Common Tax Mistakes To Avoid
Posted on Friday, October 06, 2017 Share
If your objective is to pay the least amount of income taxes, then you need to be aware of common tax mistakes. Here are seven to watch out for:
1. Maintaining poor tax records. Don't rely on your memory to keep track of deductions. During the year, accumulate tax receipts and notes concerning deductions in one place.
2. Withholding too much in taxes. When you receive a refund, you've given the government an interest-free loan for the year. Consider reducing your withholding and investing the extra money.
3. Not contributing to your company's retirement plan. Not only will the plan help you save for retirement, but it may also help reduce your current-year tax bill. For instance, for 2017, you may contribute a maximum of $18,000 to a 401(k) plan, or $24,000 if you are at least 50 years old, (unchanged from 2016.) If you're in the 39.6% tax bracket, contributing $18,000 reduces your current-year tax bill by $7,128.
4. Failing to bunch deductions. It only makes sense to itemize deductions if your total deductions exceed the standard deduction amount, which for 2017 is $12,700 for married taxpayers filing jointly and $6,350 for single taxpayers (up from $12,600 and $6,300 respectively, for 2016). In addition, some deductions must exceed certain thresholds - for example, medical expenses are only deductible to the extent that they exceed 10% of adjusted gross income and miscellaneous expenses are only deductible to the extent that they exceed 2% of adjusted gross income.
Note: If you or your spouse is 65 at the end of 2016, the 7.5% still applies for 2016. However, as of 2017, all taxpayers are subject to the 10% threshold).
Many expenditures can be bunched into one year or another to take advantage of these limits. For instance, if your total itemized deductions are slightly below the limit, you might consider prepaying property taxes or state estimated tax payments.
5. Overlooking charitable contributions. In addition to cash and property donations, you may deduct mileage, parking fees, postage, and long-distance phone calls made while performing charitable work.
6. Not considering filing separate returns. In some situations, it may be more beneficial for a married couple to file separately. Once you file jointly, your return can't be amended to file separately, so calculate your tax both ways before filing.
7. Forgetting deductions carried over from prior years. Don't forget about items you carried forward because you exceeded annual limits, such as capital and/or passive losses, charitable contributions, and alternative minimum tax credit.
Posted in Tax Topics For Individuals
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.