retirement plan contributions all have major tax advantages—especially if you are eligible for an employer match. Not utilizing them will cost you: A small amount of money in the short-term, but a huge amount down the road.
You can use this timeline to guide your retirement planning.
Try to keep your income steady
Sometimes you don’t have a choice, but you should always avoid having huge spikes and dips in our income. Since the U.S. tax system is progressive, higher earners pay much larger rates than people who earn less. If you need to tap a retirement plan due to an income dip, taking out $50,000 over six years will be far less costly than taking $300,000 in one year.
Not utilizing Flexible Spending Accounts (FSAs)
Some employers allow you to contribute to FSAs—both for dependent care expenses and for healthcare. These payments come out pretax, thereby automatically reducing your taxable income. These are great tools, especially for medical costs since health care expenses are exceedingly difficult to deduct.
Check out these new deductions—and reductions—under the new tax law.